Binder Vol. 44 No. 3 Summer 2019 by Aviation Insurance Association

VOL. 44 NO. 3 - SUMMER 2019

JIM GARDNER FOCUS ON MEMBERSHIP

AVIATION INSURANCE MARKET SET TO TIGHTEN BUSINESS AIRCRAFT EXPENSE REIMBURSEMENT

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IN THIS ISSUE Editor John Murray

Murray, Morin and Herman

President’s message

YOUNG PROFESSIONALS RECAP

ASHEVILLE CONFERENCE

EDUCATION UPDATE

AVIATION HISTORY

INTERNATIONAL NEWS

CAIP EXPANSION

BUSINESS AIRCRAFT EXPENSE REIMBURSEMENT

AVIATION INSURANCE MARKET SET TO TIGHTEN

AIA SAFETY COMMITTEE

AGENT/BROKER REPORT

CLE & WOMEN’S INITIATIVE

HARD MARKET SELLING

ATTORNEY DIRECTOR’S REPORT

The ideas and opinions expressed by authors of articles published in The Binder are wholly their own and do not necessarily represent those of the Aviation Insurance Association. The articles are not provided as legal advice.

WWW.AIAWEB.ORG

Published by the Aviation Insurance Association 7200 W. 75th St. Overland Park, KS 66204

PRESIDENT’S MESSAGE JIM GARDNER - AIA PRESIDENT, The James A Gardner Company Inc.

Focusing on

Membership The Past, the Present, and the Future

t is an honor and privilege to be selected to serve the Association as President for the next two

years. Sixteen years ago, having just given up my 30 year Aviation career for Lent, I attended my first AIA conference as a 52 year old rookie looking for a new career. What I found were men and women from every aspect of the Aviation Insurance world, freely sharing their knowledge and ideas, making friends and business contacts, as well as having a good time doing it. I knew right then and there, that if I was going to build a new career in the aviation insurance business, this was the organization I needed to be associated with and the people I wanted make friends with and learn from.

“Learn from the mistakes of others. You can’t live long enough to make them all yourself.” Eleanor Roosevelt. Since the Wright Brothers, flying and aviation has developed, grown and prospered through the willingness of those that loved to fly, to share their successes as well as their failure. That same spirit and love for aviation has been carried from the cockpit to the aviation insurance world, largely through the AIA. Without the pioneers of the Association unselfishly giving freely of the time, energy, and ideas, we wouldn’t have thrived.

This is a member driven organization. And, more than that, it is a volunteer driven organization. Because of the unselfish efforts of every volunteer, the AIA annual conference remains the best place in the world to

meet industry leaders, improve our knowledge, and build on our careers. In addition, we have truly become an international organization. The biannual London Reception and now the new Toronto Reception are good examples of how the Association has reached beyond our origins. The expansion of the CAIP designation to include our European and Canadian colleagues is further evidence of how we are growing and becoming more important to the careers of our members. Again, none of this would have happened without the tireless volunteer efforts of our membership.

The Future is Now! While the conference will always remain the pinnacle of our Association - the center piece of learning and getting business done - we are seeing the need to grow beyond the conference itself. Technology is giving us new opportunities to reach the Aviation Insurance Community at large that may never attend a conference. We have made so much progress over the past several years. Our magazine, the Binder, is a great publication, available in both print and electronic versions. Our AIA owned textbook, “Core Principals and Concepts” is now in its third revision. We will be holding two more weekend CAIP courses in 2019 - Atlanta in September, and for the first time, London in November.

Build it and they will come. We have a goal of attracting an additional membership base of 1000 new members who might never go to a conference. This won’t happen overnight and it certainly won’t happen unless we improve the membership value proposition beyond the conference and “in Person” education programs.

through Webinar in 2020. We also want to look for better solutions to providing new and improved educational opportunities through the website as well as the potential to revive a self-study program for the CAIP designation. To help our outreach efforts we have formed two new committees – Membership and Safety. The Safety Committee is comprised of AIA members who are from Underwriting, Claims, Agents & Brokers, Attorneys, Aviation Safety Organizations as well as the NTSB, FAA. Their mission is to create a dialogue addressing safety and risk management challenges and their impact on aviation insurance. There is the potential of developing an AIA Aviation Safety Forum. The Membership Committee is being created to develop outreach programs and explore opportunities to increase the services and information the AIA can provide our membership. Two important initiatives within the membership committee are– the Young Professional Initiative and the Women in Aviation Insurance Initiative. As our Pioneers are slowly fading into the sunset we are attracting younger professionals to fill leadership positions. We need to attract more. We need their ideas and help to change with the changing times so that we are always in tune with our membership. And, if I have not said it before… to all our members who have helped make the Aviation Insurance Association a first class organization, whether it is through your volunteer efforts or financial support - THANK YOU! We couldn’t, and wouldn’t want to do it without you.

Through a partnership with the University of Mississippi, we hope to hold our first Core Principles weekend course

EDUCATION COMMITTEE UPDATE

JOHN CUNNINGHAM - AIA Education Committee Chairman

he furtherance of education and professional development of our members is the Education Committee’s primary purpose. To that end one of the major goals of the AIA Education Committee is the continuous improvement of the ‘Core Principles and Concepts Course’. Over the last two years many of our committee members have spent a tremendous amount of time and energy to review and edit each course module for the updated textbook in 2019. Thanks to the efforts of our team, the updated book has been completed and will be unveiled at the ‘Core Principles and Concepts Courses’, in Atlanta, GA September 13-15. 2019, and for the first time, in London England November 5-7, 2019. We also recognize that industry changes will necessitate dedication to keep the material fresh

and up to date. To accomplish this goal there will be a biennial review of the textbook during 2020 for unveiling in 2021 and so forth. In addition to the course content updates, there have been several initiatives by the Education Committee to help the Association expand course delivery options as well as our geographic reach. Another major accomplishment during 2019 was the completion of the ‘International Course Equivalents’ study and the resulting addition of Canada and the UK. This allows insurance professionals in the two countries to attain their CAIP designation and obtain a distinction that has been here-to-fore unavailable. We thank Nancy Gratzer and Belinda

Bryce for their tireless effort on this project. The committee is definitely on a roll in our international out-reach endeavors. “Which country will be added next?” As respects the Attorney’s Division there was recent discussion and survey of those members to determine the interest of adding the CAIP Designation to their CV. We understand that there was significant number of Attorneys who would be interested in attaining their CAIP. Awesome! Stay tuned for further details. The committee presented the AIA Board of Directors with a proposal to create a remote ‘Core Principles and Concepts Webinar Course’. The proposal received unanimous approval from the Board, and we expect the first class to be in early 2020. The University of Mississippi has offered AIA the use of their facilities, currently used for their Master of Laws (LLM) Air and Space program. Our program would be conducted at the University and participants could attend in person or remotely. Remote participants would be required to have a laptop with a camera and microphone (standard equipment). The on premises participants and professor(s) would also appear on camera with microphones, enabling full participation from all. The University indicated an interest in partnering with industry organizations in an on-going relationship. The University is willing to offer use of their facility for the minimal cost of a technician’s hourly fee (~$20.00/hr). Their only restriction is that the dates of use not coincide with any football games (parking issues). The AIA must seek full approval before moving forward. Hopefully, this is just a formality, as our President, Jim Gardner and Laura Heft, Esquire, will be traveling to Oxford, MS to close the deal soon. Thanks to Laura Heft for her

diligent efforts in putting this program together. FYI, in Oxford, when a person yells out the phrase “Are you ready?” this is the beginning of an Ole Miss cheer, known as “Hotty Toddy.” On cue, hundreds of fans reply, “Hell Yeah! Damn Right!”. The Education Committee may adopt this cheer if approved by Ole Miss.

