Insurance Law Project.docx

INSURANCE LAW PROJECT TOPIC:

THE ROLE OF INSURANCE IN THE AVIATION INDUSTRY

MADE BY: NIHARIKA SINGH : A11911115077 PRITHVI YADAV : A11911115068 COURSE : B.A.LL.B(H) 2015-2020 SECTION : “F”

ACKNOWLEDGEMENT I take this opportunity to express my profound gratitude and deep regards to my guide Ms. MEENU SHARMA for her exemplary guidance, monitoring and constant encouragement throughout the course of this thesis. The blessing, help and guidance given by her time to time shall carry me a long way in the journey of life on which I am about to embark.

INTRODUCTION OF INDIAN AVIATION SECTOR Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people. The origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. It was an extension of London-Karachi flight of the Imperial Airways. In 1932, JRD Tata founded Tata Airline, the first Indian airline. At the time of independence, nine air transport companies were carrying both air cargo and passengers. These were Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways, Orient Airways and Mistry Airways. After partition Orient Airways shifted to Pakistan. In early 1948, Government of India established a joint sector company, Air India International Ltd in collaboration with Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The inaugural flight of Air India International Ltd took off on June 8, 1948 on the Mumbai-London air route. The Government nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established by 1995, several private airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways. But only Jet Airways and Sahara managed to survive the competition. Meanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian aviation industry is dominated by private airlines and these include low cost carriers such as Deccan Airlines, GoAir, SpiceJet etc, who have made air travel affordable.

HISTORY OF AVIATION INSURANCE Aviation Insurance was first introduced in the early years of the 20th Century. The first aviation insurance policy was written by Lloyd's of London in 1911. The company stopped writing aviation policies in 1912 after bad weather and the resulting crashes at an air meet caused losses on many of those first policies. It is believed that the first aviation polices were underwritten by the marine insurance Underwriting community.

In 1929 the Warsaw convention was signed. The convention was an agreement to establish terms, conditions and limitations of liability for carriage by air, this was the first recognition of the airline industry as we know it today. By 1933 realising that there should be a specialist industry sector the International Union of Marine Insurance set up an aviation committee, and by 1934 eight European aviation insurance companies and pools were formally established and the International Union of Aviation Insurers was born. The London insurance market is still the largest single centre for aviation insurance. The market is made up of the traditional Lloyds of London syndicates and numerous other traditional insurance markets. Throughout the rest of the world there are national markets established in various countries, this is dependent on the aviation activity within each country, the US has a large percentage of the world's general aviation fleet and has a large established market. No single insurer has the resources to retain a risk the size of a major airline, or even a substantial proportion of such a risk. The Catastrophic nature of aviation insurance can be measured in the number of losses that have cost insurers hundreds of millions of dollars (Aviation accidents and incidents). Most airlines arrange "fleet policies" to cover all aircraft they own or operate.

RISK COVERED IN AVIATION INSURANCE There are different types of risk which takes place in aviation insurance and those risks are covered in aviation insurance they are as follows: There are mainly two kinds of risks which an aviation insurance company will cover which has been divided into two parts. They are: 1.

Normal Risks

2.

Liabilities

These two risks are further divided into various parts which involve various risks and liabilities they are which is explained in detail later on.

NORMAL RISKS These risks are those risks which every aviation company in this industry carries it on its back when it enters into the business. These risks may differ from time to time and situation to situation. These are 1.

Hull Risks

2.

Hull War Risks

3.

Spares All Risks/ War Risks

4.

Hull total Loss Only cover

These risks are those risks which takes place when these takes place when any of these factors comes into action. Because all the above risks mentioned above are unpredictable and may occur at any time.

HULL RISKS The hull "All Risks" policy will usually refer to something like "all risks of physical loss or damage to the aircraft from any cause except as hereinafter excluded". Airline hull "All Risks" policies are subject to a standard level of deductible (that is an uninsured amount borne by the Insured) applicable in the event of partial (non-total) loss. Currently, this deductible can range from $50,000 in respect of a Twin Otter to $1,000,000 in respect of a wide-bodied jet aircraft, such as a Boeing 747. Deductibles too can be reduced by means of a separate "Deductible Insurance" policy. The Deductible Insurance Policy is effected to reduce the large "All Risks" policy deductibles to a more manageable level. For example the US$1,000,000 applicable to a Boeing 747 can be reduced to say US$100,000. The term "all risks" can be misleading. "All risks of physical loss or damage" does not include loss of use, delay, or consequential loss. "Grounding" is a good example of consequential loss. Some years ago when there had been a couple of accidents involving DC10 Aircraft, the Civil Aviation Authorities throughout the world imposed a "grounding order" on that type of aircraft. That order in effect said until certain things had been established and checked out those aircraft could not fly. The operators of those aircraft were unable to fly them and as a consequence of that they "lost" the use of them. But the aircraft were not "lost" - it was known precisely where they were but they could not be used to carry passengers. Such an eventuality would not be covered by an "all risks" policy because in such circumstances there is no PHYSICAL loss or damage. What the policy will cover is the reinstatement of the aircraft to its "pre-loss" condition, if repairable damage is involved, or some other form of settlement in the event that more substantial damage is sustained. Exactly what form of settlement will depend on the policy conditions. Today, the vast majority of airline hull "all risks" policies are arranged on an "Agreed Value Basis". This provides that the Insurers agree with the Insured, for the policy period, the value of the aircraft and as such, in the event of total loss, this Agreed Value is payable in full. Under an Agreed Value policy the replacement option is deleted. The hull risks does not cover some risks whish are as follows :

