VOL. 46 NO. 4 — winter 2021
celebration and preparation accident or incident?
explaining aircraft damage assessment communication breakdown
safety improvement opportunities left on the table usga summary
2020 results AIA 2022
Nashville, Here We Come!
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table of contents
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PRESIDENT’S MESSAGE
safety report
Communication Breakdown Leaves Safety Improvement Opportunities on the Table Does an Aviation Insurance Broker Have a Role in Promoting Safety?
celebration and preparation
08 aia in nashville!
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spotlight on 2022 conference
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Agent/Broker DIVISION
United States General Aviation – Admitted Market: Summary of 2020 Statutory Financial Results
claims division
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accident or incident? explaining aircraft damage assessment
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YOUNG PROFESSIONALS SPOTLIGHT Our Future is Grounded in our Present
aia in london
35 board of directors
EDITOR
KIM ROSENLOF Aeroink Incorporated
The ideas and opinions expressed by authors of articles published in The Binder are wholly their own and do not necessarily represent those of the Aviation Insurance Association. The articles are not provided as legal advice.
www.aiaweb.org 3
Published by the Aviation Insurance Association 2365 Harrodsburg Road Suite A325 Lexington, KY 40504
PRESIDENT’S MESSAGE
celebration and preparation GREG STERLING // SENIOR VICE PRESIDENT, AIG AEROSPACE
As we “kicked off” the year, we welcomed our new management firm Associations International (AI). The AI staff and Executive Director Mary Gratzer quickly proved themselves as the perfect partners to assist us.
I hope this finds each of you healthy and enjoying the season. If you’re like me, one of your favorite activities this time of year is watching the many great matchups in college football. Following one recent game, I was watching the winning coach speak during the post-game press conference. I was impressed by how he balanced his remarks between the game just played and the ones that lie ahead. In perfect proportion he celebrated the victory and then immediately turned his attention to preparing for the next game, clearly signaling that the work wasn’t over.
Our Education Committee led by new Chairman Tim Bonnell, Jr., was able to pivot and deliver an outstanding and successful hybrid Core Principles & Concepts session in February. Then as the first quarter drew to a close, we made the difficult decision to cancel yet another annual convention due to the unavoidable effects of the pandemic on our members’ ability to travel. As we mourned this cancellation, at the same time we celebrated the hard work of our three Wattles Fellows Scholarship winners: Elizabeth Scarrone,
As I look back on the “year that was,” allow me to take a similar tack and celebrate the incredible work and accomplishments of your AIA over the past year as well as to outline our focus in the coming year.
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Margaret Hood, and Amaya Allen. Overseen by Frank Kimmel, the AIA Education Foundation continues to recognize the next generation of industry professionals through these scholarships.
committees are composed of some of the best and brightest in our business. Together with our collective thanks for a job well done “above and beyond the call,” we also gave a tip-of-the-cap to outgoing AIA President Jim Gardner for his incredible work over the past two years. Finally, recognizing the importance of aviation-specific continuing education to the membership, our insurance and legal education offerings were adapted to include virtual presentations in July and August.
In the second quarter we welcomed a number of new AIA Board members. As I said in my last column, the work of coordinating the many activities and services of your association is absolutely a “team effort” and your AIA Board and
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Early in the third quarter we continued our focus on supporting the next generation of our industry through our Chartered Insurance Institute (CII) Advanced Diploma Award to Dominic Christian Hurst. In this same vein, we continued our efforts to engage the industry’s young professionals by encouraging them to contribute to each issue of the Binder. You’ll find one such contribution in this issue, and I thank AIA Treasurer Luke Uithoven for leading this important initiative.
CE offerings, and events for our muchawaited return to a live conference in 2022 in Nashville went into high gear. This work continued into the fourth quarter. The much-anticipated London Reception was held on November 17 and was, by all accounts, a resounding success with over 170 members in attendance! Spearheaded by the AIA Membership Committee and coordinated with the Young Professionals initiative, the focus was on reconnecting with the AIA membership and reaching out to the next generation of aviation insurance professionals. A special thanks to Olivia Hobson of Guy Carpenter for her invaluable assistance in coordinating this event. Also in November, we bid farewell to outgoing Director of Reinsurance Walter Voights vonFoster and welcomed new Director Raffaella Basile of Swiss Re to the role.
Our first in-person event in nearly two years — the AIA Open golf scramble — was set for Atlanta in September. While the weather gods did not permit a round of golf, more than 50 members enjoyed a morning of getting reacquainted and hours of networking with fellow industry professionals. In addition, the work of arranging the many speakers, activities,
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Photo credit: Jake Matthews
And to those who’ve not yet joined or perhaps allowed their membership to lapse, we hope you’ll join us in 2022 for what promises to be an exciting year ahead. Together we commit ourselves to the work that ensures the “Voice of Aviation Insurance” is heard loud and clear.
All of AIA’s work — education, industry outreach, networking opportunities, and more — begins and ends with a focus on you, the AIA member. To that end we’re looking at new ways to structure our membership offerings to drive value to all members, but especially to those beginning their aviation insurance careers. We’re also developing annual sponsorship opportunities that encourage new membership and acknowledge the foundational role played by our many AIA corporate partners.
