Professional Documents
Culture Documents
Page 1 of 74
Page 2 of 74
A PROJECT REPORT ON
BACHELOR OF COMMERCE
BANKING &INSURANCE
N.G.ACHARYA & D.K. MARATHE COLLEGE
Page 3 of 74
SEMESTER-VI
YEAR 2015-16
SUBMITTED BY
ONA JACINTO
ROLL NO.14
PROJECT GUIDE
PROF.DHANYA PANICKER
CERTIFICATE
N.G. Acharya & D.K. Marathe College of Arts, Science & Commerce
Page 4 of 74
(Naac-Accredited)
Signature of Co-ordinator
examiner
signature of principal
signature of external
ACKNOWDLEDGEMENT
I would first thanks to Mumbai University for introducing the Bachelor of
Banking & Insurance course. Thereby giving us a platform to conduct this
study that has helped us to gain practical knowledge about the course.
N.G.ACHARYA & D.K. MARATHE COLLEGE
Page 5 of 74
I would like to extend my thanks to our Principal Dr. D.M. Muley and Vice
Principal Mrs. Akila Maheshwari for their constant efforts to conduct this
course smoothly.
Date:
Place: Mumbai
signature of student
DECLARATION
I Ona Jacinto the student of N.G. Acharya & D.K. Marathe college of Arts,
Science and Commerce studying in T.Y. (Bachelor of Banking and Insurance)
N.G.ACHARYA & D.K. MARATHE COLLEGE
Page 6 of 74
Date:
Place: Mumbai
signature of student
functioning.
Page 7 of 74
close
observation
of
the
problems
faced
in
implementation.
Executive Summary
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.
Page 8 of 74
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.
This report the Indian Insurance sector, History of insurance in India, History
of Aviation Insurance, products & features of Aviation Insurance,& Effects Of
9/11 Attack On Aviation Insurance.
INDEX
Page 9 of 74
SR.N
O
CHAPTER
1.
2.
PG.N
O
8-11
3.
24-54
4.
55-61
5.
62-66
6.
67-68
7.
Conclusion
69
8.
Bibliography
70
CHAPTER 1
Page 10 of 74
Page 11 of 74
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.
Page 12 of 74
Page 13 of 74
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.
Page 14 of 74
CHAPTER 2
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:
AVIATION
INSURANCE
NORMAL
RISKS
LIABILITIE
S
The above diagram suggests that 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.
Page 15 of 74
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
Page 16 of 74
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 affected 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.
Page 17 of 74
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.
Page 18 of 74
The hull risk does not cover some risks whish are as follows
N.G.ACHARYA & D.K. MARATHE COLLEGE
Page 19 of 74
1. Wear, tear and gradual deterioration - in common with most nonmarine 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"
Page 20 of 74
Page 21 of 74
The brutal second plane crash in World Trade Center, New York, United States
of Ameica, 11 September, 2001
Page 22 of 74
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.
Page 23 of 74
Page 24 of 74
working inside
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.
Page 25 of 74
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.
Page 26 of 74
CHAPTER 3
LIABILITIES IN AVIATION INSURANCE
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
Page 27 of 74
AIRCRAFT LIABILITY
Here in aircraft liability there are many other liabilities involved which are further
divided into four parts. They are
AIRCRAFT
LIABILITY
PASSENGE
3RD
BAGGAG
CARGO
PARTY
AND
MAIL
These are the kinds of liabilities which are covered in aviation insurance the explanation in
detail is given below
Page 28 of 74
PASSENGER LIABILITY
Coverage
for
aircraft operators in
the
event
passenger is injured,
killed
or
disabled
during
an
accident
while
aboard
an
insured
aircraft.
Aviation
policies
divided
liability
coverage
into
two
Page 29 of 74
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
Page 30 of 74
Concorde crash on a hotel near Paris Airport just few minutes after the take of
which resulted in destruction of the hotel it fell on, 25 July, 2000
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
Page 31 of 74
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 occurs. 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.
Page 32 of 74
BAGGAGE LIABILITY
This kind of liability may include various reasons in the happening. They are as follows:
1. 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.
Page 33 of 74
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.
2. Lost Baggage
Page 34 of 74
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
baggage
capped
airline
liability
is
$3,300
per
at
person. On international
trips, the liability limit
may
vary,
governed
as
by
it
is
various
international
treaties,
including
Montreal
the
and
Warsaw
Conventions.
A place consisting lost baggages in airport
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).
Page 35 of 74
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.
3. Stolen Baggage
Head directly to
the baggage
carousel
Many
airlines
into
the
you've left the baggage claim area, your claim is no longer with the
airline, but with the police.
4. Damaged Baggage
Page 36 of 74
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.
Page 37 of 74
According to,
In case such an irregularity should affect your shipment, a claim can be filed with Martinair
Cargo Claims.
Page 38 of 74
In order to facilitate and speed up the claim handling process, we kindly would like to draw
your attention to the following:
Make sure that the damage of the shipment is noted on the release form/delivery receipt
of the warehouse.
