Insurers decry lax safety standards

 - May 6, 2008, 5:02 AM

Aviation insurance rates can be affected by the vagaries of the stock and investment markets, insurance claims unrelated to the aviation industry and historic peaks and valleys in policy pricing. And further cost pressures are added because the number of aviation insurers continues to decrease.

However, there is much that aircraft operators and FBOs can do to mitigate rates, and insurance companies warn companies not to slough off safety measures. “I don’t want to hear ‘that’s why we have insurance,’” said Ed Williams, v-p of general aviation services and director of flight operations for Associated Aviation Underwriters (AAU) Global Aerospace. “This thinking hasn’t worked and directly contributes to what we have today–high insurance premiums.”

Speaking at the first of six National Air Transportation Association (NATA) seminars on risk management, he said that a great percentage of high FBO premiums is the result of “dismal lack of attention” to safety and training.

Williams told the group in Washington last month that ramp damage and employee injuries are intertwining problems that resulted in $4 billion in damages reported by airlines and FBOs worldwide last year. He said that one fractional ownership company reported that last year it experienced a total of 56 “ground events” that caused 4,526 hr of downtime to its aircraft. Assuming an aircraft flies several hundred hours per year, that means 10 airplanes were lost from revenue flights during a 12-month period.

“You are going to get [insurance] increases, but you may control the amount of the increases,” he said. “You can make a difference if management pays attention to details.”

Topics covered by NATA’s seminars include current aviation insurance availability, selecting an insurance broker, reducing claims by aggressively managing risk, non-traditional sources for coverage and an aviation security update. The next session will be September 26 in Austin, Texas, followed by October 10 in Cleveland, October 25 in Los Angeles, November 14 in Denver, and November 21 in Atlanta.

Harking back to the experiences of the fractional provider, Williams noted that 20 of the ground events were due to improper towing and 12 came from contact with ground equipment or vehicles. Therefore, more than half resulted when someone other than the pilot was in control of the aircraft.

Speakers at the seminar agreed that insurance rates will continue to rise through 2003, which is consistent with historic insurance cycles. Even before September 11, said Philip Hecht, a partner in the Washington law firm Kirkpatrick and Lockhart, premiums for all insurance were increasing.

While most commercial business rates were going up by 30 percent, however, aviation insurance underwriters raised rates by 200 to 400 percent. “We are two years away from lower premiums,” he warned, but he reminded that “what goes up must come down.”

Vic D’Avanzo of U.S. Aviation Underwriters, noted that before last year, the trend in insurance rates had been held down “a lot longer than before.” Meanwhile, the number of USAIG member companies decreased from 16 in 1982 to six in 2002, so there are a lot fewer players in the market.

“The risk-to-reward ratio has gone down the tubes,” he observed. “We have scared investors away. None of us anticipated September 11 and none of us know what we are going to do about it.”

D’Avanzo said that aviation insurance coverage generally encompasses aircraft liability, hull damage, airport liability and workers. “This is the basic coverage that we represent,” he said. “These are the areas that probably most drastically affect what you are doing and why you are here today.”

While he admitted it is “ridiculous to think we are going to stop” terrorist attacks from happening, he said that policyholders can take steps to hold down other premium costs. He suggested beginning with a clean house, reviewing safety procedures, communicating the importance of safety to the staff, expanding training, replacing unsafe or worn-out equipment, offering incentives for safety improvements, establishing zero-tolerance for violations of safety procedures, cultivating senior management/ownership dedication to safety and appraising the company’s insurance underwriter of steps to improve safety and training.

Williams, who described himself as “the safety guy” instead of the underwriter, suggested that a company’s employees must be part of the process and that proper training is essential. He added that one-time training is totally unreliable. To be effective, training must be done on a recurrent basis.

Stressing that “constant management attention” and a safety culture are necessary, Williams agreed with D’Avanzo that companies should work with their brokers.