On behalf of your entire AIA Board, Committee members, and volunteers, our very best to you and your families for a happy and safe holiday season, and health in the year ahead. Tailwinds,
The support and collective voices of the core AIA members have sustained the association during the turbulence of the past two years and will drive it forward in the year to come. Our annual membership renewal season is in full swing. To our past and sustaining members, we thank you for your continued support. To the industry leaders who continue to support the AIA through employee membership and generous sponsorships, we thank you.
Greg Sterling is Senior Vice President and Product Line Manager for Light Aircraft and US Airports with AIG Aerospace. An instrument-rated Private pilot, his aviation insurance career spans more than thirty-five years in various roles. He assumed the position of AIA President in 2021.
Photo credit: Jake Matthews
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spotlight on conference
aia in nashville! aia in the music city // april 29–MAY 2, 2022 The 2022 AIA Annual Conference is the best venue to trade experiences, create business partnerships, and discuss the current state of the industry from each segment of the association. Network with your peers over cocktails during the opening reception and learn what is to come for the aviation insurance industry during the general education sessions.
The Aviation Insurance Association is the place to make the connections that matter. In addition to the knowledge you’ll gain from the education sessions, the available networking opportunities are what truly makes this conference the place to be for those working in the aviation insurance industry. This is the one time per year when all facets of the industry are together at once. It is your opportunity to renew old acquaintances, build new relationships and your business.
Registration for the 2022 AIA Annual Conference opens next month, so be sure to renew your dues by December 31 in order to receive a significant discount on registration!
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spotlight on conference 2022 AIA Conference Schedule at a Glance All times are Central. FRIDAY, APRIL 29
8:00–11:30 AM
AIA Board of Directors’ Meeting
1:00–5:00 PM
Continuing Legal Education Sessions
5:00–6:30 PM
Womens’ Initiative Happy Hour
SATURDAY, APRIL 30
Optional events and tours: Sporting Clays, Nashville Sightseeing — music and history! 5:30–6:00 PM
New Member/First-Timer Reception
6:00–7:30 PM
Opening Reception
SUNDAY, MAY 1
7:00–8:00 AM
Breakfast with Exhibitors
8:00 AM–12:00 PM Continuing Insurance Education Sessions 12:00–1:00 PM
Lunch with Exhibitors
1:00–5:00 PM
Continuing Insurance Education Sessions
MONDAY, MAY 2
8:00–9:00 AM
Breakfast with Exhibitors
9:00 AM–12:15 PM
General Session (Industry Keynotes, CAIP Recognition, Pinnacle Award)
12:15–1:45 PM
Luncheon (Keynote)
2:00–2:30 PM
Division Meetings
2:30–4:00 PM
Queuing Up at AIA
6:00–9:00 PM
Closing Party at Wildhorse Saloon
about nashville Home of country music and hot chicken, Nashville, Tennessee, welcomes visitors to a unique, unmatched city steeped in southern charm and hospitality. Featuring live entertainment, awardwinning restaurants, art galleries, historical sites, outdoor adventures, and sporting venues, Nashville offers something for everyone from morning to night. As a frontrunner in global trade, Nashville has a robust business community supported by pro-business policy, cost advantages, and its strategic location. Since 2001, more than 340 internationally owned companies have relocated or expanded in the Middle Tennessee region. Explore Nashville’s vibrant nightlife at the many bars, restaurants, and venues hosting unforgettable live music experiences to locals and guests alike. Visit www.visitmusiccity.com to discover what awaits you in Music City, including must-dos, hidden gems, and much more.
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spotlight on conference
Conference Highlights Super-Star Speakers
The AIA is known for attracting the top minds in the industry to share their expertise and insights with the AIA audience. The 2022 conference will be no different! In addition to the four hours of Continuing Legal Education and eight hours of Continuing Insurance Education, our General Session industry keynoters are: E dward M. Bolen, President and CEO — National Business Aviation Association (NBAA) Jeff Bruno, President and Chief Underwriting Officer — Global Aerospace B ruce Landsberg, Vice Chair — National Transportation Safety Board (NTSB) Queuing Up at AIA
An AIA conference favorite, Queuing Up is a fantastic “speed” networking opportunity for agents and brokers to meet with insurance company underwriters in an efficient setting, discuss market conditions, and hear their viewpoints on what’s ahead. Participating underwriting companies are assigned a station with one-to-three underwriters per station, and brokers rotate through the stations to fill a slip signed by each carrier. Participants must “queue up” and use their time wisely in order to complete their slip and be eligible for a prize! Closing Party at the Wildhorse Saloon
AIA has a full buyout of one of the most popular destinations in Nashville. The Wildhorse Saloon is a three-story venue with stage, dance floor, multiple bars and plenty of spaces for networking and fun. A live band, line-dancing lessons, great food and cold beverages will offer an unforgettable night. We’ll also enjoy a few tunes from the AIA band — Smooth Limits!