Next up will be the start of a self-study ‘Core Principles and Concepts Course’. The AIA Board of Directors have approved and are very interested in moving forward with a self-study course option. We would charge a fee of $350 for books and tuition and the student would have one (1) year to complete the self-study course, concluding with a proctored exam.

All of the programs discussed here are designed to further the AIA ‘Excellence In Education’ initiatives.

Congratulations to our

CAIP 2019 recipients

We expect that these cutting-edge programs will have a significant impact on the number of CAIP’s through the development of an expanding student universe. Through these expanded options, AIA will offer our students ease of enrollment, reduced cost (no travel expense), and efficiency of time. The AIA will be the premier aviation risk management education entity in the world. Finally: Congratulations to our CAIP 2019 recipients: Timothy Bonnell Jr., Aeris Insurance Solutions; Matthew Feltner, Willis Towers Watson; Bennett Goldblum, Beacon Aviation Insurance Services, Inc.; Chris Howard, Sterling Aviation Markets, Inc.; Andrew Johnson, Old Republic Aerospace and Casey Smith, McGriff, Seibels and Williams, Inc. The AIA needs to add additional instructors for the ‘Core Principles and Concepts Course’. At the current moment we have three instructors: Doug Johnson, Tim Bonnell, and Eric Barfield, and we thank them all for their hard work and dedication. Please think of serving your association in a professorial position. The commitment is limited, and you and your association will be glad you did. Give me a call to discuss if you are interested.

Timothy Bonnell Jr.

Aeris Insurance Solutions

Matthew Feltner

Willis Towers Watson

Bennett Goldblum

Beacon Aviation Insurance Services, Inc.

Chris Howard

Sterling Aviation Markets, Inc.

Andrew Johnson

Old Republic Aerospace

Casey Smith

McGriff, Seibels and Williams, Inc.

The Possibilities are Endless

A Partnership That is Ready to Take Flight Our partnership has the expertise to help you manage and overcome your largest and most complex risk and insurance challenges. With industry specific specialties and powerful program development capabilities, experience does make a difference.

The AIA

Safety Committee MARK BREITENBACH - AXA XL Insurance - Practice Leader, Aviation The AIA Board created the AIA Safety Committee in 2019 to further the interests of the aviation insurance community, through the combined efforts of insurers, operators, brokers and government. The Committee is comprised of numerous volunteer members, and I have the privilege of having been asked to serve as the inaugural chairperson. Our Committee members include: TED GREEN, AIG - CLAIMS

DON CHUPP, FIRESIDE PARTNERS – OPERATIONS

ROB LITTLE, AIR SAFETY DYNAMICS – OPERATIONS/ SAFETY

BRYANT DUNN, GLOBAL AEROSPACE - UNDERWRITING CHRIS FOSTIAK, HAYS AVIATION – BROKER

MANDIE LOROFF, AIA - EXECUTIVE DIRECTOR AMANDA FERRARO, AVIATION SAFETY SOLUTIONS – OPERATIONS/SAFETY

BENNET WALSH, INTERNATIONAL BUSINESS AVIATION COUNCIL – OPERATIONS/SAFETY TED DUNLAP, NATIONAL TRANSPORTATION SAFETY BOARD – REGULATORY/SAFETY

MARK BREITENBACH, AXA XL - CLAIMS DOUG TIBBS, AXA XL - UNDERWRITING

STEVE BRUNEAU, POLARIS AERO – OPERATIONS/ SAFETY

JASON STARK, BALDWIN AVIATION – OPERATIONS/ SAFETY DON BALDWIN, BALDWIN AVIATION – OPERATIONS/ SAFETY JAMES POE, FEDERAL AVIATION ADMINISTRATION – REGULATOR/INSURANCE

DANIEL MOLLICONE, PULSAR INFORMATICS – OPERATIONS/SAFETY PETER GUY, QBE NORTH AMERICA - CLAIMS STEVE ALLEN, QBE NORTH AMERICA - UNDERWRITING JIM GARDNER, THE JAMES A. GARDNER CO. - BROKER

The goal of the AIA and the Committee is to foster long-term cultural change in our industry, as set forth in our Mission Statement: 1. The AIA Safety Committee is an autonomous Standing Committee comprised of a unified group of insurance and safety professionals authorized by the AIA Board to promote a culture and awareness of safety and risk reduction in the aviation insurance industry, that transcends competition, for the benefit of all.

2. Develop educational programs for AIA members and affiliate/associate members – underwriters, brokers, claims, attorneys, risk managers, vendors and service providers – to advance safety and risk reduction as it impacts aviation insurance. 3. On behalf of the AIA, the committee shall act as an ambassador for Safety awareness to the aviation community.

Perhaps the most critical components of the Mission Statement are the ideas that advancement of safety can and should transcend competition, and that we achieve this critical cultural change through education. The risks we insure and the government through its regulatory bodies have advanced cultural change and aviation safety for decades, as evidenced by the significant reduction in accidents and fatal accidents through education, crew resources, technology, regulatory enforcement, etc.; whereas the aviation insurance community, for a variety of reasons, has often stagnated with respect to safety in its quest for profitability. We can all point to market influences such as capacity, competition. low interest rates, the lack of tort reform, the commoditization of aviation tort litigation, etc.; but we cannot ignore the fact that our industry sometimes suffers from a lack of common business sense when it comes to pricing, product, limits, risk aversion, and expectations as these relate to aviation safety and, yes, profitability. If a path to greater profitability is to advance safety to minimize accidents, what can – or must – we do as an industry to achieve this goal? The Safety Committee will study these questions across all aspects of our industry – underwriting, claims, broking, and reinsurance; and with time and dedication develop solutions, through education, that one day we hope will transcend competition. If any AIA member from any discipline has any ideas or would like to contribute to this effort, we would welcome your input. Please do not hesitate to contact me or any other Committee member at any time.

pilots, mechanics, dispatchers and aircraft managers, all of whom have direct impact on the safety of their flight operations. For those who attended the recent conference in Asheville, you may have seen Committee members Amanda Ferraro and Chris Fostiak make a CE presentation on the effects of the pilot shortage on our industry. In our first education opportunity, the Committee will make a companion presentation at the GBAA Safety Day on August 29, 2019. We are pleased to have been asked to present at the Safety Day and a shout out to Greg Sterling and Cam McCune at AIG for making this happen. Amanda and Chris will again present, and Committee members Ted Green and Steve Allen will also be on the panel. For those of you in Atlanta, we hope to see you there. In closing, I’d like to extend my sincere thanks to all Committee members for the significant time they have spent on the AIA’s efforts to launch the Safety Committee and to advance safety in our industry. We all have day jobs and the contributions put forth by the Committee members demonstrate their individual commitments to our stated goals. Many of you believe our industry’s health and survival depend on the cultural change required to achieve profitability, which in large part is dependent on safety of the operators and risks we insure. Hopefully, through a better understanding of the challenges the aviation industry faces we can make strides toward a goal of reducing the severity and frequency of accidents.

As an example of how we intend to further our Mission Statement, we are pleased to report we will be making a safety related panel presentation at the Georgia Business Aviation Association (GBAA) annual Safety Day. Our audience will primarily be

CLE & WOMEN’S INITIATIVE

IN ASHEVILLE W

e had our kick-off meeting for the new Women’s Initiative at the Annual Conference at the Grove Park in Asheville this

past May. We enjoyed a breakfast with a group of women that are enthusiastic and engaged in our new initiative and in encouraging participation and leadership within the AIA. We are excited to get this effort going and appreciate all the support that we have received from AIA Board of Directors.

