Aviation Insurance | a Basic Introduction and Historical Background - Aviation Professional

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Wednesday, October 20, 2021

Aviation Insurance | a Basic Introduction and Historical Background

 

Aviation Insurance

 Aviation insurance is a highly specialized sector designed to meet the needs of aircraft manufacturers, airlines, airports, general aviation, and other aviation support services. The basic aviation insurance policies came from marine insurance and other familiar general insurance forms – especially fire and automobile. Unlike automobile insurance, it's hard to cover all aspects of aviation insurance with single insurance. Many aviation insurance companies even provide different insurance. For example, aircraft insurance depends on whether the aircraft is flying, on the ground, or the aircraft is in another operation condition ex. Aircraft in the hunger, flight training, etc.

Because of many aviation insurances conditions, insurance companies offer many different possibilities to find individual solutions for both general aviation and commercial aviation. What you need to know is that aircraft aren't the



only object of value when it comes to aviation insurance after all. There are special aviation insurance services for hangers, airports, ground support equipment, maintenance facilities, avionics, and many more
.

 

In this article on aviation professional, I am going to give you a basic introduction and historical background about aviation insurance. But if you are interested in using aviation insurance services,  let your aviation company or insurance broker help you with the perfect aviation professional indemnity insurance for you after aviation risk assessments.

 

What is the meaning of insurance?

Insurance is primarily designed to protect the insured(s) against loss or damage caused by unforeseen or unexpected future events (i.e., events which cannot be predicted or otherwise guarded against).

Since insurers intend to cover events of a contingent nature, they will not insure against future events which are certain to occur. Neither will insurance cover loss or damage deliberately caused by the insured.

Simply, how does aviation insurance cover work?

Is this your question!

Ok, I will tell you. Aviation insurers provide insurance cover for insureds (airlines, manufacturers, airports, service providers {refuellers, caterers, security screeners, and the like}) against loss, damage, and liability, in return for premiums. Insurers in turn pay premiums to reinsurers to offset part of the risk. The risk that an insurer can prudently cover is determined by the sum of funds from his capital providers; retained profits, and any reinsurance he has purchased.

Aviation Insurance History

1-  Lloyds London Aviation Insurance

Lloyds London was the first to make aviation insurance possible in 1911 when the first policy was developed by it.

In July 1912, Lloyd’s agreed to cover legal liability on some aircraft participating in an air meet. Unfortunately, the weather was bad, the crashes were numerous, and the losses on the policies were so bad that the underwriters completely gave up insuring airplanes.

Underwriters at Lloyd's considered the aircraft unsafe, and therefore only covered persons and property. Interestingly, the basic airplane policies were derived from the earlier marine insurance language, and they referred to the aircraft as a "hull."

This was just before the opening of the World War on 28 July 1914. It had been ten years since a man had first flown in a heavier-than-air machine, but in those few years, the growth and development of aviation had made it necessary that the protection afforded by insurance become available. There were only a few policies written on aircraft at that time.

After the war, planes became more reliable and insurable. On May 1, 1919, The Travelers Insurance Company began offering a comprehensive policy that in many respects launched U.S. aviation insurance. It provided public liability protection, life insurance, workers' compensation, and trip accident coverage. For aircraft public liability protection, the form followed the automobile policy except for separate passenger liability coverage within the aircraft liability policy.

In 1928-1929 three pools of underwriters were organized to write aviation insurance. Aero Insurance Underwriters succeeded Barber & Baldwin, Inc., a New York agency that handled many early Lloyd's policies on American planes.

After 1929, several large financial groups established holding companies for aviation investments. They began by acquiring many small airlines and then purchased manufacturers of aircraft and aircraft parts.

 

2- Aviation Insurance After 11 September 2001

The terrorist attacks were an unprecedented event with losses on a scale never before contemplated by governments or the insurance industry, far exceeding previous manmade or natural catastrophes such as Hurricane Andrew. Aviation insurers updated many aviation insurance policies and conditions, especially after the fact of the possibility of further occurrences anywhere in the world, particularly arising out of the use of aircraft to cause third-party damage. The shock which Aviation insurers faced is the fact of: if a risk cannot be quantified then it cannot be sensibly priced. The fundamental problem was the unquantifiable nature of the new third-party risk. 

11 September 2001 terrorist attacks result in an additional premium of US$1.25 per passenger carried by airlines. And surcharge of third-party liability covers within airline policies.

3- Impact of the Outbreak of a Covid-19 Pandemic

as we know, the aviation industry has directly suffered the negative impact of theoutbreak of a Covid-19 pandemic, especially due to the total or partial airspace closure in several countries and the consequent cancellation of most scheduled flights. Beyond this, other industries (related to the aviation industry), such as the aviation insurance market, also faced a new and challenging scenario that affect their businesses.

Changes to the factual conditions of daily aviation activity Led to change in the circumstances around the aviation insurance policies. In the first place, there have been changes to the uses of insured aircraft. Since most commercial and private flights have been canceled while, by contrast, cargo flights continue to fly regularly, some airlines have adapted their commercial aircraft to operate cargo flights and, thereby slightly reducing the income losses caused by the measures taken on the occasion of the pandemic. During that time, airlines and aviation insurance companies faced new challenges due to the changes of uses and operations of the aircraft under aviation insurance coverage.  airlines were forced to communicate to aviation insurers of the new operating conditions to ensure that such changes are not excluded from the coverage.

 

 

"Aviation in itself is not inherently dangerous. But to an even greater degree than the sea, it is unforgiving of any carelessness, incapacity, or neglect." a famous quote from Captain A. G., in 1930. 

 

In the next article, I will give you more details regarding the insurance coverage such as hull insurance, general liability insurance etc. 

 


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