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spotlight on conference Host Hotel The AIA 2022 conference will take place in the breathtaking J.W. Marriott Nashville, Music City’s first true luxury hotel located in the heart of downtown Nashville. The J.W. is known for its floor-to-ceiling windows and skyline views from every room in the hotel. Plus, the hotel boasts Nashville’s only Bourbon Steak by Michelin-star chef Michael Mina. Additional amenities include a stunning and expansive rooftop pool deck enveloped by stylish cabanas and a sophisticated pool bar and grill, full-service spa, 24-hour fitness center complete with Peloton bikes, gourmet café and artisan bakery, and artfully crafted cocktail lounges spread throughout the property. The AIA conference will be utilizing almost all of the hotel’s event space and guest rooms, meaning even more opportunities for connecting and learning. The AIA has secured a special guestroom rate that will only be available when conference registration is confirmed.
COVID Protocols
The health and safety of our members and guests is of utmost priority to the AIA. While it’s too early to know what the Spring of 2022 will bring, we are monitoring the COVID guidelines for travelers, Nashville visitors, guests of the J.W. Marriott, and any outside venue where AIA has a contracted/sanctioned event related to our conference. We will always follow the guidance of U.S. and State health officials and honor any requirements by our conference venues. In addition, our registration materials will contain detailed instructions and deadlines regarding cancellations and refunds should the health climate change prior to our conference. Read the J.W. Marriott’s “Commitment to Clean” HERE. Mark your calendars now for the 2022 AIA Conference! We can hardly wait to see you again. Registration opening soon!
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claims
Accident or Incident?
Explaining Aircraft Damage Assessment Mike Hodges, Air Safety Investigator and Clint Crookshanks, Aerospace Engineer (Structures) National transportation safety board When an aircraft crashes, National Transportation Safety Board (NTSB) air safety investigators and aerospace engineers must determine if the event can be classified as an accident or an incident, as defined by Title 49 Code of Federal Regulations (CFR) Part 830. An accident is: “…an occurrence associated with the operation of an aircraft which takes place between the time any person boards the aircraft with the intention of flight and all such persons have disembarked, and in which any person suffers death or serious injury, or in which the aircraft receives substantial damage.” An incident is: “…an occurrence other than an accident, associated with the operation of an aircraft, which affects or could affect the safety of operations.” Although the determination of an accident focuses on damage as well as injuries, here we will focus on damage assessment. So, when assessing the damage, how do we decide what’s an accident and what’s an incident? When we’re first notified about an adverse aircraft event, we begin to assess the aircraft damage. NTSB investigators and engineers attempt to obtain as much information as possible about the damage. Sometimes we’re given information that makes it obvious the aircraft sustained substantial damage, such as the photos showing the extent of the damage (see Figures 1–3). Figures 1–3 show the substantial damage as indicated by the arrows. Figure 1 A Cessna 170 airplane sustained substantial damage to the left wing, due to ground impact after an aerodynamic stall on takeoff in Arctic Village, Alaska.
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claims Figure 2 An Enstrom F280-F helicopter sustained substantial damage to the tail boom, during a practice run-on landing in Sodus, New York.
Figure 3 A Piper PA-24-250 airplane sustained substantial damage to the left wing, after impacting a light pole during an instrument approach in Sturgis, South Dakota.
Other times, we can’t tell the extent of damage right away and we need to dig deeper. Figures 4–6 illustrate this scenario and show the substantial damage as indicated by the arrows. For figure 4, additional information surrounding the circumstances of the object impact, a tracked drilling unit, along with the damage sustained to the main rotor blades was obtained from the Federal Aviation Administration (FAA) and the operator. For figure 5, the airplane’s structural repair manual for the damage sustained to the right wing from the bird strike was studied during the damage assessment process. For figure 6, the interior of the fuselage had to be inspected to identify the substantial damage sustained during the hard landing sequence. Figure 4 A Eurocopter AS 350 B3 helicopter sustained substantial damage to the main rotor blades after impacting a tracked drilling unit in Delta Junction, Alaska.
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claims Figure 5 A Cessna 208B airplane sustained substantial damage to the right wing due to a bird strike in Sacramento, California.
Figure 6 A Beech 1900C airplane sustained substantial damage to the lower aft fuselage after a hard landing in Gambell, Alaska.
When the damage sustained is not obviously substantial, NTSB air safety investigators and aerospace engineers may take additional steps to assess wreckage, such as the following: W orking with pilots, operators, mechanics, repair stations, FAA Flight Standards District Offices, aviation insurance adjustors, and aircraft recovery companies to obtain additional damage photographs or damage information. C onsulting the airframe manufacturer’s air safety and engineering departments. O btaining documents, such as the structural repair manual or illustrated parts catalog, from the airframe manufacturer. C onsidering other unique factors that may determine the damage level, such as airframe fire damage or the aircraft being immersed in a body of water. I nspecting the area in question (such as spars in wings, structural areas behind firewalls, driveshafts in helicopters, gearboxes in helicopters, etc.) once the aircraft is recovered. R emoving components, panels, or skin and using tools to access hard-to-view areas (such as mirrors or electronic borescopes).