If possible, please take (digital) pictures of the damaged shipment upon receipt of your
cargo at the final destination, as recorded on the Airway Bill.
To strengthen your case, you can appoint an independent and objective surveyor.
However kindly be advised that the decision to appoint a surveyor is up to the claimant as
the claimant always has to provide independent evidence in order to prove the extent of
the damage as claimed for.
Send a written preliminary claim to Martinair Cargo Claims within 14 days from the date
of delivery at the final destination.
Measure the temperature of the shipment upon release and measure the boxes on the
outside of the pallets in case of complete pallet delivery. Please record the temperature on
the release form/delivery receipt of the warehouse.
Page 39 of 74
To strengthen your case, you can appoint an independent and objective surveyor to check the condition
of your perishable shipment. Please make sure that your shipment will be surveyed as soon as possible
but not later than 8 hours after arrival at your premises: perishables are time sensitive and/or
temperature sensitive commodities, therefore only a survey done shortly after arrival of the cargo will
be considered as an objective survey.
Page 40 of 74
Definition: loss is defined as all pieces (mentioned on the Master Air Waybill) reported
missing
2
3
Send a preliminary claim to Martinair Cargo Claims within 120 days from the date of
issue of the Master Air Waybill.
Partial loss is defined as one or more pieces of the total shipment (mentioned on the
Master Air Waybill) are reported missing
Pilferage is defined as the loss of one or more items out of one or more pieces
Send a preliminary claim to Martinair Cargo Claims within 14 days from the date of
delivery (both partial loss and pilferage are considered as damage).
Make sure, that partial loss and/or pilferage is noted on the warehouse release
form/delivery receipt of the warehouse or on the Trucking document in case of direct
deliveries. In case of pilferage, please also establish the weight discrepancy.
Vendors / shippers invoice covering the complete shipment. Please explicitly indicate
the items / pieces claimed for. Please note that Martinair Cargo cannot offer full
compensation based on the commercial / sales invoice as a refund for loss of profit is not
part of our contractual liability.
Page 41 of 74
Packing list. Please indicate the items / pieces claimed for Cession of Rights, if required,
from the party (shipper / consignee as mentioned of the Master Air Waybill) entitled to
claim, which states that your company is authorized to act on their behalf.
3
4
Copy of the Martinair Master Air Waybill (and if possible a copy of the relevant House
Air Waybill).
5
A specification of the amount claimed for (by means of a shippers invoice, an
independent survey report, a bill of sale or a bill of repair).
1
In case your claim concerns damage / depreciation, please enable us to verify the
extent / direct consequences of the irregularity by also enclosing:
1
Independent and objective survey report, if issued. In case the amount of the damage /
depreciation is expected to be below the costs involved in employing a surveyor, a survey
report obviously is not required. Please note that the decision whether or not to involve a
surveyor is entirely yours. The presence of an objective survey report, however, will
never reduce the strength of your case.
Destruction report, in case the shipment was no longer fit for sale.
3
4
Bill (s) of sale, in case the shipment was still fit for sale.
Only upon receipt of the information as requested above, your claim can be taken into
consideration. If any of these documents are not available, please explicitly state so. Please be
informed that an adequate and sufficient provision of all relevant documents enables a swift and
efficient claim handling procedure.
Page 42 of 74
Claims will be handled in accordance with the applicable Conventions and /or General
Conditions and / or Conditions of Contract.
An airline can only be held responsible for proven irregularities which can be held
against the carrier and which occurred while being under its custody. This means the
period from acceptance of the shipment at the airport of departure until delivery at the
airport of destination.
The maximum liability of Martinair Cargo is limited. We refer to the relevant provisions
of the Warsaw / Montreal Convention, as well as to our General Conditions (available on
the website of Martinair Cargo: www.martinaircargo.com) and our Conditions of
Contract. As a consequence hereof, we politely advise you to file a claim with your
(clients) underwriters in first instance, in case your shipment is covered by an insurance
policy.
temperature exceeding the temperature limits mentioned on the warehouse receipt / acceptance
Page 43 of 74
slip or exceeding the temperature limits mentioned in the IATA, Perishable Cargo Manual.
Also liability is not accepted by Martinair Cargo for damages which are a result of inherent
defect, nature or vice of the cargo whilst shipment has not suffered a significant delay.
1
The right to claim shall be extinguished if any action is not brought within two years,
reckoned from the date of arrival at the destination, or from the date on which the aircraft
ought to have arrived, or from the date on which the carriage was stopped.
Whenever our liability for a claim exceeds our policy deductible, Martinair Cargo will be
forced to hand over the file to the liability claims adjusters appointed by our insurers. The
claim will then be dealt with directly by these claims adjusters and the claimants will be
contacted accordingly.
In case we accept liability we request the claimant to sign and to stamp a Final Release
Form before being able to settle, hence relieving Martinair Cargo from any further future
liability. After receipt of the duly signed and stamped Final Release Form and if
necessary the Cession of Rights, settlement will be effected. Our financial department
will transfer the amount to your bank account, for which we of course need your banking
details, including swift code.