1. Wear, tear and gradual deterioration - in common with most non-marine policies (which includes aviation insurance) these perils are thought to be a trading expense and not a peril to be insured. 2. Ingestion damage - caused by stones, grit, dust, sand, ice, etc., which result in progressive engine deterioration is also regarded as "wear and tear and gradual deterioration", and as such is excluded. Ingestion damage caused by a single recorded incident (such as ingestion of a flock of birds) where the engine or engines concerned have to shut down is not regarded as wear and tear and is covered subject to the applicable policy deductible. 3. Mechanical Breakdown - likewise is thought by aviation insurers to be an operating expense, but subsequent damage outside the unit concerned is usually covered. However, it is possible to obtain insurance coverage against mechanical breakdown of engines by way of a separate policy. This coverage has a high degree of exposure and as a result is relatively expensive. The majority of airlines do not purchase it probably viewing such exposure as a part of the "engineering"

HULL WAR RISKS The hull "All Risks" policy will contain the exclusion of "War and Allied Perils". Generally speaking, throughout the aviation insurance world, "War and Allied Perils" have a defined meaning. In the London Aviation Insurance Market the standard exclusion is called the War, Hi-jacking and Other Perils Exclusion Clause (currently known by its reference - AVN48B for short) this lists and defines these so-called war and allied perils. It say, 1.

War - this includes civil war and war with no formal declaration.

2.

The detonation of a weapon

3.

Strikes, riots, civil commotions and labour disturbances.

4.

Political or terrorist acts.

5.

Malicious or sabotage acts.

6.

Confiscation, nationalization, requisition and the like by any government.

7. 7.Hijacking or Unlawful exercise to control plane other than crew members of the flight concerned. The majority of the excluded "War and Allied Perils", other than the detonation of a nuclear weapon and a war between the Great Powers (the aviation insurance world identifies these as the U.S.A., the Russian Federation, China, France and the UK), can normally be covered by way of a separate "War and Allied Perils" policy. Aircraft deductibles are not normally applied in respect of losses arising out of "War and Allied Perils". Other exclusions insurers will usually apply are, as follows:1. Confiscation etc. by the "state" of registration (this exclusion can often be deleted in respect of financial interests - albeit, in some instances at an additional premium charge)

2. Any debt, failure to provide bond or security or any other financial cause under court order or otherwise; 3. The repossession or attempted repossession of the Aircraft either by any title holder or arising out of any contractual agreement to which any Insured protected under the policy may be party; 4. Delay and loss of use. (Although there is often an extension to the policy for a limited amount for extra expenses necessarily incurred following confiscation or hijacking). The aircraft hull "War and Allied Perils" policy will cover the aircraft on an "Agreed Value" basis against physical loss or damage to the aircraft occasioned by any of these perils. This statement is made carefully and deliberately in order to highlight the essential difference from a "Political Risks" Insurance.

SPARES ALL RISKS First of all we must identify what we mean by a "spare" or perhaps - "when is a spare not a spare" to which a simple answer is "when it is attached". Under most "Hull" policies the word "Aircraft" means Hulls, machinery, instruments and the entire equipment of the aircraft (including parts removed but not replaced). Once a part is replaced it is no longer, from an insurance viewpoint, part of the aircraft. Conversely once a spare part is attached to an aircraft as a part of that aircraft (not in the hold as cargo or on the wing as an extra pod) it is no longer a "spare". If the equipment is insured on the hull "All Risks" policy the automatic transfer of coverage from "aircraft" to "spare" and vice versa is automatically accomplished. Having established when a spare is a spare how is it insured as such? Usually in one of two ways. Either under a "spares" section of a hull policy or by a separate Spares Policy. In either case the scope of coverage will probably be similar. All Risks whilst on the Ground and in Transit for a limit of [so much] any one item or sending or any one location. War Risks can also be covered (in respect of transits), Strikes, Riots, Civil Commotions can be covered in accordance with standard market clauses. Spares coverage is usually subject to a small deductible except, however, in respect of ground running of spare engines when the appropriate Ingestion deductible will be applied. Spares are normally covered on an agreed value basis - usually their replacement cost (be it new or reconditioned - as is required). Spares installed on any aircraft are not covered by the Spares Insurance. They become, from an insurance standpoint, a part of the aircraft upon which they are installed and a part of the Agreed Value for which it is insured. This becomes particularly important if the parts are loaned to another airline.