NICOLE STOUT - Director AT LARGE

One program that we would like to implement for next year’s Annual Conference in Tucson is a mentoring program. The idea would be to match up mentors with first-time attendees to the Annual Conference. The mentor would

The next Binder will also include a new section

serve as a personal Welcoming Committee on

for spotlighting women in the aviation indus-

behalf of the AIA. The mentor could help the

try that are making a difference. Our members

attendee make connections and explore oppor-

include preeminent leaders in the aviation in-

tunities for becoming more engaged in AIA. To

surance industry, and we want to introduce

make this happen, we need some of our veteran

our membership to them. If you would like to

members to step up and help out! If you would

recommend someone for this spotlight, please

be interested in serving as mentor for next

send the nomination to Mandie Loroff.

year’s Annual conference, please reach out to Mandie Loroff directly.

Finally, if you were not at the kick-off meeting in May but would like to become involved in the Women’s Initiative, please let us know and we will add you to our group for future communications and meetings.

YOUNG PROFESSIONALS ASHEVILLE 2019

[RECAP]

LUKE UITHOVEN - Kimmel Aviation Insurance Agency, Inc If you attended the AIA in Asheville this year, you couldn’t help but notice that the unofficial theme of the conference was focused on the next generation of aviation insurance industry professionals. Whether it was the Sunday CIE sessions, the Monday morning Key Note speakers, or even during the social events, the talk was centered on the next generation. Questions like these were all discussed during the conference - “What does that person look like personality wise? How do we interact in the workplace with that person? What is that person’s expectation in the workplace? Most importantly, are we ok with that person having ideas outside of the box that may revolutionize what we are doing?” It was fascinating to hear the discussion from different generations of this industry’s current professionals. Also, we held our first Young Professionals Social Hour on Friday, May 3rd, as the conference was kicking off. We had about 30 people show up, across all groups of the AIA – agents and brokers, attorneys, underwriters, and claims. We networked with new faces and old friends, and the whole AIA Board showed up in support of the group. The Social Hour not only created friendships for the rest of the conference, but has allowed continued networking afterward. We look forward to more AIA events this fall with the Atlanta Core Principles Class followed by the London Conference in November and another Social Hour in Tucson next May. We are excited to see the Young Professionals of this industry participating in these events and taking advantage of all that the AIA has to offer throughout the year.

Core Principles & Concepts

ATLANTA

ONLINE REGISTRATION NOW OPEN! Sept. 13 â&#x20AC;&#x201C; 15, 2019

LE MERIDIEN ATLANTA PERIMETER Aviation Insurance Core Principles and Concepts, the new course written by aviation insurance professionals for aviation insurance professionals and taught by industry leaders is now available! This new course will replace the Aviation Insurance 101 and Aviation Insurance and Risk Management courses. If you wish to earn the Certified Aviation Insurance Professional Designation, you MUST take this course.

REGISTRATION The cost to register for the class is $600 and $150 for the final exam if you are a member of AIA. If you are NOT a member of AIA, the cost to register is for the class is $950 and $350 for the final exam. MEMBERSHIP DUES ARE $140.

HOTEL LE MERIDIEN ATLANTA PERIMETER 111 Perimeter Center West Atlanta, GA 30346

WHAT’S INCLUDED WITH REGISTRATION • • • • • •

ALL COURSE MATERIALS ELIGIBILITY FOR UP TO 16 CIE CREDITS IF YOU NEED CREDITS IN A SPECIFIC STATE, PLEASE CONTACT AIA HEADQUARTERS THIS COURSE IS ELIGIBLE FOR ADJUSTERS CREDITS IN SOME STATES! BREAKFAST, LUNCH AND REFRESHMENTS COMPLETION OF THE COURSE IN A WEEKEND WITH FACE-TO-FACE INSTRUCTION BY THE COURSE CREATORS

MODULE MODULE 1: Course Intro & Preview Case Study This module will discuss the overall objectives of the course and introduce the case study scenario that will be referenced throughout the course.

TIME

HOURS

MODULE

TIME

HOURS

This session will discuss the commercial general liability policy, how it is modified to adapt to the unique requirements of the aviation industry and the various coverages available under the CGL policy form.

8:00 – 9:30 AM

1:30

Break

9:30 – 9:45 AM

0:30

MODULE 6: Continued

9:45 – 11:15 AM

1:30

Lunch

11:15 – 12:15 PM

MODULE 6: Aviation CGL Insurance 8:00 – 9:00 AM

1:00

MODULE 2: Industry History & Overview This session will provide a brief overview of the beginnings of the insurance industry along will a timeline of significant events in the development of the aviation line of coverages specifically.

9:00 – 9:30 AM

Break

9:30 – 9:45 AM

MODULE 7: Related Aviation Coverage

9:45 – 10:45 AM

This section will present other aviation policy coverages needed by most commercial aviation operators to include workers compensation, property insurance, business auto, etc., all in the context of the aviation operator.

0:30

MODULE 3: Aviation Risk Management This session will provide the student with an overview of the risk management process, the tools used to identify risk and the various methods utilized to deal with risk in the aviation industry.

MODULE 4: Aviation Insurance Law & Contracts

1:00

Break

1:30

1:45 – 2:00 PM

MODULE 8: Claims

This module will discuss contract law and how and why contracts are utilized in the aviation industry as a risk transfer method.

10:45 – 11:45 AM

Lunch

11:45 – 1:00 PM

1:00

This section will focus on actual claims scenarios provided by aviation claims managers from around the industry to see how the aviation coverage responds to a particular accident or incident. Helpful best practices are shared so that risk managers and aviation insurance professionals can prevent claim problems. Break

MODULE 5: Hull & Liability Insurance This module will delve specifically into aviation insurance policies and discuss the important differences between those contracts and the more standardized ISO contracts used in other industry segments. It will also point out the differences between policy wordings and how they can affect coverage.

12:15 – 1:45 PM

2:00 – 3:30 PM

1:30

3:30 – 3:45 PM

COURSE RECAP / Q&A 1:00 – 2:30 PM

1:30

Break

2:30 – 2:45 PM

MODULE 5: Continued

2:45 – 4:45 PM

2:00

DAY ONE RECAP / Q&A

4:45 – 5:45 PM

1:00

This time is set aside to review the course material and work with students in applying the principles and concepts presented to an actual business such at the one presented at the beginning of the course. The focus is on risk identification, and both insurance and non-insurance solutions available to deal with the risk.

3:45 – 5:45 PM

2:00

Aviation Insurance Association

SAVE THE DATE

London RECEPTION ‘19 November 7, 2019 If you are an international insurance professional, or if you are working in the states and want to learn more about the issues impacting the aviation insurance industry on an international level, join us for the 2019 AIA London Conference. This is an incredible educational and networking opportunity, and the best part is, REGISTRATION IS FREE! This event is at NO COST to attendees and is open to both members and non-members of the Aviation Insurance Association. The only requirement is you must register for the event with AIA in order to meet security measures at Lloyd’s of London. Pre-registration for the event closes on October 31, 2019.

Registration To register, visit the AIA Web site at www.aiaweb.org and follow these steps: • Click on the Conference button • Click on the London Conference button • Use the “Register Now” link on that page There is no fee to attend the session or cocktail party, but you must register by October 31, 2019.

