TECHNICAL REVIEW OF AVIATION INSURANCE MAY 2017

Transcription

1 TECHNICAL REVIEW OF AVIATION INSURANCE MAY 2017

2 Today s Programme Introduction Aviation Hull and Spares All Risks and Liability Aviation Hull and Spares War and Allied Perils Aircraft Hull and Spares Deductible Aviation War, Hi-jacking and Other Perils Excess Liability (Excess AVN52E) Additional Airline Insurance Extensions of Cover Additional Non Aviation Airline Insurance Coverages Other Issues to Consider A Quiz!

3 Introduction

4 What Determines Coverage Purchased? Clients requirements Aircraft type Nature of operations Geographical area of operation Regulatory requirements Contractual obligations Corporate governance Commercial considerations

5 What is a Typical Airline Insurance Programme Structure? 1. Aviation Hull and Spares All Risks and Liability 2. Aviation Hull And Spares War and Allied Perils 3. Aircraft Hull And Spares Deductible 4. Aviation War, Hi-jacking and Other Perils Excess Liability (Excess AVN52)

6 PROGRAMME STRUCTURE 6

7 Aviation Hull and Spares All Risks and Liability

8 Hull All Risks Coverage Covers all risks of loss of or damage to aircraft unless otherwise excluded Covers flight and ground risks Coverage includes ingestion/foreign Object Damage (FOD) caused by a single recorded incident Main Exclusions Items detached from aircraft and held as spare parts Loss of Use War, Hi-jacking and Other Perils Exclusion Clause AVN 48B Nuclear Risks Exclusion Clause AVN 38B Mechanical Breakdown / Wear and Tear / Ingestion (other than arising from a single recorded incident)

9 Mechanical Breakdown?

10 Wear and Tear?

11 Ingestion?

12 Hull All Risks Sum Insured Insured on agreed value basis (subject maximum hull value) Total loss/constructive total loss: Pay agreed value as declared by airline and agreed by insurers for each aircraft Partial losses pay for cost of repairs less deductible Jet Deductibles Wide-bodied US$1,000,000 Hybrid US$750,000 Narrow bodied US$500,000 Not applicable in the event of total loss / constructive total loss / arranged total loss

13 Hull All Risks Additional Provisions? Lay-up returns clause Missing aircraft Forced landing, salvage charges and expenses Cost of repairs Loss payee provisions (leased/financed aircraft) Leased components with stipulated loss value (engine gross up clause)

14 Spares All Risks Coverage Covers all risks of loss or damage to aircraft engines, parts or equipment owned by the Insured or for which they are responsible whilst held as spares Covers spares whilst in storage or in transit (by sea or air/or by any means of conveyance) Can be extended to include tools, ground support vehicles, etc Covers engine testing and running

15 Spares All Risks Main Exclusions? Mechanical/electrical breakdown, wear and tear. Inventory losses Loss arising under process and directly resulting therefrom (can be written back) Any spare whilst fitted to an aircraft Property of others stored or carried for hire or reward War, Hi-jacking and Other Perils Exclusion Clause (AVN 48B) (may buy-back cover normally in conjunction with hull war) Nuclear Risks Exclusion Clause AVN38B

16 Spares All Risks Limits Normally insured on a replacement value basis up to value declared - will pay cost of repair in event of partial loss (less deductible) Can insure specific larger items for an Agreed Value Subject to a limit per occurrence / sometimes per location or transit Average Value at Risk Deductible US$ 10,000 each claim, but for engine running/testing losses the hull all risks deductible applies

17 Spares All Risks Question: When is a spare not a spare? Answer:? Question: At what point does a spare become a spare? Answer:?

18 Spares All Risks Example of Definition (where replacement of removed part is intended): Parts being removed until the moment such part is safely in contact with the ground or the trolley/stand on which it is to be located when the process of removing it from the aircraft is completed and it is totally disconnected from the aircraft. Parts being attached from the moment that such part ceases to be in contact with the ground or the trolley/stand on which it is located when the process of fitting it to the aircraft is commenced.

19 Aviation Legal Liability Coverage: Will indemnify against legal liability for bodily injury or property damage suffered by third parties (including passengers baggage and cargo) arising from the aviation operations of the airline and caused by an Occurrence What is an Occurrence? Occurrence means an accident, happening or event or a continuous or repeated exposure to conditions occurring during the period of this Policy which results in Bodily Injury and/or Property Damage neither expected nor intended from the standpoint of the Insured.