HULL TOTAL LOSS ONLY COVER This is similar to Hull All Risks cover given above but will respond only to total losses of aircraft, whether actual, constructive or arranged. This is particularly given for old aircraft

since the old aircraft are heavily depreciated and insured for low sums and premium on such low sums would result in low premium, which would be inadequate for the partial losses. The ratio of partial losses to total losses in such old aircraft is distorted.

LIABILITIES Liabilities are those risks which may arise due to some consequences or some “reasons” the company has to face. Those “reasons” are as follows 1.

Aircraft Liability

2.

Excess Liability

3.

Aerospace Manufacturers products and Grounding Liability

4.

Airport Owners and Operations Liability

5.

Product Liability

A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. The explanations of all the liabilities are given below :

AIRCRAFT LIABILITY Here in aircraft liability there are many other liabilities involved which are further divided into four parts. They are 1. PASSENGER LIABILITY Coverage for aircraft operators in the event a passenger is injured, killed or disabled during an accident while aboard an insured aircraft. Aviation policies divided liability coverage into two parts--general liability (excluding passengers), and passenger liability. A Passenger Liability policy covers incidents resulting from the transportation of passengers by land, sea or air and can often be included as part of a aviation insurance policy. However care must be taken to check that the motor policy wording does not exclude farepaying passengers, which is often the case. It is unlikely that an underwriter will be prepared to cancel or amend the wording of a standard motor vehicle policy. For this reason Daily Cover policies are specifically for to cater for fare-paying passenger liability.

2. THIRD PARTY LIABILITY This program offers 3rd Party Liability insurance coverage for non-commercial operations only. Pilot and passenger injuries and aircraft physical damage are not covered. This member

benefit program is designed to allow non-commercial pilots the benefits that insurance coverage can offer. While pilot and passenger injuries and damage to the aircraft itself are not covered under a Third Party program, financial responsibilities bodily injury or property damage caused by the aircraft for which the pilot is found to be legally liable to pay to others is covered. Additional insured parties such as landowners, municipalities and airports, can also be covered under this type of policy. Because the possession of Third Party coverage provides landowners with a Certificate of Insurance showing that coverage is in place, access to more flying sites are accessible for the operation of your aircraft. When one engages in recreational activities requiring the use of a vehicle - whether it be land, water, or air sports related - there are inherent factors that could result in liability issues. No one wants to enjoy an activity and then have the pleasure of it clouded with possible situations that would result in liability claims against their hard earned savings. This Third Party liability insurance for USUA members can help relieve the worry of possible claims against the pilot should this type of situation occur. Additionally, access to airports, flight parks, and flying events often require liability coverage. Many states require insurance of this nature just to operate an airplane of any description. Third party liability coverage is also less expensive than full coverage, and therefore allows the members (insurance holders) the opportunity to enjoy the thrill of aviation without the worry of liability concerns or the expense of high-priced insurance. The people can be only eligible who are a registered, certificated or licensed pilot are eligible. Sport Pilot Students who are endorsed to solo are also eligible. Pilot registration can be with any recognized organization.

3. BAGGAGE LIABILITY This kind of liability may include various reasons in the happening. They are as follows: A. Delays If your bags are delayed, try not to panic. The airlines typically have ways to track them, and about 98 percent of all misplaced luggage is returned eventually. If your bags are on the next flight, you could have them within a few hours. If they've been sent to the wrong airport, it could take a couple of days. Make sure to file your claim immediately at the airport and to give the attendant a hotel or home phone number and address. The airlines will typically bring you your luggage when it is found; you will rarely need to return to the airport to pick it up. Additionally, many airlines will reimburse any unexpected expenses caused by the loss or delay (keep your receipts!). But be careful here -- the airline sometimes has the option to deduct any reimbursement or stipend from any subsequent awards. Before you leave the airport, be sure you know how to check on your bag's status; some airlines have an online system while others will provide you with a phone number to call for updates.

B. Lost Baggage If the airline loses your bags, make sure you get a written claim for damages. This may require a different form than the original "missing luggage" form. This can be done at the airport or by mail. On domestic flights, the airline baggage liability is capped at $3,300 per person. On international trips, the liability limit may vary, as it is governed by various international treaties, including the Montreal and Warsaw Conventions. You may need to produce receipts to prove the value of items you had in your suitcase. If you have them, include copies in any documentation you send to the airline. (Keep in mind that you will be reimbursed for the depreciated value of your items -- so the airline won't give you the full $1,000 you paid for that suit you purchased two years ago.) You can purchase "excess valuation" protection if your checked baggage is worth more than these limits (but before doing so, make sure the items aren't already covered by your homeowner's or travel insurance policy). The airlines typically have a long list of items for which they will not be held responsible; these include jewelry, money, heirlooms and other valuables. These sorts of items should always be packed in your carry-on bag.

C. Stolen Baggage Head directly to the baggage carousel when you get off your flight. Many airlines scan bags when they're loaded into the baggage claim area and keep records, especially at larger airports. Once you've left the baggage claim area, your claim is no longer with the airline, but with the police.

D. Damaged Baggage Once you've gotten your bags off the carousel, immediately check them for damage or other signs of tampering or mishandling. Report any damage before leaving the airport; airline customer service will often want to inspect the bag. Keep in mind that most airlines won't cover minor wear and tear.