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claims We would also determine:
Although the FAA is always a party member to our investigations, the NTSB is the final authority for determining a damage classification. For those that are involved in an adverse aircraft event, some basic knowledge can help during the assessment, such as:
I f the damaged area is classified as a primary structure (primary structure is defined by the FAA as that structure which carries flight, ground, or pressurization loads, and whose failure would reduce the structural integrity).
U nderstanding the definitions and reporting requirements in 49 CFR Part 830.
W hat repairs are required W hich components will be replaced to repair the damaged area. I f the aircraft’s performance or flight characteristics were affected. (The cost or feasibility of repairing an aircraft, as determined by an aircraft insurance company, will not be considered when determining whether an aircraft has sustained substantial damage.)
K nowing how to directly contact the NTSB.
The cost or feasibility of repairing an aircraft, as determined by an aircraft insurance company, will not be considered when determining whether an aircraft has sustained substantial damage.
H aving multiple, highquality, high-definition photographs from all around the aircraft, showing the aircraft in its entirety. H aving multiple, high-quality, highdefinition photographs of the damaged areas, including close-ups.
Knowing what repairs are required to the damaged area, along with what components will be replaced to repair the damage (when possible).
The damage assessment timeline can vary, depending on how obvious the damage is initially. We might make a substantial determination in a few hours, or, if additional information is needed, the damage assessment can take several weeks. If the aircraft needs to be recovered from a remote area to obtain additional information, the damage assessment could extend even longer.
Being involved in an accident or incident, regardless of the outcome, is stressful for those involved. The NTSB works diligently with various stakeholders to provide as many answers regarding the damage classification as possible, whether it is determined to be an accident or an incident.
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aia in london
A Celebration of Careers in the Aviation Insurance Industry November 17
London and led the way on all the logistics, marketing support and sponsorship solicitation, enabling us to offer this event at no cost. Olivia also lined up an army of volunteers to assist in checking people in as they arrived and handing out welcome gifts provided by event sponsor, Guy Carpenter.
It had been too long! On November 17, the AIA held a successful networking reception at The Sterling bar in London. Open to all professionals in the aviation insurance industry — AIA members and non-members alike — it was evident by the turnout that evening that the demand to reconnect is great. Fifty companies were represented by the over 150 people in attendance. Special thanks go to the AIA Membership Committee, chaired by AIA Board Vice President Chris Morin, for spearheading this event. AIA member Olivia Hobson, Guy Carpenter, was our “boots on the ground” in
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aia in london Additional supporters of the event were: ESi, for donating a raffle prize, and beverage package sponsors: AIG Aerospace, Charles Taylor Adjusting, Global Aerospace, Starr Companies and Willis Towers Watson. Thank you for your support!
Leaders from different aspects of the aviation insurance were present to share their thoughts on the current state of the aviation insurance market: Ian Wrigglesworth - Guy Carpenter, John Dooley - Willis Towers Watson, and Andy Trundle – Starr Companies. Unfortunately the venue and audio equipment proved somewhat challenging, so AIA asked Andy Trundle to share his thoughts with us in this issue.
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aia in london
Leaders from different aspects of the aviation insurance industry were present to share their thoughts on the current state of the aviation insurance market: Ian Wrigglesworth - Guy Carpenter, John Rooley —Willis Towers Watson, and Andy Trundle — Starr Companies. Unfortunately, the venue and audio equipment proved somewhat challenging, so AIA asked Andy Trundle to share his thoughts with us on the past year and what lies ahead (see article on page 19).
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aia in london
Thoughts on the past year and what lies ahead andy trundle // Global Head of Airlines & Morefar Underwriting Managers — Starr Companies
As we draw towards the end of 2021 it is clear to see that the Aviation industry and therefore insurance has again been significantly impacted by the ongoing Covid effect with the Airline sector witnessing the most dramatic changes. Although passenger numbers are gradually recovering it will take time to see numbers and exposures return to pre Covid times. If we look back to 2019, the last full year before Covid emerged, then the anticipated global airline earnings were expected to be approximately $1.9bn–$2.0bn, this is set against a rolling five-year claims figure of $1.4bn (Airlines only with no Products contribution). After a few years of under-performing results and resultant market capacity contraction, these 2019 figures gave underwriters the ability to show that premium levels were now at a sustainable level.
began to shrink to around $1.5bn by the time we reached year end, however, as an offset, claims reduced by a larger margin which effectively resulted in a profitable underwriting year for the airline sector. As 2020 finished and we approached 2021 the scenario developed whereby we had rating levels that had now increased year on year for three to four years, exposure levels that were around 60% of 2019 levels, insurance policies with these higher rates but having minimum premiums inserted to protect insurers from further exposure reductions and claims activity that was at less than 50% of prior years. This attracted more capacity into the market either through new capacity or with existing markets increasing their shares. As we progressed through 2021 the increase in capacity came into play and effectively negated any further rate increases, indeed, in some cases there were small reductions where there was a justifiable reason, however, with exposures still significantly down on 2019 premium levels for 2021 only showed small increases over 2020 and therefore 2021 will most likely generate about $1.7bn of global income.