20 Aviation Legal Liability What clause gives effect to the coverage? Non-Aviation Liability Clause AVN59 defines extent of aviation liability: Occurrences involving aircraft or parts or equipment Occurrences arising at airport locations Occurrences arising at any other location in connection with the Insured s business of transporting passengers or goods by air Occurrences arising out of the supply of goods or services to others: in connection with the use and/or operation of aircraft involved in the air transport industry Subject to policy conditions and exclusions

21 Aviation Legal Liability Main Exclusions? "Non-Aviation" risks e.g. Employers Liability/Motor liability Damage to property owned, leased or rented by the Insured Nuclear risks (AVN38B) Noise, pollution, contamination, electrical interference (AVN46B). War, Hi-jacking and Other Perils Exclusion Clause AVN48B, written back by AVN52E except Article (b) (Hostile detonation of nuclear weapon). Asbestos (2488AGM00003) Liability assumed under Contract (unless otherwise agreed) Liability arising from criminal acts/ financial default/etc. Product defect rectification

22 Aviation Legal Liability Limits: Combined Single Limit (Bodily Injury/Property Damage/Personal Injury) for liabilities any one occurrence but in the aggregate in respect of products liability Personal Injury sub- limited to US$25,000,000 any one offence and in the aggregate Non Aviation Excess Liability sub-limited to US$25,000,000 any one occurrence and in the annual aggregate, in excess of underlying insurance Third Party War and Allied Perils Liability AVN52E also sub-limited, normally US$250,000,000, but can be up to US$500,000,000 each occurrence and in the annual aggregate

23 Aviation Legal Liability An example of limit size based on EC785/2004 Regulation EC785/2004 and EC285/2010 Insurance Requirements Minimum Limits: Passenger Liability SDR250,000 per passenger Third Party Liability - See table below Baggage Liability SDR1,131 per passenger Category Maximum Take-off Mass Minimum Insurance Cargo Liability SDR19 per kilogram (MTOM) (kg) (million SDRs) 1 < < < < < < < < < Aircraft Reg. MTOM (Kg) Third Party Limit Passenger Seating inc. babes in arms Passenger Limit inc. babes in arms Baggage Limit Cargo Capacity (Kg) Cargo Limit Total Limit req. per aircraft - SDR R/E SDR - USD (see w.imf.org/) Third Party Limit - USD Total Limit req. per aircraft - USD A319 75, ,000, ,000, ,436 6, , ,305, ,120, ,984,080

24 Aviation Legal Liability What deductibles apply? Baggage Legal Liability: US$ 1,250 each and every claim (but up to US$ 3,300 for U.S. carriers) Cargo Legal Liability: US$ 10,000 each and every claim (but can be US$ 5,000 in certain cases) Not applicable in the event of an accident to carrying aircraft/avn52e risks/losses arising out of fire, explosion, earthquake etc

25 Aviation Legal Liability Extended Coverage Endorsement (Aviation Liabilities) AVN52E: AVN52E writes back all sub paragraphs of AVN48B except Nuclear exclusion (b) and War involving two of the Major 5 Powers Third party war liability coverage usually limited to US$250,000,000 (but can be up to US$500,000,000) each occurrence and in the annual aggregate (except in relation to passengers and their baggage or to cargo and mail on board an aircraft where full limit applies) Seven days notice to review premium and/or geographical limits 48 hours notice following hostile detonation of nuclear weapon Seven days notice of cancellation Automatic termination in certain circumstances

26 Aviation Legal Liability Additional Provisions? Defence and Settlement costs Supplementary Payments Funeral Expenses Wreckage Removal Runway foaming Search and Rescue Public enquiry Humanitarian expenses Personal Injury Liability Extension, including: False arrest, restraint, detention, imprisonment Malicious prosecution/inadvertent discrimination Publication or utterance of libel or slander/incidental medical malpractice

27 Aviation Legal Liability - Selected Policy Conditions Airworthiness/comply with applicable regulations Issuance of tickets/waybills Advice of material alterations Cancellation clause (30 days but seven days for AVN52E coverage) Individual contracts to be agreed by insurers unless provided for in the policy. Claims notification/no admission of liability