E. Cargo and Mail Damage

EXCESS LIABILITY Excess liability is all about the refueling and the defueling of the aircraft. Excess liability is also known as THIRD PARTY WAR RISKS.

AEROSPACE MANUFACTURERS PRODUCTS AND GROUNDING LIABILITY MANUFACTURERS PRODUCTS LIABILITIES This type of insurance is essential for the manufacturer of aircrafts, its components and related equipment. In addition, it is also necessary for those engaged in selling airplanes, its parts or fuel, and for individuals who repair and/or maintain the aircrafts. There are different laws, federal regulations and considerations for commercial airliners versus small planes. General aviation refers to aircraft such as small planes that seat less than 20 passengers and were not engaged at the time of the flight in scheduled passenger-carrying operations. It includes helicopters, as well. Knowledgeable brokers can assist in the process of identifying what type of coverage is necessary on a case by case basis. Coverage This policy protects parties from claims arising from injury or damage caused by defects in the products sold or manufactured or from improperly completed operations. Manufacturers, distributors and sellers can be open to liability even if it is proven that the product was used improperly. Insurance coverage will cover their legal fees needed for defense against claims and class action suits. Statistics Though air traffic is considered to be a safe means of transportation, accidents do occur. Some of the more common causes of many of these incidents are faulty equipment and structural or design problems. Aviation products can cause catastrophic accidents as the result of relatively minor failures.

GROUNDING LIABILITIES This may include liabilities as follows : 1. PREMISES-LIABILITY This basic part of the policy will protect the liability of the operation for the employees while performing their duties. This would be the fueling operation, and any part of the business associated with the office and ramp areas. The facility will add to this policy additional parts to cover the specific needs of each operation. 2. HANGARKEEPERS The larger operations, you know, like a Bell service center with 8 to 10 beautiful ships in various stages of maintenance with full pilot training facilities for instance, is almost always going to have exceptional policies covering their business operations that include what you do. Their policy will cover any person acting on behalf of the operation in the carrying out of

their duties. This policy will protect you if you should do something unintentional that causes damage. An example might be in the process of moving a helo in or out of the hangar with a power tug. If you are watching one side and start the turn too soon and catch the tail boom or rotor on the hangar door or another helicopter sitting next to the one you are moving, the damage you cause will be covered by the coverage.Now let’s say you work for a maintenance only shop with just 1or 2 ships being worked on at any one time. In these difficult economic times, it is not unheard of for some operations to trim expenses and not purchase the Hangarkeepers option of the policy. If you are unsure, work up the courage to ask your boss if you are covered under this part of the policy. Seeing a copy of the declarations page with the policy effective dates will help reassure you and will operations Hangarkeepers also tell you if the coverage has been purchased. 3. TRAINING It is the hope of the insurance underwriters that if you are asked to do something new that you will have received training ahead of time. If you usually move a Robinson R22 or Schweizer 300 and are now asked to move a multi-million dollar Sikorsky S-61, please be sure you ask for training or assistance. This same training will apply to any part of the operation you perform. Even something that seems as simple as fueling or de-fueling must be part of your training before you perform it by yourself. Underwriters would prefer the operation participate in NATA’s Safety 4. IN-FLIGHT-HANGARKEEPERS This coverage is important if you are operating the helicopter in flight. It is not uncommon for an operation to do a test flight after maintenance has been performed or if avionics have been installed or changed. Sometimes a problem reported by the owner can only be replicated while in flight. If you are the one who flies it, be sure you meet all of the pilot requirements of both the operators’ policy and the helicopter owners’ policy. In almost every case, an owner will have an aircraft policy that has as part of their pilot warranty a paragraph that states what qualifications a pilot needs to meet before he can fly as part of a maintenance flight. There are some operators who believe that the owners’ policy will cover any damage that results from a loss to the aircraft while flying under this provision. Remember that the owner has a policy to protect them; not you.

AIRPORTS OWNERS AND OPERATIONS LIABILITY AIRPORT OWNERS LIABILITY The work done by airport employees is considered to involve the greatest level of professional responsibility. Even smallest errors by airport personnel can result in enormous casualties and material losses. Therefore it is important for airport owners to insure not only their property but also third-party liability. Insurance objects:

The Insured’s liability as an airport owners and/or airport structures that may include: A. airport terminal, airfield and other infrastructure; B. fuelling station; C. air traffic control center. Insurance risks: A. liability for causing material damage to third parties; B. liability for causing damage to life and health of third parties. Insurance period: Period specified in the insurance policy – normally one year. The cost of insurance is influenced by: - number of take-off and landing operations; - types of aircraft based at the airport; - passenger and freight flow volumes; - structures comprising the airport; - security measures; - working conditions of air traffic control center. Exclusions: Standard: military risks; risks related to nuclear explosion effects and radiation hazard. Specific: - liability to the Insured’s personnel; - liability for property owned or temporarily possessed by the Insured; - liability for injuries to persons and property resulting unless such activities have been agreed on with the Insurer. Also to mention that airport owner’s liability also includes operations liabilities.