In early 2020 the whole world went into different forms of lockdown effectively grounding aircraft through severe travel restrictions. Insurers, recognising the unprecedented event, agreed to review and amend premiums as we went through 2020. As such, the anticipated earning of $1.9bn
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aia in london 2022 could now produce an interesting dynamic. With exposures now consistently growing, claims will inevitably follow both attritional and large. Pre covid airline claims were tracking at $1.4bn, however, premium levels are only at $1.7bn and that is only possible if airlines actually fly as much as they are projecting, as such, airline underwriters are now effectively hoping that either claims don’t return to previous levels or exposures grow more than expected. It looks like the airline segment will again struggle to get to a sustainable and profitable level and any further pressure on rates in 2022 will mean an even more challenging future for the market.
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The danger signs are there as capacity whether existing or new will need income. This requirement for premium will effectively mean that in order not to put pressure on rates underwriters will need to exercise discipline that has not been evident in previous cycles. As is always the case, the potential for profitability remains in the hands of underwriters. Clients will always want the most competitive premium with reliable markets, it is the brokers function to get this for them. If underwriters put premium growth before profit then the inevitability of a soft market will materialise.
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safety
COMMUNICATION BREAKDOWN LEAVES SAFETY IMPROVEMENT OPPORTUNITIES ON THE TABLE steve bruneau // co-chair aia safety committee
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safety We’ve all seen Olympic races where a sprinter slows up near the finish line and is passed by a competitor, or a football game where the wide receiver starts to celebrate and drops the football before crossing into the endzone. These are examples of activities that go substantially right for the vast majority of the time, but suffer a breakdown at the final step that prevents the intended outcome to materialize.
policy may have ways to help address the financial hurdles of starting something new. The flight departments’ lack of awareness to these benefits is the fumble that negates the potential touchdown! During policy renewals, a lot of discussion around price and benefits occurs between the broker and the company’s risk manager. But despite good communication at this level, often the details of the policy and what it includes doesn’t always flow from the risk manager to the flight department. There are also times when the broker doesn’t obtain benefit details from the underwriter and therefore can’t communicate these benefits to the risk manager. Not one role is to blame for all communication breakdowns. Like an Olympic relay team the baton needs to be passed from the first runner all the way to the last runner successfully. It’s a team sport that requires everyone to do their parts to succeed.
As organizations who promote safety in our industry, we’ve also seen our share of this same type of thing when it comes to safety improvement. Too often a flight department’s desire to improve safety hits a financial roadblock that delays, or in some cases squashes, the initiative due to the perceived ROI of the project; “We can’t afford that right now.” Often the root cause is a communication breakdown regarding the insurance policy. That’s right — a lack of awareness of what’s in the insurance policy! The stakeholders in a business aviation insurance policy include the company risk manager, company flight department, insurance broker, and insurance underwriter. Everyone in this group benefits when the safety of the flight department is the best that it can be. So the goal is to work collectively to help the flight department be as safe as possible and leverage our resources to achieve that.
The bottom line is that we all have a vested interest in reducing risk. If insurance policies include a means to help policy holders do this, we need to make sure the full communication trail flows all the way to the flight department so they can obtain assistance to achieve new levels of safety. Are you doing your part to make sure there’s no fumble?
Many insurance companies offer safety programs or add a safety bursary into the policy to provide options that can help the flight department improve its overall safety program. We’ve often seen flight departments completely unaware that their insurance
As Vice President of Aviation Services at Polaris Aero, Steve Bruneau is responsible for expanding the company’s suite of safety management solutions. Steve has more than 25 years of process consulting experience helping organizations meet regulatory requirements or achieve new levels of performance.
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safety
Does an Aviation Insurance Broker have a Role in Promoting Safety? Jim Gardner // Co-Chair AIA Safety Committee
When Steve Bruneau shared his article Communication Breakdown Leaves Safety Improvement Opportunities on the Table, it struck a nerve with a little bit of a sting. It made me think, “as an Aviation Insurance Broker, am I doing all I can or should to promote safety with my clients? Am I missing opportunities to help my clients be a better risk to their and the insurance industry’s best interest?”
The soft market changed all that. It was good for our clients’ bottom lines but it certainly was not good for the aviation insurance industry’s solvency. The idea of investing in good safety practices and training fell to the wayside on the drug of cheap insurance. Years of red ink in the aviation insurance world and loss ratios rising toward 70% of revenue forced the hard market we are now experiencing.
When I broke into the aviation insurance world as a new broker in 2003, we were in the midst of a hard market. My mantra to prospective clients was, “if you want to get the preferred insurance rate, you need to become a preferred risk.” At the time it had resonated with certain clients and got my aviation insurance practice off the ground.
The AIA created the AIA Safety Committee three years ago to address safety issues that were relevant to the aviation community and impacted aviation insurance. We got off to a good start and were starting to make some headway with contacts and speaking opportunities in the aviation world.
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safety Unfortunately, we lost our momentum during the last 18 months due to the pandemic. It’s time for a revival. Steve Bruneau and I have agreed to cochair a revived AIA Safety Committee. Our focus will be on communication and education on relevant aviation safety issues within the industry and how they relate to the insurance world.