28 Aviation Hull and Spares War and Allied Perils

29 Hull War and Allied Perils Coverage Covers loss of or damage to aircraft by the following war and allied perils as excluded from all risks policy: War, invasion, civil war, rebellion, revolution, military coup etc Strikes, riots, civil commotion Acts for political or terrorist purposes Malicious acts Confiscation/requisition of aircraft by Government, etc Hi-Jacking

30 Hull War and Allied Perils What policy forms are available? Standard market wording LSW 555D A few airlines still have part of policy placed on LSW555B basis AVS103 50:50 Provisional Settlement Clause

31 50 : 50 Clause MH370 Flight Path

32 MAJOR AIRLINE HULL WAR LOSSES IN notable losses came from MH370, MH17, the Karachi Airport attacks and the Tripoli Airport attacks in July which produced the largest loss of the year for Hull War underwriters Loss Date Operator Aircraft Type 08-Mar-14 Malaysia Airlines (MH370)* B Jun-14 Karachi Airport Attack Various 13-Jul-14 Tripoli Airport Attack** Various 17-Jul-14 Malaysian Airlines (MH17) B Total: 32

33 MAJOR AIRLINE HULL WAR LOSSES IN 2015 Airline Hull War losses continued in 2015 Whilst the cost of the airline Hull War losses in 2015 was relatively small in comparison to 2014, on average most underwriters in the sector will have still suffered a consecutive loss making year - especially once other smaller claims, and their operational costs and expenses are factored in Loss Date Operator Aircraft Type 24-Mar-15 Germanwings A Apr-15 Yemania Airlines B747-SP 28-Apr-15 Felix Airways CRJ-701ER 31-Oct-15 MetroJet A Dec-15 Pegasus Airlines B Total: 33

34 Hull War and Allied Perils LSW555D Main Exclusions? War between UK, USA, France, Russian Federation, China Confiscation etc. by government of registration (can be written back) Repossession or attempted repossession by title holder or arising out of any contractual agreement Delay, loss of use, consequential loss Use of chemical or biological materials Use of radioactive contamination ( Dirty Bombs ) Use of an electromagnetic pulse (EMP) Detonation of nuclear weapon Write-backs of certain weapons of mass destruction exclusions provided by LSW555D wording

35 Hull War and Allied Perils WMD exclusion write-backs as follows: LSW 555D Wording Section Three General Exclusions (c) (chemical or biological materials) and (g) (radioactive contamination) not applicable when use is hostile and originates solely and directly on board aircraft or external to aircraft whilst in flight LSW 555D Wording Section Three General Exclusion (h) (EMP) not applicable if such use originates solely and directly on board aircraft

36 Hull War and Allied Perils Sum Insured / Limits Each aircraft covered for the same agreed value as under the hull all risks policy subject to an overall policy annual aggregate Deductible No deductible

37 Hull War and Allied Perils Additional Provisions? Extortion and Hijack Expenses (usually 90% of payments properly made) with a separate limit within the policy aggregate Leased components with Stipulated Loss Values Innocent Operators Confiscation, etc by Government of Registration (can be covered where required, subject to a sublimited policy aggregate limit)

38 Hull War and Allied Perils Cancellation, revision and automatic termination provisions: Insurers may issue seven days notice to review premium and/or geographical limits at any time Automatic review of premium and/or geographical limits on expiry of seven days from hostile detonation of nuclear weapon Insured or insurers may cancel policy by giving seven days notice prior to the end of each policy quarter Automatic policy cancellation in the event of war between UK, USA, France, Russian Federation, China (if aircraft are in the air, coverage continues until first landing) Material Change in Operations provision (no cover until agreed by insurers)

39 Hull War and Allied Perils New Non-Cancellation Hull War product developed by JLT has recently been utilised by a number of carriers Automatic review of premium and/or geographical limits on expiry of seven days from hostile detonation of nuclear weapon Automatic policy cancellation in the event of war between UK, USA, France, Russian Federation, China (if aircraft are in the air, coverage continues until first landing) Material Change in Operations provision (no cover until agreed by insurers)

40 Spares War and Allied Perils Usually arranged in conjunction with hull war policy Coverage for paragraph (a) of LSW 555D (War) limited to transit by air, sea or inland waterway only (no coverage on ground) Subject to the annual policy aggregate limit

