Aviation Insurance - Today

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1 1 Aviation Insurance - Today By: Joshua S. Pestano, ACII, CPCU, Are. AMA Insurance & Risk Management Council New York, NY (27 July 2016)

2 The first powered flight Start of our journey 2 Wright Brothers 17 December 1903 Kitty Hawk, North Carolina flickr photo by NASA on The Commons

Development of Aviation Great leaps forward 3 1st powered flight Wright Brothers become the first people to achieve powered heavier than air flight.

3 Development of Aviation Great leaps forward 3 1st powered flight Wright Brothers become the first people to achieve powered heavier than air flight. flickr photo by NASA on The Commons World War I The applications of aircraft in theaters of war become apparent and nations invest in the development of the technology. flickr photo by kitchener.lord

flickr photo by Jez B Rockets World War II sees the invention

4 4 World War II Greater advances are developed in aviation amongst which is the jet engine and jet powered aircraft. flickr photo by Jez B Rockets World War II sees the invention of the rocket, a new method of achieving flight. flickr photo by Dick Penn

5 5 Commercial Air Travel Aircraft are used for the transportation of passengers and cargo, reducing the length of time it takes for travelers to reach their destinations. flickr photo by Bill Larkins Space Flight Advances in aviation and rocket technology lead to the exploration of space. flickr photo by NASA HQ PHOTO

6 6 Super Heavy Aircraft Aircraft have grown ever larger. Capable of transporting a greater number of passengers and cargo. flickr photo by Telstar Logistics Drones Continued advances have allowed for the development of technology that allows for aircraft to be piloted remotely. flickr photo by JayPitsby

7 Aviation Insurance - Today Presentation Topics 7 The future Coverage Requirements The Market Background & Features

Exposures 8 flickr photo by Heads Up Aviation Damages to

flickr photo by Master Octa Bodily Injury & Property Damages to

the aircraft) flickr photo by Luke Lai Bodily Injury & Property

8 Exposures 8 flickr photo by Heads Up Aviation Damages to Insured s Aircraft Destruction or loss of value to aircraft flickr photo by Master Octa Bodily Injury & Property Damages to Third Parties Duty of care towards Third Parties (outside of the aircraft) flickr photo by Luke Lai Bodily Injury & Property Damages to Passengers Duty of care towards passengers (inside of the aircraft)

Aircraft Accidents With Fatalities 2011-2016 9 33% 1097 150 5% 191 214 6% 6% 235 7% 721 2011-2016 Source: NTSB Aviation Accident Incident Database 22% 719 22% Loss

9 Aircraft Accidents With Fatalities % % % 6% 235 7% Source: NTSB Aviation Accident Incident Database 22% % Loss of control in flight Collision with terr/obj (non-cfit) Control flight into terr/obj Unknown or undetermined Aerodynamic stall/spin Loss of engine power (total) Other

10 Coverages What coverages may be purchased 10 Hull & Hull War Provides coverage for the aircraft itself. Hull War writes back several exclusions into the standard Hull policy. HL TPL Third Party Liability Provides coverage for bodily injury and property damage to third parties outside of the aircraft. Passenger Legal Liability Provides coverage for bodily injury and property damage to third parties inside the aircraft (passengers) PLL O Other Coverages Additional coverages created to address other exposures e.g. personal accidents, premises, hangarkeepers and products liability, deductible buy down, etc.

11 Risk Lifecycle Account development process 11 Underwriting Request is reviewed and terms are offered according to the information and risk profile Production Aircraft owner approaches a broker or an insurer for coverage terms and conditions Claims Settlement Account that suffer losses are referred to loss adjusters (Hull) or lawyers (Liability) for review and settlement

12 Aircraft Insurance Market Worldwide Aircraft Estimates 12 2% 6,700 United States - Air Carrier United States - General Aviation Rest of World Source: DOT Table 1-11: Number of U.S. Aircraft, Vehicles, Vessels, and Other Conveyances & Cannon, James R. pg. 9

13 Writing Business 13 Pooling Arrangements Business is written on behalf of a group of reinsurers. Notable companies: USAIG and Global Aerospace Lloyd s of London Business written through Lloyd s syndicates. Several syndicates (each accepting a share of the risk) may be required to complete the placement of the risk. Large (Re)Insurers Individual companies may write a risk in full or in part until the placement of the risk in completed.

14 The State of the Market A Soft Market 14 Excess Capital Capital continues to find its way to write aviation business, causing downward pressure on rates as underwriters try to gain market share. High Losses Numerous losses have affected the market however rates have not been impacted due to current excess capital. War & Terrorism There is great concern due to high War and Terrorism losses. Aviation is a target. Erosion of profitability The downward pressure on rates and numerous losses have eroded profitability.

15 Coverage Requirements U.S.A. United States Coverage Requirement Guidelines 15 Air Carrier (Commercial Use) Requirements Smaller Aircraft (i.e. 18,000 lbs. and/or 60 passenger seats) Coverage Third Party Liability (CS ex PLL) Passenger Legal Liability Per Person Minimum Limit Per Occurrence USD 300,000 USD 2,000,000 USD 300,000 USD 300,000 x 75% of installed seats. Larger Aircraft (i.e. > 18,000 lbs. and/or > 60 passenger seats) Coverage Third Party Liability (CS ex PLL) Passenger Legal Liability Per Person Minimum Limit Per Occurrence USD 300,000 USD 20,000,000 USD 300,000 USD 300,000 x 75% of installed seats.