The first article I ever wrote on Aviation Insurance in 2004 was titled Safety Saves. It is still as relevant today as it was 17 years ago.
The first article I ever wrote on Aviation Insurance in 2004 was titled Safety Saves. It is still as relevant today as it was 17 years ago.
As a start we are providing an hour of CIE at the May 2022 AIA Annual Conference in Nashville on this topic.
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Jim Gardner, president of the James A. Gardner Company, has spent 45 years in the aviation business. He started his aviation insurance career in 2003 after a distinguished 30-year military and commercial aviation career serving as pilot and aviation operational manager. Jim is a past president of the Aviation Insurance Association and current co-chair of the AIA Safety Committee.
Agent/Broker
United States General Aviation Admitted Market: Summary of 2020 Statutory Financial Results Based on Data Submitted through July 2021 Carl X. Ashenbrenner, FCAS, MAAA and S. Andrew Kline premium stands at $2.1 billion. This 33% increase is the largest increase in written premium for the USGA market since the period immediately following 9/11.
Introduction We are pleased to summarize key year-end 2020 financial results for domestic U.S. General Aviation – Admitted Market insurers. This review includes data from the “Aircraft (All Peril)” line of business within statutory annual statement data obtained from S&P Global Market Intelligence. We excluded insurers with surplus line eligibility or domestication as the majority of large aviation risk, such as airline and major product liability, is written on a surplus lines basis in the United States. As a result, we believe the data reviewed provides the best publicly available snapshot for the performance of the U.S. general aviation (USGA) market. Our review has concluded the following:
M arket profitability has been consistently negative over the last five years. From 2016 through 2020, the market has lost more than threequarters of a billion dollars on an underwriting basis. This is based on information presented in the Insurance Expense Exhibits from insurers’ statutory annual statements. E ven with the 2019 and 2020 premium increases, the 2020 underwriting result was negative for the USGA market, with an underwriting loss of approximately $50 million. However, this loss is significantly smaller than in 2019 (almost $300 million).
U SGA premium increased significantly over the last two years, specifically a 33% increase in written premiums from 2018 to 2020. In 2020, the
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Agent/Broker Th e 2020 underwriting losses were not attributable to one single large event, as over half the USGA market by premium volume reported losing money.
Changes in premium The USGA market reported $2.1 billion in admitted aviation premium in 2020. This is an increase of 33% from the $1.6 billion reported by insurers in 2018. Aviation insurers benefited from more significant increases in certain segments, like large commercial managed fleets, which were historically written on a 100% basis by many markets and are now more commonly placed in the subscription market. In certain other segments, like personal light aircraft (PB&P) and unmanned aircraft system (UAS), the premium and rate increases were lower.
D ue to reduced air traffic as a consequence of the COVID-19 pandemic, one would expect a decrease in claims costs in 2020. However, incurred losses in 2020 were the second-highest in the latest seven years. Reviewing exposure and event data more closely, we noted: ~G eneral aviation traffic recovered more quickly than airline traffic. ~N ational Transportation Safety Board (NTSB) data shows that fatalities and severe injuries reduced only modestly in 2020.
The 33% increase in premium may understate the scale of increase, as some large USGA accounts that went to the subscription market may have been written in part by European insurers or via surplus lines capacity. The USGA written premium with growth rates for the last five years is displayed in the chart in Figure 1 on the next page.
~ Severe weather events impacted the aviation market in 2020. Munich Re estimates that the Nashville tornado1 on March 3, 2020, alone cost the market $100 million. ~ Heightened claims inflation continues to be a problem for the insurance industry as a whole. Given the relatively high policy limits provided in certain general aviation segments, claims inflation and the risk of runaway verdicts are of particular concern in aviation.
In certain other segments, like personal light aircraft (PB&P) and unmanned aircraft system (UAS), the premium and rate increases were lower. The 33% increase in premium may understate the scale of increase, as some large USGA accounts that went to the subscription market may have been written in part by European insurers or via surplus lines capacity. The USGA written premium with growth rates for the last five years is displayed in the chart in Figure 1.
As a note, “Incurred Losses” within this report includes both loss and Defense and Cost Containment Expenses (DCCE). Additionally, throughout this report we modified the admitted market’s incurred losses for select insurance companies that reported favorable development due to the takedown of September 11 claims.
1 Video: Impact of the Series of Tornadoes on Aviation Insurers This Spring. The Binder Vol. 45 No. 2 – Summer 2020. Retrieved August 17, 2021, from https://issuu.com/aiabinder/docs/binder_7-20_issuu/18.