PRODUCT LIABILITY Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who make products available to the public are held responsible for the injuries those products cause. Theories of liability In the United States, the claims most commonly associated with product liability are negligence, strict liability, breach of warranty, and various consumer protection claims. The majority of product liability laws are determined at the state level and vary widely from state

to state. Each type of product liability claim requires different elements to be proven to present a successful claim. Types of liability Section 2 of the Restatement (Third) of Torts: Products Liability distinguishes between three major types of product liability claims: •

manufacturing defect,

•

design defect,

•

a failure to warn (also known as marketing defects).

Manufacturing defects are those that occur in the manufacturing process and usually involve poor-quality materials or shoddy workmanship. Design defects occur where the product design is inherently dangerous or useless (and hence defective) no matter how carefully manufactured. Failure-to-warn defects arise in products that carry inherent nonobvious dangers which could be mitigated through adequate warnings to the user, and these dangers are present regardless of how well the product is manufactured and designed for its intended purpose.

FUTURE OF AVIATION INSURANCE During the past century, man has realized his dream to fly. The aircraft has been developed and partially perfected. The aviation industry, as it is known today, has grown into a set of definable sub-industries based upon usage. Modern-day aircraft range from military to commercial airlines to the most diverse group, general aviation. As with any technologybased industry, aviation continues to grow and develop. New uses for aircraft are identified, better aircraft and avionics are created, and problems are recognized and solved. Although aviation has come a long way in the last 100 years, it is still a developing industry. With growth and development come problems that must be solved before an industry can graduate to the next level. In the United States, aviation is now being confronted with a series of problems that may take as long to solve as the act of flight itself. As aviation enters the new millennium, it is these problems with which the aviation insurance industry must deal. Some are simply growing pains. Others are outside influences for which no simple solution may exist.

LEGAL CONCERNS In many cases, changes in other areas of our society have a great influence over aviation. This is the case with our court system. The trend toward unreasonable verdicts and ridiculous awards has forced many aircraft owners to create shell corporations to "front" as the registered owner of their aircraft. Owners today are uncertain as to how much liability insurance is adequate protection, a situation made far worse by the growing reluctance of insurance underwriters to offer higher limits of liability protection at any price. The

underwriters explain that it is impossible for any aviation insurance company to predict an adequate liability premium rating structure when the court decisions are so volatile and erratic. All aviation insurance companies are heavily reinsured by companies in London and other foreign markets, and those foreign insurers usually charge passenger liability premiums for aircraft operated in the United States that are three to five times as much as those paid by non-U.S. operators. And so it goes for the owner of general aviation and commercial aviation aircraft in the United States. Aircraft owners seem to be trapped between inadequate coverage limits, highpriced liability insurance premiums, and the perils of the U.S. court system.

CAN SMALL AVAITION BUSINESSES SURVIVE In the future, some sectors of the aviation community may simply cease to exist as a result of the threat of financial devastation due to lawsuit. We've had a glimpse of this already when the escalating cost of products liability insurance practically stopped the production of light aircraft in the mid-1980s. It was only after a change in legislation limiting the time an aircraft manufacturer could be held responsible for products liability that our industry resumed production of new light aircraft. In the future, such sectors of general aviation as the small piston repair shop and the small flight training school may not be able to afford the increasing insurance premiums and in some cases may not be able to buy adequate insurance at any price. This may spell the end for many in these businesses. As of February 2000 at least three aviation insurance companies have ceased writing small "Instruction and Rental" risks while others have increased their premiums for this class. The future may see the small maintenance facility replaced with a new-technology aircraft requiring far less maintenance. The same style of maintenance used by the military and airlines -- the remove-and-replace concept -- may become commonplace throughout general aviation as well. Maintenance problems may be identified by computer and repaired only by the manufacturer at factory service centers, a practice that is already common in today's bizjet fleet. "Plug and fly" replacement parts keyed to a computer analysis may decrease cost with little or no downtime. All this, of course, is little consolation to owners of existing, older-technology, maintenanceintensive aircraft. They're not getting any younger ... and neither are we.

AGING FLEET, AGING PILOTS While aviation is not exactly a mature industry, it is aging. Maybe what we're seeing today is just the end of a plateau in the overall development of aviation. The average age of both our pilot population and our fleet (both commercial and general aviation) is increasing. Many commercial and airline pilots today received their initial training in the military. The World War II pilots are now in their 70s and 80s, the Korean War pilots are in their late 60s, and the Vietnam pilots are in their 50s and 60s. One of the most common conversations we have with