Location LLOYD’S OF LONDON 1688 Room One Lime Street London

Sessions and Speakers

5:00 – 6:30 p.m. The Impact of the Pilot Shortage on Aviation Insurance Worldwide

4:30 – 5:00 p.m. Registration and Arrivals

5:00 – 5:15 p.m. Presentation on the demographics of the Pilot force as it exists today and what it might look like in the future.

5:00 p.m. Welcome, Jim Gardner, AIA President

core principleS course

London NOVEMBER 5 – 7TH, 2019

For More Information Aviation Insurance Association 7200 W. 75th St Overland Park, KS 66204 913-627-9632

Munich Re UK Services Limited Plantation Place 30 Fenchurch Street London EC3M 3AJ

mandie@aiaweb.org

5:15 – 6:15 p.m. Moderated panel discussion with an Underwriter, Aircraft Operator, Training Representative from Flight Safety or CAE or other, and a Broker.

6:30 – 8 p.m. Closing Remarks & Cocktail Reception Relax and unwind with your peers during the closing networking reception.

6:15 – 6:30 p.m. Q&A

CAIP Program Expands to Include Canadian and UK Equivalents T

he AIA Education Committee is pleased to announce the expansion of the CAIP designation to include international course equivalents for CAIPâ&#x20AC;&#x2122;s CPCU requirements as not all international members pursue CPCU courses. The expansion of this program will enable AIA members working in the international markets to earn their CAIP designation while maintaining the integrity of the CAIP designation for current and future designees. AIA will offer the Aviation Insurance Core Principles and Concepts Class in London, November 5-7 prior to the 2019 London Reception. The final exam will be given the morning of Nov. 7th.

CANADA

The Chartered Insurance Professional (CIP) designation will be accepted as the equivalent of the CPCU Courses.

The CII Level 4 Diploma in Insurance will be accepted as an equivalent of the CPCU courses. The CII Level 3 Certificate in Insurance will be accepted, provided the participant also completes the courses highlighted below from the optional units list at the right.

Courses Required for CII Level 3 Certificate in Insurance Must pass 1 compulsory course: • IF1 Insurance, Legal and Regulatory

OR pass BOTH of the following compulsory courses: • LM1 London Market Insurance Essentials • LM2 London Market Insurance Principles and Practices

Then choose additional courses from the list below to bring total credits to 40 - including the compulsory unit(s) credits above. IF2 General Insurance Business IF3 Insurance Underwriting Process (or alternatively Il0) IF4 Insurance Claims Handling Process IF5 Motor Insurance Products IF6 Household Insurance Products GR1 Group Risk R05 Financial Protection LM3 London Market Underwriting Principles Other units from within the CII insurance framework

CII Credit Value

CPCU Equivalent

As substitute for CPCU 530

10 15

As substitute for CPCU 530

15 15

As substitute for CPCU 520 As substitute for CPCU 552

15 15 15 10 10 15 5-50

Estimated Study Hours Required for Certificate: 160-200 Total Please note. If the candidate took other courses to complete their CII coursework (for example, IF6 and IF9). They would be required to complete IF2, Ill, and either IF3 or I10 in order to consider as equivalent to our CPCU or CIC courses.

We’re Here for You. Every day, across the globe, our team strives for one thing – to exceed our clients’ expectations. We are experts in both commercial and general aviation loss adjusting and risk management services. With proven capabilities handling a range of aviation claims, our professionals provide proven technical solutions and premium-level service that deliver value and earn trust. With offices around the world, we have a global reach and local presence to respond quickly, when our clients need it most.

Quality solutions. World-class service. That’s our commitment to you. That’s McLarens.

GENERAL AVIATION

mclarensaviation.com

aviation history

Insurance Considerations of

Business Aircraft Expense Reimbursement ALEX WELLS - AIA Education Consultant

he declarations page of an aircraft hull and liability police contains a section entitled “Purposes of Use” or “Aircraft Use”. Two common terms used to denote non-commercial use of the aircraft are found here: “Business and pleasure” and “Industrial Aid”. “Business and Pleasure” applies to individually-owned aircraft used for the owner’s personal purposes. The term “industrial aid” applies to corporately-owned aircraft-used for the transportation of employees, business associates, and executives-which are flown by professional pilots hired on a full-time basis solely for that purpose. Both uses-industrial aid and business and pleasure-specifically exclude any flights for which a charge is made. In some policy language this is referred to as “financial profit” or “payments made by others”. This article discusses the frequent practice

of reimbursing business aircraft operators for expenses, and offers ways to avoid uninsured losses if an accident occurs during such a flight.

The Exposure Many insureds accept payments from friends, employers, and other companies merely to recoup operating expenses. For example, an affiliated business may pay the aircraft owner (whether an individual, partnership, or corporation) enough to cover fixed expenses such as hangar fees, insurance, fuel, oil, and maintenance, plus a sum to cover the amortization of debt. Unfortunately, these arrangements are dangerously incomplete if the insured’s aviation policy does not clearly allow these payments. Insurers do not necessarily require funds to change hands to deny coverage; the intention to charge for the flight by making an accounting entry is enough for some insurers to deny payment.

For example, many individuals operate owned or leased aircraft that are flown for company business purposes. This can range from a pleasure trip with a client in which all or simply direct operating expenses are shared, to a formal arrangement with an employer (written or oral) in which the individual is reimbursed upon submitting expenses for the business trip. In the event of an accident, the insurer, upon delving into the particulars surrounding the flight, may deny payment because a charge was being made-before or after the flight.

charge is made for the flights conducted under that arrangement other than the charges made for the following. • Fuel, oil, lubricants, other additives • Travel expenses of the crew • Hangar and tie-down costs away from the aircraft’s base of operations • Insurance for the specific flight • Landing fees, airport taxes, etc. • Customs, foreign permits, and similar fees directly related to the flight • In-flight food and beverages

The insurance company might argue that in either case, before or after the flight in question, the intent was for the individual to receive a payment which was clearly excluded by the policy. The practical effects of the insurer’s decision not to pay might result in long and expensive litigation for the individual or his estate in the event of death.

• Passenger ground transportation • Flight planning and weather contract services These expenses may also be charged for incidental cargo flights by a business, or for the demonstration of an aircraft to a prospective buyer when no charge is made.

Insurance Considerations Corporations have established many shared-use agreements, e.g., joint ownership, interchange, and time-sharing. For companies operating large and turbojet-powered multi-engine aircraft, the Federal Aviation Administration (FAA) has specifically defined these arrangements under Federal Aviation Regulation (FAR) Part 91, Subpart D. Joint ownership is an arrangement whereby one of the registered joint owners of an airplane employs and provides the flight crew for that airplane, and each of the registered joint owners pays a share of the charges specified in the agreement.

Aviation insurers reason that, to clearly distinguish between commercial and noncommercial risks, a limitation of coverage must be made under conditions where the business aircraft operator is being reimbursed. On one hand, it is designed to discourage air taxi and charter operations from deceptively obtaining much lower noncommercial rates. On the other hand, this limitation is intended to discourage business and pleasure/industrial aid risks from falling into a commercial class operation, whether intentionally or not.

Under an interchange agreement, one company leases its airplane to another company in exchange for equal time, when needed, on the other company’s airplane with no charge, assessment, or fee made (except that a charge may be made not to exceed the difference between the cost of owning, operating, and maintaining the two airplanes).

Because any remuneration is received by an aircraft owner may void the “use” provision of the policy, full details of the arrangement should be submitted to the insurer. If additional named insureds are added to the policy, and “cross-liability” exclusion under the liability coverage must be deleted, since this exclusion denies protection for one named insured being sued by another named insured.