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Agent/Broker FIGURE 1: ADMITTED AVIATION DIRECT WRITTEN PREMIUM ($BILLIONS)
USGA underwriting results Reviewing the USGA market underwriting results over the last few years helps to explain the firming of the market in 2020. In 2019, the market lost almost $300 million on $1.8 billion in premium. However, even with the continued firming, the market still reported an underwriting loss in 2020. As noted in the chart in Figure 2, the 2020 USGA market underwriting loss of $50 million is significantly lower than the underwriting losses in the three previous years. FIGURE 2: ADMITTED AVIATION UNDERWRITING RESULTS ($MILLIONS)
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Agent/Broker WERE POOR RESULTS DUE TO ONE INSURER OR ONE MAJOR EVENT? The capacity provided in some segments of USGA is regularly in the hundreds of millions of dollars on a single policy. We therefore assessed whether the underwriting losses were due to one individual company’s results. That notion was quickly dismissed, as insurers that reported an underwriting loss represented more than half (53%) of the USGA market premium. This was notably better than in 2019, where 72% of the market reported a loss. These observations, along with a longer-term review, are provided in the chart in Figure 3. FIGURE 3: PERCENTAGE OF INSURERS REPORTING UNDERWRITING LOSSES – ADMITTED AVIATION
RISING INCURRED LOSSES Incurred losses in 2020 were higher than all recent years except 2019, continuing a trajectory that has greatly outpaced general inflationary pressures in recent years. The chart in Figure 4 shows that incurred losses have more than doubled since 2014. Given that the COVID-19 pandemic caused a reduction in flight activity, it was expected that accidents in 2020, and resulting claims, would have been significantly lower than losses in prior years. Instead, the incurred losses in 2020 provide further evidence that USGA claims costs continue to increase. FIGURE 4: ADMITTED AVIATION DIRECT INCURRED LOSSES ($BILLIONS)
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Agent/Broker WHY ARE INCURRED LOSSES INCREASING? The NTSB data tells us that there were fewer fatalities and fewer severe injuries in 2020 than in any of the prior 10 years in the United States (see the chart in Figure 5). This is likely due to the impact of the COVID-19 pandemic and the resulting fewer flights taken. This reduction in fatalities and severe injuries, which came about because of reduced flying activity, did not result in significantly lower claims costs for insurers. Below we look at a couple of reasons this may be the case. FIGURE 5: NUMBER OF AIRCRAFT FATALITIES AND SEVERE INJURIES BY YEAR
ADVERSE WEATHER EVENTS USGA policies typically cover the cost of repair or replacement of aircraft due to adverse weather events, such as hail, wind, and heavy snowfall. Munich Re estimates that the 2020 Nashville tornado alone cost insurers $100 million. This event, combined with other tornados and hurricanes that impacted the aviation insurance market, will certainly affect profitability but alone they do not explain the long-term upward trend in loss activity.
CLAIMS INFLATION Claims inflation continues to be a problem for the insurance industry and the aviation market is not immune from these trends. Claims inflation is showing up in a number of areas, including: Liability claims: Higher settlement values
U.S. juries have been awarding significantly higher sums over the last few years. As displayed in the chart2 in Figure 6, the median value of a single-fatality award by U.S. juries has gone from $2 million to $5 million over the last few years. Reviewing Figure 6, it can be seen that the median value hovered around $2 million for a number of years before this recent acceleration in costs.
2 Source: Advisen, a Z ywave company.
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Agent/Broker FIGURE 6: MEDIAN VALUE OF AWARDS IN THE U.S. OF SINGLE-FATALITY ($MILLIONS)
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Agent/Broker WHY ARE INCURRED LOSSES INCREASING? In addition to the increase in median awards, insurers are also experiencing the impact of an increase in the frequency and severity of runaway verdicts. The aviation market has not been immune to this trend; with two very significant verdicts in 2018: $ 115.75 million was awarded3 to the families of three crew members that perished in a cargo flight in Afghanistan $ 148 million was awarded to a person who was injured at O’Hare Airport4 These judgments have had a spiraling effect, with past verdicts leading to routinely higher demands by plaintiffs, and increased costs of settlements. Some of the claims that are impacted are those that have occurred in the last few years. These claims had previously been reserved on the basis of the historical loss values, but appear likely to be under-reserved based on recent claims trends. Changes in reserves on these claims are likely also having an impact on the 2020 result and helping to drive the industry to an ongoing underwriting loss. Hull claims: Cost to repair composite material
Newer-generation aircraft are made with composite materials that are much more expensive to repair than aircraft of previous generations. They require proprietary bonding techniques and specialist equipment that significantly reduce the number of entities with the expertise to make the repairs.
Conclusion The USGA insurance market has been very competitive for a number of years, with USGA customers benefiting from reduced premiums and competitive rates up until around 2019, at which point rates in the market began to harden. Even with the increase in premium achieved over the last few years, the 2020 calendar year reported an underwriting loss. A number of factors such as challenging claims trends and the broader liability environment continue to be a significant challenge for insurers and many of these factors are likely to perpetuate into the future. Looked at together, the statistics shown in this paper appear to show that the USGA insurance market needs to continue to increase premiums to return to profitability, after many years of negative underwriting results. Reprinted with permission from the Milliman Report. 3 Nolan Law Group (June 30, 2017). Jury awards $115.75 million to families of flight crew killed in Afghanistan cargo plane crash. Cision PR Newswire. Retrieved August 17, 2021, from https://www.prnewswire.com/news-releases/jury-awards-11575-million-to-families-of-flight-crew-killed-in- afghanistan-cargoplane-crash-300482616.html. 4 Wojciechowski, C. & Orlando, T. (August 24, 2017). Jury awards $148M to dancer paralyzed in O’Hare shelter collapse. 5Chicago. Retrieved August 17, 2021, from https://www.nbcchicago.com/news/local/verdict-reached-in-case-of-dancer-paralyzed-by-ohare-shelter-collapse/22562.