our clients and friends concerns how they can extend their insurable years as a pilot. Aviation is a great hobby for our retirement years. Aircraft hull and liability insurance for the senior pilot has become such a concern that our insurance agency has developed a special task force to help deal with this problem. Looking into the future, as the baby boomers age, our average pilot populations continue to age. As with automobile drivers, we have found this segment of our industry to be no more likely to have an accident than the younger group. In fact, they tend to be more cautious, better trained, and better financed than most underwriters care to admit. Maybe it is because we are growing older ourselves, but we believe increased awareness at the underwriting level will soon improve insurance company acceptance and serve to extend the insurable age of the senior pilot. We can assure you, we are doing everything in our power to influence the underwriting community in that direction. Meantime, what can be done to infuse new blood in the cockpit? The industry is currently suffering from a lack of trained professional pilots. Without the military-trained pilot to help fill the need for commercial and airline pilots, we must depend solely upon civilian-trained pilots. This then becomes an economic problem. There is no longer a generous GI Bill to offset the cost of flight training in an age of escalating costs. Many of our charter and corporate clients complain of sending a young second-in-command to school on their aircraft, only to have the airlines snap them up upon completion. The trend toward younger and younger pilots in the right seat is disturbing whether at the charter, corporate, or airline level of operation.

SHRINKING FLEET Primary training costs are increasing for a number of reasons. The high cost of new replacement training aircraft and inadequate and expensive insurance render the training sector of aviation vulnerable to lawsuits and financial disaster, and a shortage of qualified instructors has slowed the flow of new pilots to a trickle. The shortage of career CFIs is due in part to the low pay scale at most flight schools, whose owners respond that they're just barely able to stay in business as it is. The majority of the general aviation aircraft flying today are 15 to 20 years old and older. To replace a simple single-engine Cessna 172 today would cost in excess of $140,000. A new twin-engine Beech Baron is in the $1,000,000 range. Of course, used aircraft are always an option. The obvious problem is that as new replacement aircraft increase in cost, the price of good used aircraft is forced up as well. Today, there are no bargains. It is often a struggle to find a used aircraft for sale with no damage history. Couple the normal attrition of our aging fleet with the high cost of replacement aircraft and it is easy to understand why our overall general aviation numbers are plummeting. Again, a look into the future suggests that the majority of primary training will be done in flight simulators and computerized flight-training devices. As demand increases and technology advances, the full-motion simulator should become much more affordable and so

realistic the only thing left for the student pilot is the checkride. "Safe and inexpensive" will become the name of the game. If you want proof, the military has already adopted this method of training from the combat tank to aircraft and everything in between, and airline pilots are getting type-rated in new transport jets without having ever set foot in the actual aircraft.

TREND TOWARDS TUBINES The current trend for corporate-owned-and-operated aircraft seems to be toward turbinepowered aircraft. If new Barons sell for "a million bucks" out of the factory and a good used King Air is also in the $1 million range, the decision is clear to many which is the preferable aircraft in size, safety and maintenance cost. The myth that a light piston twin is easier to fly than a turbine-powered aircraft is beginning to be dispelled. Now that the underwriting community is imposing virtually the same training requirements upon the multi-engine piston pilot as the turbine operator, there is less advantage in buying the piston-powered aircraft. Couple the ease of operation of the turboprop and jet aircraft with the comparable cost of acquisition, and you have an even more compelling argument against the piston engine. The proof is in the requests our agency receives for insurance quotations. We are seeing increasing momentum toward turbine and jet aircraft. For years, the corporate flight department has insisted upon the business jet for comfort and safety. Now, with the development of the single-pilot jets, there is increased interest from the businessman pilot in Citation SPs, CitationJets, and other new-generation Williams-engine-powered jets. In our opinion, this is clearly a look into the future. With the ease of operation and safety and the decreasing acquisition and operational costs of new-generation turbine aircraft, it is easy to see what the near future holds for the piston-powered aircraft.

TRANING : BETTER MORE EXPENSIVE There is no argument among most commercial pilots and aviation insurance underwriters that full-motion flight simulators should be a part of every training process. You simply cannot practice the emergency procedures in the aircraft that can be demonstrated in a simulator. Although not available for every aircraft at this time, more and more underwriters are requiring simulator-based training at least annually. We get the complaint from many of our clients that the cost to attend FlightSafety or Simcom is too high. Usually, they do not take into account the cost of aircraft operation when comparing this with the traditional inaircraft flight training. There is good news ahead, however. There is more competition in the upper-level flight training area. With increased competition will come improved programs and improved affordability. There will be more flight simulators available for a wider variety of aircraft. In the future, we predict there will be full-motion simulator-based training at every level ... yes, even for primary training. You may see a pilot solo without ever leaving the ground. This is an insurance underwriter's dream!