A time-sharing agreement involves the lease of an airplane with flight crew to another party, and no

In the case of interchange agreements, both owners should be named on the other’s policy. Copies of

The actual users, if considered to be “renters”, would be subject to subrogation in the event of a hull loss. all contracts and agreements between cooperating parties should be submitted to the insurer in order to avoid a problem under the “assumed liability” exclusion. Most major aviation insurers will endorse a noncommercial policy to avoid any conflict resulting from reimbursement arrangement, provided they are notified in advance. Aviation underwriters are familiar with the practice of noncommercial insureds receiving reimbursement for flights. They are also aware that oftentimes payments made to aircraft owners result in a technical profit. Since this arrangement is not unusual, they are rarely surprised when approached with a reimbursement situation. However, a problem arises when the policy is written, an accident occurs, and then the reimbursed flight arrangement surfaces for the first time. At that time, there is obviously no incentive for the insurer to amend the Purpose of Use provision. The time to deal with this problem is when the coverage is being negotiated. The amendment does not, however, allow the owner to fly for hire or to accept reimbursement or payment from anyone not specified in the amendment. Unfortunately, there is no standard endorsement that will accommodate reimbursement arrangements. Each situation will be reviewed by the un-

derwriter, and, if appropriate, an extension to the normal business and pleasure or industrial aid usage will be tailor-made to fit the particular circumstances. Little or no additional premium is charged for this modification. If the circumstances are such that this is not possible, the policy might have to be extended to allow commercial or limited or commercial usage, which would necessitate a higher premium. It would then be up to the insured to determine whether or not the annual hourly exposure of reimbursement flights is enough to justify the extension of coverage. Generally, underwriters will charge a high enough minimum premium to discourage occasional flights. In other words, from the insured’s standpoint, paying the additional premium would only make financial sense if this practice occurred frequently. If the exposure was infrequent, it would usually be more cost-effective to simply not seek reimbursement than to pay the additional premium.

Commercial Operations FAR Part 135 governs the operation of aircraft used for carrying passengers and cargo for hire. The aircraft owner may obtain and operate under an Air Taxi Certificate issued by the Department of Transportation (DOT), or he may conduct operations under the Certificate held by another, e.g., a fixed base operator or charter service.

When operating under the insured’s own Certificate, the “use” provision of the policy must be amended to include “carriage if passengers and cargo for hire”. If the insured is operating under another’s Certificate, the insurance may be arranged under the policy of the Certificate holder (with the insured’s interests fully protected under that policy). A third alternative is to cover the commercial operations under the charter operator’s policy and the noncommercial use under the insured’s policy. However, this approach is not recommended due to the danger of a gap in limits or coverage between the two policies, resulting in either reduced coverage or no coverage for a loss.

in all corporations, is limited to the amount of the shareholder’s investment. Typically, the business or several businesses then lease the aircraft from the holding company. The remuneration to the holding company by the users may very well constitute “commercial” operation under the terms of the insurance contract, thereby rendering it void if it is written for “Business or Pleasure” or “Industrial Aid”. This should be clarified with the insurer.

Many commercial operators carry limits that are insufficient for the needs of the insured and may be reluctant to increase the cost of their insurance to accommodate the higher limits. It is not uncommon for a corporate aircraft operator to carry limits up to $100 million. Such a limit is generally not available to commercial operators, and if it could be obtained, the cost would probably be prohibitive. Moreover, most policy extensions available to the industrial aid class of risks are not available to commercial operators. Compliance with DOT regulations necessitates the filling of a Certificate of Insurance. The limits required are grossly inadequate for a business aircraft operator and should not be considered as a guideline for selecting proper coverage.

Holding Companies Many business aircraft operators set up a holding company-often as a Sub-chapter S corporation- for the ownership of their aircraft. This is done primarily for tax and liability exposure reasons. Liability to shareholders of a Sub-chapter S corporation, as

Depending on individual policy language the policy issued to the holding company, especially if written to include “rental” to the actual users, could leave

them without liability coverages. The actual users, if considered to be “renters”, would be subject to subrogation in the event of a hull loss. Naming as insureds the actual users under the liability policy issued to the holding company would still leave the users without the benefit of non-owned aircraft liability protection, should they or their employees utilize another aircraft in connection with the user’s business. Reviewing with the underwriter each case involving a holding company ensures that the interests of all parties are fully covered with respect to legal liability exposures, worker’s compensation, possible subrogation, non-owned aircraft liability, and cross-liability.

Conclusion A little known and often neglected non-cost amendment to aviation insurance policies can help to avoid uninsured losses if an accident occurs during a flight for which the insured is reimbursed for expenses. It is best to advise the underwriter in writing that the insured aircraft is being operated under a reimbursement arrangement and that money will change hands, either actually or on paper, between the owner of the aircraft and a business with which the aircraft owner if affiliated. Since many insurers need time to prepare the necessary amendment, make certain that confirmation is received from the underwriter in writing.

PRESIDENT JIM GARDNER The James A. Gardner Company, Inc. Jim.Gardner@jagardner.com

VICE PRESIDENT GREG STERLING AIG AEROSPACE greg.sterling@aig.com

SECRETARY CHRISTOPHER MORIN Murray, Morin & Herman cmorin@mmhlaw.com

TREASURER LUKE UITHOVEN Kimmel Aviation Insurance Agency, Inc luke@kimmelinsurance.com

DIRECTOR, ATTORNEY DIVISION ROBERT J. WILLIAMS Schnader Harrison Segal & Lewis LLP rwilliams@schnader.com

DIRECTOR, CLAIMS DIVISION STEVE TELLER McLarens General Aviation stephen.teller@mclarens.com

DIRECTOR-ELECT, CLAIMS DIVISION ERIC WEIDNER

DIRECTOR, AGENT/BROKER DIVISION CHRISTOPHER ARNOLD,

McLarens General Aviation eric.weidner@mclarens.com

Sutton James, Inc. carnold@suttonjames.com

DIRECTOR OF REINSURANCE DIVISION WALTER VOIGTS-VONFORSTER

DIRECTOR ELECT, AGENT/BROKER DIVISION DAVID HAMPSON

Munich Re WVoigts-vonForster@munichre.com

Schrager Hampson Aviation Insurance Agency LLC david@planeinsurance.com

DIRECTOR, UNDERWRITER DIVISION JEFFREY TIPPINS Starr Aviation jeffrey.tippins@starrcompanies.com

DIRECTOR, INTERNATIONAL DIVISION IAN WRIGGLESWORTH Guy Carpenter ian.wrigglesworth@guycarp.com

DIRECTOR-AT-LARGE NICOLE WOLFE STOUT Strawinski & Stout, P.C. nws@strawlaw.com

DIRECTOR-AT-LARGE JONATHAN DOOLITTLE Sutton James, Inc. jdoolittle@suttonjames.com

AIA EXECUTIVE DIRECTOR MANDIE LOROFF Aviation Insurance Association mandie@aiaweb.org

AIA BOARD COUNSEL RAY MARIANI Leader, Berkon, Colao and Silverstein LLP rmariani@leaderberkon.com

IMMEDIATE PAST PRESIDENT PAUL HERBERS Cooling & Herbers, P.C. pherbers@coolinglaw.com

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Aviation insurance market

set to tighten KIM ROSENLOF - AVIATION INTERNATIONAL NEWS REPRINTED WITH PERMISSION BY AIN PUBLICATIONS

he soft aviation insurance market that operators have enjoyed for nearly a decade appears to be coming to an end. That was the takeaway from statistics provided at the 2019 Aviation Insurance Association (AIA) conference held May 3-6 in Asheville, North Carolina. According to Benjamin Weber, head of aviation and space for Partner Reinsurance Europe in Zurich, Switzerland, airline per-aircraft insurance premiums flattened out in 2017 and ticked upward in 2018 for the first time since 2009. Weber produced aggregate data from Partner Re, Flightglobal, and the General Aviation Manufacturers Association (GAMA) that predicts airline growth of 4 to 5 percent per year and 40,000 new aircraft deliveries over the next 20 years, which should result in an increase in the aviation insurance premium base. Total premium revenues rose in 2017 and 2018, with total premium income at $4.25 billion in 2018, but so did losses and expenses. The past five-year average total airline claims have exceeded total airline premiums by approximately $400 million per year, according to figures provided by Weber from JLT (Jardine Lloyd Thompson Group).