Page 44 of 74
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.
Page 45 of 74
Page 46 of 74
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.
Page 47 of 74
Page 48 of 74
GROUNDING LIABILITIES
This may include liabilities as follows
Page 49 of 74
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 these policy additional parts
to cover the specific needs of each operation.
HANGARKEEPERS
Page 50 of 74
The larger operations, you know, like a Bell service centre 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 helot 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 lets 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 Hangar keepers
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 Hangar
keepers also tell you if the coverage has been
purchased.
Page 51 of 74
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 NATAs
Safety.
Page 52 of 74
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.
Eligible pilots
Page 53 of 74
- fuelling station;
Page 54 of 74
Insurance period:
Period specified in the insurance policy normally one year.
Page 55 of 74
- security measures;
Exclusions:
Standard: military risks; risks related to nuclear explosion effects and
radiation hazard.
Specific:
-
Page 56 of 74
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 is determined at the state level and varies widely from state to state. Each
type of product liability claim requires different elements to be proven to present a successful
claim.
Plane crash due to manufactures and other members related with the airlines
Page 57 of 74
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,
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 no obvious 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.
Page 58 of 74
CHAPTER 4
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 technology-based
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
N.G.ACHARYA & D.K. MARATHE COLLEGE
Page 59 of 74
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, high-priced
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.
Page 60 of 74
Page 61 of 74
Many of our charter and corporate clients complain of sending a young second-incommand 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 check ride. "Safe and inexpensive" will become the
name of the game.
Page 62 of 74
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.
Page 63 of 74
Page 64 of 74
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, bettertrained 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.
Page 65 of 74
CHAPTER 5
Page 66 of 74
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.
Page 67 of 74
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.
Page 68 of 74
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.
Page 69 of 74
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.
Page 70 of 74
CHAPTER 6
Page 71 of 74
According to the European Travel Commission, the average expenditure per trip of Indian
tourists traveling abroad has increased from USD 611 in 2000 to USD 822 in 2006
the booming success of Indian tourism industry has led to a drastic change in the hospitality
department as well. The increase in the ratio of tourists resulted in the increase of room rates and
also setting up of a wide range of hotels and other residing areas.
a number of international hotels such as the Hilton, Accor, Marriott International, Berggruen
Hotels, Cabana Hotels, Premier Travel Inn (PTI) and Inter Continental Hotels groups have
professed about making some large-scale investments to append 65,000 additional rooms to
suffice the needs
India is most likely to set up forty hotels of global brands by 2011. The hospitality segment in
India is assumed to reach USD 11.41 billion in the coming two years.
Following are the few benefits ensured by the tourism industry in India GDP in order to
boost up the GDP of India:
The Indian tourism industry offers online booking system, one of the basic proofs of
technological advancement in this sector. These online bookings are applicable for booking the
air tickets via Internet by logging on to the website and also booking the hotel room of the place
to be visited
The online tourism industry has accounted for a turn over of USD 800 million which is
apparently 14 percent of the entire travel and tourism industry
The Role of Tourism Industry in India GDP also features medical tourism that includes
traditional therapies like yoga, meditation, ayurveda, allopathy and other conventional systems of
medicines is currently estimated at USD 333 million and is most likely to reach USD 2.2 billion
by the year 2012.
Page 72 of 74
CONCLUSION
In the course of the analysis various trends and developments in the
aviation industry were discussed that provide partial answers to this
question. Airlines employ a wide variety of business models while
taking an aviation insurance contract. For example, some companies
like Kingfisher Airlines take policy with high premium while others like
Air India take an aviation insurance contract with low premium. It was
also observed that airlines with huge and expensive airbuses like ATR
42-500 aircraft tend to generate high amounts of risk; while relatively less
expensive aircraft like A330 aircraft tend to generate less risk.
The aviation insurance market is highly volatile due to the inherent
nature of the risk and the underwriting cycle of insurance. Historically, the
market wide premium appears to be almost as volatile as the claims,
suggesting a lack of consistency in underwriting this business. The major
caveat to my conclusion is that there is significant amount of public
data available to assist in underwriting and pricing aviation insurance. This
data can be used to develop more effective underwriting rating models
for aviation insurance and this should result in better selection of risks
and more consistent profits for the insurer.
The aviation insurance market, by its own nature, is highly volatile.
There are many causes including the overall insurance underwriting cycle,
the major accident risk, the short-term memory of the insurance market, and
the long-tailed nature of determining responsible parties. However, the
increasing involvement of analytical professionals such as actuaries
should introduce more effective methods for pricing airline insurance
and this should help stabilize the premium component of the loss ratio
equation.
Page 73 of 74
BIBLIOGRAPHY
WWW.WIKIPEDIA.COM
WWW.SCRIBD.COM
Www. business.mapsofindia.com India-gdp Industries
www.google.com
Page 74 of 74