WHAT DOES THE FUTURE HOLD ? We have no idea what can or should be done about the U.S. court system with its irrational verdicts and out-of-control damage awards. From this standpoint, aircraft owners and operators will continue to be plagued by high liability insurance premiums and inadequate limits. We can only hope that society will wake up at some point, change its attitude toward litigation, and break loose from the hold that attitude has over all of us. Of course, adversity is the mother of innovation (and invention). With this in mind, the future is very bright. New methods of training using simulators at all levels will produce more, better-trained pilots. As these techniques become more available, the costs will continue to decrease. Some of the new-generation flight simulation software for home PCs is quite spectacular, and CFIs tell us it offers excellent training value (although the FAA does not yet recognize this fact). New technology and new production methods may eventually bring down the cost of new aircraft ownership, and a younger, more efficient fleet will be born. A modern fleet of this type should be less expensive to repair and with the improved repair costs, insurance hull premiums will also decline. In addition, these new-age improvements are producing aircraft that are easier to handle and fly. Safety and comfort seem to be a priority. As this permeates our fleet, accidents will surely decrease, and insurance premiums will decline as well. The advent of the computer is changing the way we live our lives, and the cockpit is no exception. First seen in our navigational aids with the very affordable GPS, the computer is revolutionizing the entire look and function of our instrument panels. Tom Chappell, president of our agency, recently attended the open house of one of our clients to view his new Lear 45. This new-generation aircraft is truly an awakening. Sitting in the cockpit wondering just what all the new pretty and colorful screens and dials were, Tom felt as if he was viewing a piece of equipment from a future epoch. The instrumentation, function and completeness of the panel were truly a look into the future of general aviation. The way pilots are trained in the future will be changing -- not just to cut costs, but because the aircraft of the future are here and are like nothing you have ever seen.

INDIAN GOVERNMENT ON AVIATION INSURANCE Indian Aviation Insurance Market Overview 2008 Anant Pawar* The author is the Vice President & Head – Aviation at Aon Global Insurance Brokers Pvt. Ltd. Insurers on aviation growth path Indian Insurers have come a long way in developing the market capacity for aviation insurance business and as India‟s growth story continues, Insurers have kept pace with the growing demand from buyers in India. Today the Indian market is playing a key role in supporting not only buyers in India but also buyers in the subcontinent, including major support to the SAARC region. As the Indian aviation industry

continues to grow, many new buyers have entered the insurance market with requirement for different types of products. Apart from traditional airline and aircraft related insurances, Insurers are now covering different verticals of aviation industry ranging from airports to aircraft manufacturers with bigger risks appetite. The year 2008 has seen heightened level of competition amongst both Public and Private Sector Insurance Companies in an attempt to retain the current market share and to fulfil an ever increasing desire to participate in the aviation growth story. This is more so in the General Aviation (generally aircraft with less than 61 seats) segment where the sum insured limits are within the capacities of many Indian Insurers. General Aviation buyers in India have enjoyed substantially lower premium payouts in 2008 compared to their world and regional peers, as buyers have bargained hard taking advantage of the soft market conditions and excess market quite a few buyers have switched their insurers. On the Airline front, pricing continues to be driven by leading international markets especially in London, as Indian Insurers continue to off load major risks to international companies mainly in the European sub continent, with insurance brokers playing a very important role in the entire process. Market Potential For 2008, Aviations direct premium income in India is circa INR 3,750 million and this includes buyers from all segments including airlines, general aviation, aerospace, airports, ground handlers, catering companies etc but excluding satellite. Over 75% of the total premium comes from the airline segment with another 23% from General Aviation. A very small portion of 2% is contributed by airport, ground handlers, catering segment etc. In addition, capacity. In the process, National Reinsurer, „GIC Re‟ writes substantial international aviation business (mainly by way of inward reinsurance) coming into the country and gradually other insurers are following suit, but with caution. Over the last 10 years GIC Re has emerged as one of the largest aviation reinsurer in the international market and is playing a key role in supporting Indian Insurers. Currently there are over 200 buyers of aviation insurances in the country who need aviation products in one form or other. Many new buyers have entered the market in 2008 and the trend is expected to continue in 2009 albeit at a slow pace. For the airline sector, customer base and number of aircrafts has increased significantly in the past three years but current economic situation is taking a toll on its future growth. When one compares the above limits to 2-3 years back it signifies a jump of over 200%250% and majority of the capacity comes from National Reinsurer, GIC Re. New capacity has entered Indian market especially during 2007, 2008 with Private Insurers buying reinsurance programmes to support their direct underwriting. At the same time existing Insurers have expanded their underwriting limits. It is expected that capacity will be more or less stable during 2009 and as a result dependence on international market for General Aviation is likely to get reduced, but for large airline risks reliance on international market is expected to continue.

Claims Scenario Each Insurer will have its own underwriting experience to show and can vary from its peers considerably depending on their participation on the policies that has produced losses. General Aviation claims in 2008 are expected to exceed Rs. 500 million and 2009 has started

on a bad note with claims in first five months exceeding Rs.350 million. As against this, past 10 years average general aviation losses are hovering around Rs.400 million. When we compare these claim figures against the total general aviation premium in India, one may come to a conclusion from the insurers perspective that general aviation is profitable over the last 10 years period. This may not be true for all insurers, especially considering the fact that 10 years average loss figure consists of two or three major losses in each year. Insurers participating on these losses would have been hit hard. Majority of the losses in the last 10 years are on account of aircraft damages and liability claims forma a very small portion of it. However, by no means does this give any indication into the future considering the catastrophic nature of aviation business.