“The aviation insurance market is headed into ‘controlled flight into terrain,’” said Weber. “We still maintain an unsustainable rating level while providing increased limits and excessive acquisition costs. The challenging reinsurance market, including increasing costs of repairs and increasing level of liability awards—particularly in the U.S.—has resulted in reinsurers and underwriters exiting the aviation market.” Consolidation in the aviation market has reduced capacity, further toughening the market and driving up rates. Weber noted several major acquisitions that occurred in the aviation underwriting and reinsurance markets in 2018, including AIG’s acquisition of Validus for $5.6 billion in January, AXA’s purchase of XL Group for $15 billion in March, and RenRe’s acquisition of Tokio MillenniumRe for $1.5 billion in October. Large reinsurance brokerage firms were not immune as Marsh acquired JLT for $5.7 billion in September, resulting in JLT Re being fully integrated into Marsh’s Guy Carpenter firm and the JLT brokerage arm sold off to AJ Gallagher in March 2019. Weber remarked that while global reinsurance capi-

tal fell 3 percent in 2018 to $585 billion, there is still plenty of reinsurance capacity. Several key insurers and underwriters pulled out of the aviation insurance market in 2018, however, including Hiscox, Berkley, Aspen, and Brit. “For 2019 we have only one choice: we have to work on a product—be it an insurance or reinsurance product—and make that product sustainably profitable,” Weber said. “Underwriting needs to go back to basics: price not only experience but exposure.”

The Future of Aviation Insurance A panel of aviation insurance professionals discussed the future of aviation insurance, including integrating Millennials into the workforce, the rise of using social media to keep tabs on insureds’ activities, and innovations in providing and securing coverage. “Silicon Valley is developing blockchain products for the insurance industry,” said Brendan Mullan of Crowell & Moring during the panel discussion. “Blockchain is a distributed ledger that records transactions

in a way that can’t be retroactively altered. It provides a transparent and a reliable way to transmit data.” Mullan cited Nationwide’s use of the RiskBlock blockchain platform rolled out in late 2017 to provide real-time verification of auto insurance. “I would suspect that we’ll start to see more blockchain usage in the insurance industry,” said Mullan. “It’s a great way to securely send and receive data, and if there’s anything that the insurance industry has a lot of, it’s data.” “The main driver for the adoption of technology has been pressure to reduce cost in an environment with very thin margins,” said Walter Voights von Forster, director of Reinsurance Division from Munich Re, during the panel discussion. “We’ve seen how technology can streamline administrative and supporting tasks for underwriting or claims. What’s going to be really interesting is when you get away from pure cost savings and get to product innovation, offering new types of products and different ways to access products.” One example of product innovation is the relatively recent introduction of on-demand insurance. For exam-

ple, Starr Insurance Companies recently expanded its drone insurance program in partnership with SkyWatch to include both a smartphone app and SkyWatch.ai online platform that allow drone operators to purchase on-demand insurance. Launched in 2016, SkyWatch provides pay-by-the-hour liability coverage and monthly liability and hull plans with discounts for operators based on experience and a safety score obtained through flight data sharing. The online program introduced in May 2019 provides a link on select aviation brokers’ websites to the SkyWatch. ai on-demand purchasing portal. This allows drone operators to continue working with their existing brokers while also taking advantage of SkyWatch’s instantaneous access to coverage. For example, a fixed-wing or helicopter operator that also adds drone operations may keep their yearly aviation operation policy through a particular broker but add the SkyWatch on-demand drone insurance just before each occasional drone flight.

to see more cancellations and higher premiums based on what the underwriters can see on social media. Our customers need to understand that.”

Insurance Worker Shortage While there was talk of the looming pilot shortage during the conference, John Brogan, president and CEO of USAIG, discussed the shrinking talent pool in the aviation insurance market, noting that both generational differences and the increasing need for talent at airlines and other aviation posts has severely decreased the availability of personnel to fill needed insurance roles. According to Brogan, aviation’s expansive growth in the 1970s and 80s led to hiring booms of the then-young Baby Boomer generation, who were not due to retire until this decade. That meant retirement rates in the 1990s and 2000s were low and relatively little hiring occurred of Generation X into the aviation insurance field.

“SkyWatch’s solution is revolutionary in our industry, making it easier for drone operators to access quality insurance at a moment’s notice,” said Jim Anderson, senior vice president of Starr Aviation in Scottsdale, Arizona, who was not on the panel but attended the conference. “This new platform allows qualifying commercial operators to obtain coverage within minutes 24/7.”

From 2006 to 2013 the number of insurance companies expanded and hiring ramped up. The new hires, generally from the Millennial generation, began their careers in a steep and long soft insurance market. Brogan noted that unlike Boomers and Gen Xers who lived through various aviation cycles, Millennials may have only seen the soft market through their entire working careers.

Technology such as social media is also making an impact on the aviation industry as insureds increasingly post details and videos of their flight activities online, sometimes resulting in receiving cancellation notices of their insurance.

“Premiums must be greater than losses plus expenses; this is the primary equation of our industry,” said Brogan. “If the equation does not work, business does not work and that is visible to the employees. Whether you are a broker, claims person, or an underwriter, watching income diminish year after year is demoralizing and doesn’t support a positive environment. It’s hard to see a future in an industry when the financials don’t support your hopes for your career.”

“Our whole lives are on social media, and sharing this kind of information obviously has some cons when it comes to insurance,” said Luke Uithoven, vice president of Kimmel Aviation Insurance. “Our customers are putting everything on Instagram, YouTube, Facebook, and underwriters are seeing them flying under power lines or landing where they aren’t supposed to. We’re going

In addition to the soft-market woes, Brogan said that the aviation insurance industry has two “uphill battles” in trying to attract Millennials to its ranks: a large gener-