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young professionals spotlight
Our Future is Grounded in Our Present matt GRAY // aia young professional member If you asked me five years ago what aviation claims adjusting entailed, my answer would have been completely off center. Embarrassingly, I had a very limited idea what my future job would entail and the opportunities that would arise based on my young career that included six years at a large property and casualty insurer and a truncated stint in the cockpit.
manageable and allowed me to provide a customer experience worthy of high customer expectations.
Is it okay to come out now?
I have had several experiences that shaped my career thus far. One particularly fond memory happened shortly after I started. That day, the Texas sun was not the only reason I was sweating on a claim inspection to a remote field for a claim after an engine fire during runup. When the stars didn’t align for a quick investigation and simple settlement, a quick phone call to a Chicago teammate equipped me with the right questions to ask and allowed me to walk away from the interaction confident in my decision and an insured satisfied with his claims resolution.
Now, with a little over four years of experience in aviation insurance, I have come to understand that my varied experiences are barely scratching the surface of the aviation insurance world. In an industry brimming with professionals with experience and a wealth of knowledge, a young professional’s best asset is his or her ability to listen and seek advice from the tenured colleagues throughout the industry.
The passion for aviation and a desire to teach and impart knowledge to others is displayed from recreational pilots to commercial operators and everyone in between.
This is only one example of many times I have relied heavily on my tenured colleagues and grew as a professional. Weekly liability round tables and quick telephonic lessons on aircraft systems have also contributed to an
I am grateful for the guidance provided by my mentors in my short tenure working aviation claims. They have made difficult situations
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young professionals spotlight
Matthew Gray in the field, investigating damage from Hurricane Harvey.
expanding knowledge base from which I will rely on to adjust claims for years to come. The willingness to impart knowledge on the next generation of adjusters and underwriters is not limited to our insurance associates but rather it is mirrored throughout the industry as a whole. The passion for aviation and a desire to teach and impart knowledge to others is displayed from recreational pilots to commercial operators and everyone in between. A walk through the floor of an engine repair station or tour of an airport Emergency Operations Center provides the opportunity to gain knowledge and can do wonders for understanding aviation risk. In turn it can make that policy renewal conversation or claim decision explanation
much easier, knowing that you have a grasp on the customer’s business and their particular situation. Where does this leave the young professional in our industry? It is a clear sign to soak up as much information and guidance where the opportunities exist. While the industry continues to evolve, the foundational knowledge of both aviation technical expertise and job specific (claims and underwriting) expertise is essential to be a successful contributor. Matthew Gray is a Claims Specialist for AIG Aerospace and has been an AIA Member for three years. Matthew graduated from The University of Notre Dame and holds both his CPCU and CLU designations.
Board of Directors President Greg Sterling
Director, Underwriter Division Wes Collier
Vice President Chris Morin
International Director Andy Trundle
Treasurer Luke Uithoven
Director-At-Large Nicole Wolfe Stout
Secretary Ian Wrigglesworth
Director-At-Large Chris Arnold
Director, Agent/Broker Division David Hampson
International Director-At-Large David Watts
Director, Attorney Division Mike McGrory
Immediate Past President Jim Gardner
Director, Claims Division Eric Weidner
Executive Director Mary Gratzer
Director-Elect, Claims Division David Gourgues
AIA Board General Counsel Ray Mariani
AIG Aerospace Atlanta, GA greg.sterling@aig.com
Old Republic Aerospace Kennesaw, GA wcollier@ORaero.com
Murray, Morin & Herman, P.A. Tampa, FL cmorin@mmhlaw.com
Starr Aviation London, United Kingdom Andy.Trundle@starrcompanies.com
Kimmel Aviation Insurance Agency, Inc. Greenwood, MS luke@kimmelinsurance.com
Strawinski & Stout, P.C. Atlanta, GA nws@strawlaw.com
Guy Carpenter London, United Kingdom ian.wrigglesworth@guycarp.com
Sutton James an Optisure Risk Partner Hartford, CT carnold@suttonjames.com
Schrager Hampson Aviation Insurance Agency LLC Bedford, MA david@planeinsurance.com
Old Republic Canada Ontario, Canada dwatts@orican.com
SmithAmundsen, LLC Chicago, IL mmcgrory@salawus.com
The James A. Gardner Company Inc. Marietta, GA jim.gardner@jagardner.com
McLarens General Aviation Marietta, GA eric.weidner@mclarens.com
Aviation Insurance Association Lexington, KY mary.gratzer@aiaweb.org
McLarens General Aviation Celebration, FL david.gourgues@mclarens.com
Leader, Berkon, Colao and Silverstein LLP New York, NY rmariani@leaderberkon.com
Director, Reinsurance Division Raffaella Basile
Swiss Reinsurance Company Ltd Zurich, Switzerland Raffaella_Basile@swissre.com
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