41 Aviation Hull and Spares Deductible

42 Hull Deductible Insurance Coverage A separate policy to indemnify against the amount of deductible applied on the hull or spares all risks policy A method of reducing the deductible to a more acceptable level Main Exclusions Should mirror the all risks coverage - so no further exclusions should be applied. Need to ensure that mechanical breakdown exclusion and ingestion clauses mirror hull all risks policy

43 Hull Deductible Insurance Limits To pay up to the deductible amount under the all risks policy in excess of a specified amount, for example: Hull all risks deductible:- US$1,000,000 Deductible policy pays:- US$900,000 excess of US$100,000 Aggregate limit during policy period

44 Aviation War, Hi-jacking and Other Perils Excess Liability (Excess AVN52E)

45 Excess AVN52E Coverage Excess Third Party AVN52 coverage Can be non-cancellable and extend to include passengers in the event of cancellation under primary policy. Limits excess of primary limit of usually on a difference between basis Required by lessors in absence of Government Indemnity

46 Excess AVN52E Cancellable Policy Covers excess third party war and allied perils liability only Drops down if primary policy exhausted No passenger liability coverage in the event that AVN52E is cancelled under the primary policy Limits generally up to US$1billion any one occurrence/us$2 billion in the aggregate / some big airlines carry higher limits 30 days cancellation clause in respect of AVN52E item 5.c.

47 Excess AVN52E Non-Cancellable Policy Covers excess third party war and allied perils liability Drops down if primary policy exhausted or cancelled Will cover passenger liability in the event that AVN52E is cancelled under the primary policy Limit generally up to US$1billion any one occurrence/us$2billion in the aggregate Non-cancellable except by mutual agreement/following hostile detonation of atomic or nuclear weapons/non-payment of premium Originally available for selected major airlines, but now more generally available

48 Additional Airline Insurance Extensions of Cover and Policies

49 Additional Airline Insurance Extensions of Cover What are they? Hull All Risks and Hull War Total Loss Only Buyer Furnished Equipment Contingent hull and liability Flight spares kits Diversion expenses due to sudden passenger illness Passenger voluntary settlement Unearned Premium Insurance (U.P.I)

50 Additional Airline Insurance Extensions of Cover What are they? Passenger In-flight Entertainment Systems Risk Management Bursary Additional Cost of Working Coverage Corporate Manslaughter Defence Costs

51 Additional Airline Insurance Coverages What are they? Engine mechanical breakdown Personal accident Loss of license Extra Expenses / Business Interruption (eg volcanic ash)

52 Additional Non Aviation Airline Insurance Coverages

53 Additional Non Aviation Airline Insurance Coverages - Some examples Directors & Officers Cyber liability Kidnap & ransom Property including business interruption Crime Employers Liability Registered Motor Vehicle Liability

54 Other Issues to Consider

55 Sanctions and Embargo Clause AVN111 & AVN111R In view of complexity and criminal penalties (re)insurers are referring sanctions related issues to their Compliance Divisions for a decision on whether they can offer cover Use of AVN111 & AVN111R now generally standard

56 UK EXPORT CONTROL ORDER 2008 Individual Licences including for UN Contracts were taking months to be processed by Department for Business Innovation & Skills (BIS) and London Market losing business LIIBA/LMA/IUA lobbied BIS for fast track process for UN Contracts OPEN GENERAL TRADE CONTROL LICENCE (OGTCL) came into force 28/11/2011 available to all UK insurers and brokers Removes need for brokers to apply for individual licence for (re) insurance transaction relating to eligible UN operations OGTCL process requires Head Insurance Party to register for all UK (re) insurers ( Additional Insurance Parties ) within 30 days of licence being used following agreement of (re) insurers to cover Check with your JLT contact for full details

57 Thank you for your time and attention The Quiz

58 PRACTICAL EXERCISE Team A Diego Leyla Vera Vicky Rosalie Joko Reda Pham Team B Liva Jesus Susanna Panu Nuno Niels Dorygel Elnara Team C Gavin Janejira Lex Ayush Anton Maidelis Raquel Anett Team D Phanu Jan Sylvia Vitali Lauren Feride Hendrik Veronica Team E Caroline Luz Maria Sally Loubna Jintareeya David Matthew 58