Insuring against aviation risks

CHUKWUMA ONONIWU 

FCILRM (NG), FICRMP (U.K.), alumnus of Abia State University Lagos Business School, Pan Atlantic University, is a consummate insurance broker, insurance management consultant and digital insurance advocate. He is an i.g.i. goldcrest award winner. He can be reached on:: riskswisepro@gmail.com and +234-903-596-8732 (whatsapponly).

Aviation insurers provide insurance covers for insureds – airlines, aircraft manufacturers, airports, air transportation service providers, refuellers, caterers, security screeners, etc – against the risks of damage(s), loss(es), liability(ies), etc, in return for premium payment, from which the insurers pay premiums to the  reinsurers; and the reinsurers pay premium to the retrocessionaires to offset the risks.

The 3P’s in Aviation Risks Management are: *identification of the risks; *assessment of the risks, and *mitigation of the risks. An important driver for aviation insurance risks management and aviation development was the development of passenger liability regime at both national and international levels through the convention for the unification of certain rules relating to international carriage by air (the Warsaw Convention) which was signed on 12th of October 1929. It is pertinent to note that after the 9/11 incident in the United States, the global aviation market tightened significantly with respect to clauses/terms/conditions/premium rates of aviation  insurable risks coverage. One of the key characteristics of aviation insurance is that it operates on an agreed value basis, ensuring that the insured receives indemnity based on the agreed value of the aircraft, instead of the reinstatement cost. 

The types of aviation insurance risks include, but not limited to the following: in-flight insurance, ground risk hull (non-motion insurance), air-borne  risk hull (motion insurance), public liability insurance, passenger liability insurance, etc. Specific policies are also available to cover the legal liability of airport owners, arising out of  the operations of airport hangars, etc. 

An Aviation risk can crystallise in any of the following: while the aircraft is taxiing on the runway, taking off, climbing, cruising, descending, approaching and landing. The common aviation risks include, but not limited to the following: bad/mistry weather condition, aircraft about to/run out of fuel whilst air-borne, failure of electrical, electronic, computer, instrumentation, mechanical components, engine failure, inability of the plane tyres to release whilst the plane is descending and approaching to land, bird strike, collusion with another aircraft, etc. 

Examples of aviation hazards include, but not limited to: a nick in the propeller blade, improper refuelling of an aircraft, the use of unapproved hardware/software, non-functional emergency exits/safety jackets, non- functional fire extinguishers, poor compromised   serviced aircrafts, pilot fatigue/loss of memory, etc. 

Risk underwriting template: The risk underwriting assessment criteria include, but not limited to, *the type of aircraft; *the specific make/model of the aircraft; *the name of the manufacturers of the aircraft/year of manufacture; *the D checks and the other checks certifications of the aircraft; *the service history/maintenance record of the aircraft; *the risk control measures of the aircraft owners/lessors/lessees/handlers; *the profile of the pilots and the aircraft maintenance engineers,etc. 

Peculiarities of insuring aviation risks: The catastrophic and the consequent humongous nature of  losses, and the consequent large amounts of insurance claims, makes it imperative to insure for full value, to insure for  contingent liabilities, to have adequate co-insurance cover, to have adequate reinsurance cover, to have adequate retrocession cover, to have an experienced professional aviation risks broker, to have an experienced professional aviation risks surveyor, etc.

NOTE: The ownership of the aircraft and its legal implications and financial implications, equally determines who has insurable interest and who between the lessor and the lessee, dictate where the risks should be placed and underwritten.This is because, most of the time, due to  the humongous cost of outright purchase of an aircraft, for instance a Boeing, an Airbus, etc, the aircrafts are usually leased on either wet lease or dry lease. Thus, for very large aviation risk, particularly hull risks, it is placed in the Lloyd’s of London, by a syndicate of Lloyd’s registered, licensed, certified insurance brokers, risk surveyors, insurance firms, co-insurance firms, reinsurance firms, retrocession firms. 

Generally, the seven cardinal principles of insurance govern the insurance of aviation risks, namely, insurable interest, utmost good faith, proximate cause, indemnity, contribution, subrogation and loss minimisation.

Summary: The purpose and the function of insurance is to provide protection against future risks, accidents, losses, damages, third party liabilities, death, uncertainties, etc. Certainly, insurance cannot forestall the crystallisation of the risks; rather, insurance has the financial capacity through its pool of risks to provide financial compensation. This is in line with the most important aspect of aviation: to ensure the safety and the security of their passengers, crew and the general public, etc, be it in commercial aviation, in general aviation, in cargo aviation, in military aviation, etc.

Going further, the Scope of Cover of Aviation Risk Insurance is inclusive of aircraft crash, fire, theft, malicious damage,vandalisation, terrorism and hijacking.

Exclusions: The exclusions in aviation risk insurance, are: *war, flying in a no fly zone, landing without clearance, confiscation of aircraft by government authorities for breach of the laws of the confiscating countries, conveyance of explosives, conveyance of ammunition, conveyance of banned substances, etc.