“SkyWatch’s solution is revolutionary in our industry, making it easier for drone operators to access quality insurance at a moment’s notice. This new platform allows qualifying commercial operators to obtain coverage within minutes 24/7.” -Jim Anderson, senior vice president of Starr Aviation in Scottsdale, Arizona

ational gap between Baby Boomers and Millennials, and the fact that many parts of the industry are still behind technologically. “Across the board, the insurance industry is generally not very tech savvy, but we’re trying to get there,” said Brogan. “So there’s a generational divide. Everybody talks about it and rolls their eyes. You’ve got the Millennials who come in super educated and are motivated and hardworking, but ask very direct questions and want to run the company from a phone app after only a year of experience. On the other side, Baby Boomers are also super educated and very motivated, but they’ve been working all of their careers to get where they are. They’ve earned their spot and are very sales savvy, but they think apps are buffalo wings and mozzarella sticks.” Brogan says the solution to bringing more Millennials and Generation Z (those born after 1995) onboard is to show young professionals interested in insurance that aviation is “obviously more interesting to talk about than insuring parking lots, buildings, or workers’ comp.” An un-

derstanding of the differences between the generations’ attitude toward technology, communication preferences, and decision-making tendencies can then help bridge the generation gap in the workplace. “Baby boomers prefer face-to-face conversation, but will use telephone or email if required,” said Brogan. “GenX prefers text messaging or email, and Millennials prefer online and mobile. There’s a strong preference for each group to communicate the way they want to.” Brogan noted that the various generations also have their own preferences in how they make decisions. Baby Boomers tend to collaborate amongst their peers, GenXers who grew up as latchkey kids like to gather information but make their own decisions, and Millennials tend to collaborate with elders. So a GenX boss who is used to figuring out solutions himself or herself may be perplexed by a Millennial who wants to constantly converse and collaborate. While these are natural tendencies and present real conflicts in the workplace, Brogan said generational differences can also present natural fits that can work to everyone’s advantage. “The key is to know how employees will respond to different types of training, management styles, work environments, and technology being used,” Brogan said. “Training that existed and worked in the past may not work going forward with changing needs, expectations, and resources.”

FAA Administrator Addresses Aircraft Groundings FAA acting administrator Dan Elwell began his AIA keynote presentation by addressing the FAA’s groundings of the Boeing 737 Max and Cirrus SF50 Vision Jet fleets, which were grounded within weeks of each other in March and April 2019 respectively, due to similar but unrelated continuous system-commanded nose-down inputs. “As is often the case, especially with human suffering,

there’s a real pull to take immediate action,” said Elwell. “But as we know, that’s not always the best way to address the real cause of the problem. On the 737 Max, the FAA waited until we had the data that linked the Lion Air and Ethiopian Airlines accidents before we grounded the U.S. fleet. And when we had that data, we acted within a few hours.” Elwell noted that during the five-year certification effort completed in March 2017, FAA safety engineers and test pilots put in 110,000 hours of work and flew or supported 297 test flights on the 737 Max program. “That said, the 737 Max will not fly again in the U.S. until our safety analysis says that it’s safe to do so.” The FAA grounded the Cirrus SF50 Vision Jet on April 18 due to faulty angle of attack (AoA) sensors providing incorrect readings to Cirrus’s stall warning and protection or Electronic Stability & Protection systems. During three flights between November 2018 and April 2019 onboard systems responded to these faulty inputs by commanding nose-down inputs even when sufficient airspeed and proper actual AoA existed for normal flight. In all three of these incidents, the pilot was able to disconnect the system and land the aircraft safely. Cirrus had identified the issue and published its own service bulletin on April 16, calling for mandatory replacement of the sensor. “When we issued the emergency AD [grounding the SF50], it was prompted by reports of a systemic problem with the AoA sensors. These are not the same AoA sensor units on the 737 Max and the situations are unrelated, but this is about taking the correct action at the appropriate time because we have only one agenda. Safety has to be the top priority. The recent groundings of the Boeing 737 Max and the Cirrus [SF]50 have brought safety to the forefront.” Elwell noted that Cirrus had already developed an FAA-approved corrective action that includes installing new sensors, and also revised the emergency procedures

in the flight manual. On April 23, less than a week after the FAA grounding of the SF50 fleet, Cirrus announced that shipments of replacement sensors were already being sent to operators. “When we need someone to step up, GA [general aviation] always does,” said Elwell. “General aviation aircraft comprise the majority of the U.S. civil aviation fleet, and the data tells us that GA safety is actually on the upswing. Working with the GA community, we set the goal of reducing the accident rate to no more than one fatal accident in 100,000 flight hours by Fiscal Year 2018. The preliminary data show that we exceeded that goal and that 2018 is going to be closer to 0.8 fatal accidents per 100,000 flight hours.”

FAA and GAMA Work Together for Innovation Michael Romanowski, director of policy and innovation for the FAA’s Aircraft Certification Service, followed Elwell’s comments with information on certification efforts on new types of aerial vehicles, including electric propulsion aircraft that are already available for the general aviation market and new designs proposed for the urban air mobility market (UAM). “I believe that we can safely integrate these highly automated aircraft into our system when they can be shown to meet the FAA’s and the public’s expectations for safety,” said Romanowski. “While our regulatory framework was not developed with UAM vehicles in mind, the FAA has a long successful history of bringing new technology into aviation. As we’ve been working with the unmanned market, we’re seeing technologies that we can leverage. As regulators, it’s incumbent on us to come up with policy for these new vehicles, especially as they introduce new technologies with remarkable potential for improving safety.”

Romanowski mentioned the recent FAR Part 23 rewrite as a catalyst for innovation as it consists of performance-based regulations where the FAA sets a standard and allows manufacturers to demonstrate how they will meet (or in many cases, exceed) the standard. “The Part 23 performance-based regulations set loose an environment for wholesale innovation in the small airplane market,” said Romanowski. “We also implemented another policy change that further fuels innovation: non-required safety-enhancing equipment. This is where we’ve found ways to streamline the certification qualification for those systems that bring safety enhancements to aircraft to provide additional advisory and situation awareness.” Romanowski mentioned the work being done by the FAA and Embry-Riddle Aeronautical University to develop a simplified vehicle operations (SVO) aircraft with the aim of making flying an airplane as easy as driving a car. While the rudder-pedalless Ercoupe was designed with exactly the same intentions in 1939, the 21st centu-

ry EZ Fly demonstrator uses automation to remove or lessen pilot tasks such as responding to weather, air and ground threats, and air traffic control. “We’ve been talking about the pilot shortage and the challenges in recruiting young people into the pilot profession,” said Romanowski. “We’ve shown that we can bring the video game generation into the cockpit and

have them fully fly the aircraft in a short amount of time in a safely protected environment that brings enthusiasm for flying instead of fear when they’re asked to pilot these vehicles conventionally.” GAMA president and CEO Pete Bunce also discussed SVO during his address, noting that GAMA is working with the FAA on new pilot certification strategies based on the level of aircraft automation. New pilots in autonomous or optionally piloted aircraft (OPA) might receive a restricted license, and then add endorsements as they train in aircraft with decreasing levels of automation. Instead of starting a student pilot in a Cessna 172 (or similar trainer), students might learn to fly an OPA and would need to gain piloting skills and experience to move “up” to a “more complex” Cessna. “If you start to break down all of the components of being a pilot, there are quite a few tasks that computers do much better than we humans do,” said Bunce. “If you’re flying an aircraft that essentially consists of programming computers, do you need the same skill as flying a Cirrus SR22 in today’s world? Or do we train to a basic level for flying an autonomous vehicle—because people

initially want somebody up front—and then provide endorsements to fly more complex older technology?” Bunce’s talk also included emerging technologies in general aviation including transformational manufacturing techniques, head-up displays, and hybrid and electric aircraft. “The [GA industry] has some good programs that are looking at distributed propulsion on both conventional-looking aircraft and exotic designs,” said Bunce, who showed videos of various prototype hybrid and electric aircraft already flying in various parts of the world. His examples included the Equator electric amphibious aircraft from Norway, Lilium, and Volocopter from Germany, Pipistrel’s Alpha Electro from Slovenia, Liaoning electric aircraft from China, and the Airbus Vahana and Kitty Hawk Cora from the U.S. “Those of us who are old enough to remember the Jetsons are asking if [UAM] is real?” Bunce said. “I’m here to tell you this is real, and it’s happening and there’s more money chasing it than you can imagine.”