Montreal Convention The Indian Government ratified “Montreal Convention 1999” in March 2009 and currently it applies to international travel. There is nothing on record at this stage to show that the revised liability limits are applicable to domestic sectors. In brief, the Convention has increased compensation levels for international passengers in the event of death or bodily injury and damage and delay to the passenger baggage and cargo. While the compensation for death or bodily injury has increased almost 7 times from the existing levels of approximately USD 20,000 to around USD 140,000, the compensation for damage to the checked baggage has increased from approximately USD 20 per kg to around USD 1,400 per passenger. The compensation for damage to cargo has increased from USD 20 per kg approximately to USD 24 per kg. The Warsaw System, which is in force in India by way of Carriage by Air Act, 1972 had allowed four choices of jurisdiction for filing of a claim by the passenger, namely, place of issue of ticket, principle place of business of the carrier, the place of destination of the passenger and the place of domicile of the carrier. Through the Montreal Convention a fifth jurisdiction is added which is the place of domicile of the passenger, provided the airline has a presence there. Therefore an Indian would be able to file claim in India even if the journey was undertaken outside India. Liability Limit for domestic passengers in the event of death or bodily injury continues to be at the old level of Rs.750,000 for passengers above 12 years of age and Rs.350,000 for below 12 years. As regards damage and delay to the passenger, baggage compensation is Rs.4,000 per passenger for hand baggage and Rs.450 per kg for registered baggage. So far, Insurers have responded very positively by covering their customers based on the revised limits for international travel and it remains to be seen whether new limits will be applicable for domestic travel as well and its impact on the liability claims scenario.

Aviation Liability Insurance Limits in India: Western European countries including countries in the Far East namely Hong Kong, Singapore have adopted regulations specifying minimum liability insurance limits for aircraft based on the “maximum take off weight of the aircraft” and “passenger seating capacity”, however India is yet to adopt any such regulations. Even neighboring countries like Sri Lanka and Nepal have minimum liability insurance requirements for aircraft and it may not be too

long before India adopts such requirements. While Airlines and Corporate Jet owners are buying liability limits in line with the international trend, there is no similar trend when it comes to helicopter operators. Like Airline policies, liability limits on Corporate Jets many times are driven by financing /purchase agreements; however helicopter operators tend to buy low limits

AVIATION INSURANCE SERVICE PROVIDERS IN INDIA- NEW INDIA LIFE ASSURANCE CO. LTD In India the one company which provides aviation insurance as a service is New India Life Assurance Co. LTD This company provides this service as a commercial product to the aviation sector. Started in 1946 as Aviation Insurance of Air India, company provides professional aviation insurance advice and solutions to the needs of small aircraft operators as well as scheduled airlines. The aviation portfolio encompasses following type of covers. •

Hull All Risk Insurance Policy

This policy is suitable for small aircraft operators belonging to flying clubs, companies engaged in agricultural spraying operations, aircrafts especially designed for VVIPs, business executives and for those engaged in industrial aids. The policy scope includes all physical loss or damage sustained by the insured aircraft including total loss, disappearance. All losses are paid subject to deductibles. •

Spares All Risk Insurance Policy

Covers loss or damage to spares, tools, equipments and supplies owned by the insured or the property for which the insured is responsible whilst on ground or in transit by land, sea, air including in own aircraft or whilst on the premises of others for storage only. •

Hull/Spares War Risk Insurance:

Indemnity is provided to the aircraft as well as spares caused by war, invasion, acts of foreign enemies, hostilities, civil war, rebellion, revolution, resurrection, martial law, strikes, riots, civil commotion, malicious acts, sabotage. •

Hull Deductible Insurance:

Airlines at times have to bear a proportion of loss due to application of a deductible under All Risk Policy, which may impose considerable financial difficulty on the insured. Therefore the operators insure part of their deductibles under this kind of insurance. •

Aviation Personal Accident (crew member) Insurance

This cover is designed to cover insured person against injury, disablement or death arising as result of an accident that is generally granted on annual basis. The cover operates while

mounting or dismounting from and whilst traveling an aircraft while the aircraft is being used within the geographical scope as per its permitted usage. This cover can also be on 24 hours basis. The capital sum insured varies according to the status of the insured or earning capacity and fixed by the insurers. •

Loss of License Insurance

Operating crews of the aircraft are required to have valid license. License is liable to be suspended either temporarily or permanently on medical grounds. Consequential financial loss is covered by the loss of license policy. Cover provided is in respect of incapacity causing permanent total disablement or temporary total disablement due to bodily injury or illness. Besides the aforesaid general aviation policies New India Assurance Company also provides various other tailor-made insurance as per specific requirements of the insured. •

Claims

In case of claims following are illustrative documents that are generally called for from the insured : •

Documents in connection with aircraft details

•

Documents in connection with flight details

•

Documents in connection with the accident

•

Certificate of airworthiness/registration

•

Crew details

•

Maintenance & engineering information

•

Operational manual passenger documentation in case of claims

FORMS REGARDING AVIATION INSURANCE CLAIMS There are basically three types of forms provided by the company regarding aviation insurance. They are as follows: 1.

Personal Accident Insurance Forms

2.

Aircraft/ Aviation Liability Insurance Forms

3.

Loss of Flying License Insurance Forms