16 Calculating Coverage Limits U.S.A. United States Commercial Use Aircraft 16 Cessna 207A Crew Seats 1 seat Passenger Seats 5 seats Max Takeoff Weight 1,639 kg Coverage Limits Third Party Liability USD 2,000, Crew Seats flickr photo by Telstar Logistics Airbus A seats Passenger Legal Liability USD 1,125, Total Liability USD USD 3,125, flickr photo by airlines470 Bombardier BD-700 Global Express Crew Seats 4 seats Passenger Seats 868 seats Passenger Seats 18 seats Max Takeoff Weight 590,000 kg Coverage Limits Third Party Liability USD 20,000, Passenger Legal Liability USD 195,300, Total Liability USD USD 215,300, flickr photo by vic_206 Max Takeoff Weight 43,091 kg Coverage Limits Third Party Liability USD 20,000, Passenger Legal Liability USD 4,050, Total Liability USD USD 24,050,000.00

17 General Aviation Insurance Requirement U.S.A. 17 No set national requirement for General Aviation Aircraft

18 Coverage Requirements E.U. European Coverage Requirement Guidelines 18 TPL Liability Limits Max. Takeoff Weight (Kg) Min. TPL Limit (Million SDR) < < 1, < 2, < 6, < 12, < 25, < 50, < 200, < 500, , Passenger Legal Liability SDR 250, each passenger seat. SDR 250, each passenger seat. USD 350, each passenger seat. SDR Valuation Varies as established by: International Monetary Fund (IMF) R.O.E. 21 July 2016 USD 1.00 = SDR R.O.E. posted on

19 Calculating Coverage Limits E.U. European Commercial Use Aircraft 19 flickr photo by Telstar Logistics Airbus A380 Crew Seats 20 seats Passenger Seats 868 seats Cessna 207A Crew Seats 1 seat Passenger Seats 5 seats Max Takeoff Weight 1,639 kg Coverage Limits Third Party Liability SDR 3,000, Passenger Legal Liability SDR 1,250, Total Liability SDR SDR 4,250, Total Liability USD USD 5,891, flickr photo by airlines470 Bombardier BD-700 Global Express Crew Seats 4 seats Passenger Seats 18 seats Max Takeoff Weight 590,000 kg Coverage Limits Third Party Liability SDR 700,000, Passenger Legal Liability SDR 217,000, Total Liability SDR SDR 917,000, Total Liability USD USD 1,271,088, flickr photo by vic_206 Max Takeoff Weight 43,091 kg Coverage Limits Third Party Liability SDR 150,000, Passenger Legal Liability SDR 4,500, Total Liability SDR SDR 154,500, Total Liability USD USD 214,158,288.60

20 Closing Remarks 20 The Future of Aviation Large aircraft, drones and space travel. Future Risk Profile Improvements in safety and design, increased accumulation of risk and target of war and terrorism. Safety will remain paramount

21 Questions? 21

22 Bibliography 22 Pilla, David. "Glide Path." Best's Review (2015): Risk Management Reference Center. Web. 27 June Panko, Ron. "Lack Of Turbulence." Best's Review (2013): Risk Management Reference Center. Web. 27 June 2016 Chordas, Lori. "Up In The Air." Best's Review (2014): 80. Risk Management Reference Center. Web. 27 June Dillingham, Gerald L. "Observations Related To Liability Insurance Requirements And Coverage For Aircraft Owners." GAO Reports (2015): i-36. Risk Management Reference Center. Web. 27 June Durden, Rick. "Aviation Insurance: Soft Market, Low Prices." The Aviation Consumer 8 (2015): 19. Business Insights: Essentials. Web. 27 June Cannon, James R., and Franklin D. Richey. Practical applications in business aviation management. Lanham, Md: Government Institutes, Print.

23 Image Attributions 23 flickr photo by NASA on The Commons shared with no copyright restriction (Flickr Commons) flickr photo by kitchener.lord shared under a Creative Commons (BY-NC-ND) license flickr photo by Jez B shared under a Creative Commons (BY-NC-ND) license flickr photo by Dick Penn shared under a Creative Commons (BY) license flickr photo by Bill Larkins shared under a Creative Commons (BY-SA) license flickr photo by NASA HQ PHOTO shared under a Creative Commons (BY-NC-ND) license flickr photo by Telstar Logistics shared under a Creative Commons (BY-NC) license flickr photo by JayPitsby shared under a Creative Commons (BY-NC) license flickr photo by vic_206 shared under a Creative Commons (BY-NC-ND) license flickr photo by airlines470 shared under a Creative Commons (BY-SA) license flickr photo by Heads Up Aviation shared under a Creative Commons (BY-NC-ND) license flickr photo by Luke Lai shared under a Creative Commons (BY-NC) license flickr photo by Master Octa shared under a Creative Commons (BY-NC-ND) license

Aviation List. Admitted Liability: In aviation insurance, payments to an injured passenger made without the need of establishing liability.

Aviation List. Admitted Liability: In aviation insurance, payments to an injured passenger made without the need of establishing liability. Aviation List A Admitted Liability: In aviation insurance, payments to an injured passenger made without the need of establishing liability. Advance Freight: The partial payment of a freight bill-of-lading