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AGENT/BROKER REPORT

“Hard Market”

Selling

DAVID HAMPSON, CPCU, ARM - PRESIDENT, SCHRAGER HAMPSON AVIATION INSURANCE AGENCY, LLC

his is my first article as a member of the AIA Board, and I’m thrilled and honored to be part of the leadership of this outstanding industry association. I acquired my aviation insurance agency from industry veteran, Dan Schrager, in January 2015 and attended my 5th AIA Conference last month. Each year, I’ve found the education, networking opportunities and camaraderie invaluable. Having worked both in an agency management and producer role in general commercial property and casualty insurance prior to acquiring my agency, I look forward to sharing a different perspective and new ideas.

After years of speculating if and when it would actually materialize, a hard aviation insurance market is now solidly upon us. With many insurer loss ratios not healthy and large claims that continue to shake the industry with regularity, I think we’re in for extended rise in rates. The rates and underwriting flexibility we saw at the trough of the soft market are something we probably wouldn’t believe if we didn’t live through it. A soft market never lasts forever, but my personal opinion is that rates will continue to increase for several years before leveling off at a sustainable level for insurer profitability and interest in underwriting what, if we’re honest with ourselves,

â&#x20AC;&#x153;If you engage clients in a market discussion early, you can also discuss renewal strategy and determine collectively whether an exhaustive re-market of coverage is in their best interests.â&#x20AC;&#x153;

is a very small niche in the total universe of property and casualty insurance. Those brokers who haven’t been in the industry for more than a dozen years have never sold in anything other than a soft market, so this is definitely a period of adjustment for many. I believe there are pros and cons to every sort of market, and if you know the right approach to take and always do what is right for your clients and prospects, you can make money and experience success in any circumstance. The best perk of a hard market, or course, is that premiums are going up so brokers have the potential to grow organically even with no increase in client or policy count. That being said, as I always remind my staff, the hard market is really hard work! Even the vanilla, loss free accounts will now have underwriter scrutiny and require more renewal dialogue than you have probably ever experienced before. One of the most important things to be successful in a hard market is client education. Clients who have been used to a flat or declining renewal for years on end may be disappointed to receive even what in the scope of things is a relatively modest increase. It’s easy for those of us entrenched in the industry day in and day out to forget that the unsustainable soft market was not necessarily obvious to clients, particularly those with a favorable loss history. I think it’s best to spend time educating clients in advance of a renewal meeting, as they may otherwise be too shocked at an unexpected increase to pay much attention to what you are saying if you wait until you have a renewal proposal in front of them. This education process should involve walking clients through factors the caused the extended soft market and explaining how the rate levels we got to were unsustainable and likely to result in a market implosion if insurers didn’t take steps to implement rate corrections. Astute clients will understand that this gradual hardening of the market is in everyone’s best interests to prevent potentially more severe consequences in future. I wrote an entire article on just this topic recently

for FLYING Magazine, which anyone is welcome to use a resource: https://www.flyingmag.com/aviation-insurance-is-changing. The average rate in increases I quoted are a little dated (I put pen to paper in December 2018), but all the concepts hold true. I know others have also written excellent articles on this topic, and if you do a little research you can draw from multiple sources to establish your market education pitch. If you engage clients in a market discussion early, you can also discuss renewal strategy and determine collectively whether an exhaustive re-market of coverage is in their best interests. There are certainly cases in which a complete re-market definitely makes sense. However, in a hard market, underwriters get inundated with submissions so it can be counterproductive to blanket the market with every account. That’s a good way to land your submissions on the bottom of the underwriter’s pile. Underwriters tell me they get particularly frustrated when brokers send them submissions that are completely outside of their company’s underwriting appetite. If your clients trust you and you have a good working relationship, you shouldn’t need to send out submissions simply to “block the market” from other brokers, what in my opinion is a sure sign of insecurity. I’ve never understood that as a standard operating practice because another broker can always just obtain a BOR if your client doesn’t think you are doing a good job for them. Your clients will be better served when underwriters know they have a true opportunity with your submissions and that you are not just “spinning their wheels.” Of course, this guidance doesn’t apply to light aircraft P&B accounts that can be run through a comparative rater and underwritten by a computer program. For those accounts, there is no downside to always quoting with all markets. The second key to success in this market is client advocacy. In addition to rates going up, underwriters have become much more stringent on the sort of risks they quote and the leeway they will give for underwriting exceptions. Although virtually all clients will experience some sort of rate increase and/or change in coverage

“In addition to rates going up, underwriters have become much more stringent on the sort of risks they quote and the leeway they will give for underwriting exceptions.” terms, your best clients who have demonstrated insurer loyalty, favorable loss history, and best in class risk management practices deserve to get an increase below the average increase their insurer is aiming for on a percentage basis. You aren’t representing your clients and working in their best interests if you aren’t advocating for them in this way. Don’t take your clients for granted and keep in mind the classic idiom “pigs get fat and hogs get slaughtered.” Though most brokers do an excellent job in this respect, you may occasionally find new business opportunities in the hard market when another broker allows a good insured to receive an increase higher than they deserve, perhaps because their client has been growing or experiencing success and the incumbent broker thinks they can afford it. After educating clients and advocating for them, the next thing you can do for them to achieve success in a hard market is to provide value. A soft market can be a thin veil for poor service because it’s human nature for people to be happy when they are saving money. But when you have a situation where rates are going up

while clients are being neglected, you’ve got a surefire recipe for an incumbent broker to be fired and an opportunity for quality brokers to win new clients. Value as a broker is not just providing responsive and thorough service. That is certainly part of it, but it is really just the bare minimum. A broker who truly provides value will provide their clients with contract reviews, risk management consulting, claims advocacy, loss control programs and even strategic business advice. The best brokers will be part of a client’s team of trusted advisors and someone they turn to often for counsel. In summary, effective hard market selling is really a simple and straightforward process that involves proactively educating your clients, advocating for them, and providing a level of value that makes you a bargain even at a higher insurance cost. Implement these strategies and enjoy the bump in premiums and commission revenue while it lasts, because you will be working hard to earn every dollar of it!

ATTORNEY DIRECTOR’S REPORT

ROBERT WILLIAMS - Schnader Harrison Segal & Lewis LLP

t was wonderful to see so many of you in Asheville in May. I hope you had an opportunity to see old friends, make new ones, learn something, and enjoy the beauty of the Blue Ridge Mountains. On behalf of the attorney members of the AIA, I would like to extend our sincerest gratitude to Paul Herbers, the Board Members, Mandie Loroff, Elton Ching, and everyone else who made the Annual Meeting such a great success. I also would like to congratulate Nicole Wolfe Stout on completion of her term as Director of the Attorneys’ Division and to thank her for her dedicated service. We’ll do our best to keep up the good work! Part of that good work involved moving the attorneys’ continuing legal education sessions from Tuesday morning to Friday afternoon. The schedule change, combined with some exciting and dynamic speakers, resulted in a dramatic increase in attendance. The results clearly speak for themselves, and we intend to do the same for next year’s Annual Conference in Tucson, Arizona from May 1 – 4, 2020. Speaking of next year’s Annual Conference, we’re looking for speakers. If you have ideas and

an interest in presenting a CLE session, please contact me soon. As I embark upon my term as the Director of the Attorney’s Division, I would like to reiterate my promises to you: I am here for you and will do anything I can to help. Please don’t hesitate to contact me. I look forward to serving you and to the exciting times that lie ahead of us!

SAVE THE DATE

TUCSON 2020 AIA ANNUAL CONFERENCE MAY 1-5, 2020