1. THE AVIATION INSURANCE INDUSTRY
The Aviation Insurance Industry must evolve with global events.
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2. AGENDA
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1. Introduction
2. Background of Aviation Insurance and introduction of thesis
3. What is happening now?
4. Case Study – Fort McMurray
5. Conclusion
6. Q&A
4. BACKGROUND OF AVIATION INSURANCE
INDUSTRY
The beginning of Aviation saw
the Wright Brothers in 1903,
flying the very first rigid-framed
plane in North Carolina, USA
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5. 5
In 1911, insurers within the Lloyd's of London market wrote the very first aviation insurance policy
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In 1929, the Warsaw Convention
recognised the Airline Industry
Over the next 100 years, Lloyd’s of London oversaw the
insurance of exotic aviation aspects such as satellites, as
well as the claims of famous failed flights such as The
Hindenburg Disaster, The Challenger shuttle and 9/11
8. 8
The commercial flight incidents that occurred in the 20th/21st
century have spurred the addition of new safety measures
9. WHAT IS HAPPENING CURRENTLY?
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Environmental risks
such as El Niño
Risks posed by
emerging Cyber
Terrorism
Rising prices
and scarcity of
oil used to
power planes
Scarcity and
quality of pilots
coming through
11. CONCLUSION
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Where global events aren’t learnt from, similar losses are
sustained again in the future.
Where losses are learnt from, and adaptations made, losses can
be maintained in the future and exposure limited.
Thank you all for being here to view my presentation on the Aviation Insurance Industry. The point I will be trying to prove throughout this presentation is that the aviation insurance industry must evolve with global events.
This presentation will include an introduction of myself - a background of the aviation insurance - the case study Fort McMurray and then I will be able to conclude, which will be followed by the opportunity for you to ask me questions.
To introduce myself, my name is Oliver Culley and I am 17 years of age. I am here on work experience, looking at how everything works at Lloyds and in particular at Aviation as a class of business.
My work experience, although sadly ending tomorrow, has given me a solid insight and this presentation will hopefully provide a good idea of how far I have come.
The era of manned aviation began when the Wright brothers flew the world’s very first aircraft in 1903.
This feat of human brilliance opened the doors to one of the most, if not the most widely used forms of transport in the past century, which further incurred the very first aviation insurance policy being written within the Lloyds of London market in 1911.
However, one thing to note within this timeframe was that in 1912 aviation trading was temporarily postponed for a year following a calamity involving multiple plane crashes at an air show, which incurred losses.
1929 saw the signing of the Warsaw convention, this convention recognised aviation as a whole new industry, not just in insurance terms.
The Warsaw convention is also still in use today and is responsible for the assignment of liabilities to Airlines who are responsible for their customers when flying for reward.
Over the next 100 years, Lloyd’s of London oversaw the insurance of exotic aviation aspects such as satellites, as well as the claims of famous failed flights such as The Hindenburg Disaster, The Challenger shuttle and 9/11
Global events such as these prove the need for Aviation Insurance insurers to adapt and work with the airline industry to cut the exposure to risk.
9/11 for the record incurred losses for Lloyds of more than $2bn.
Also to note is that prior to 9/11, terrorism was not noted in most policies and therefore the losses suffered during 9/11 could have been avoided had the Aviation Insurance industry evolved with previous global events.
In direct response, security measures were put in place, proving that the Aviation Industry has made attempts in the past to evolve alongside global events.
Whereas prior to 9/11 American citizens making flights could simply carry weapons in hand luggage, it became a requirement to declare any weapon and keep it locked inside a hard case which will be kept in the hold.
At most airports in the US, it also became mandatory to have your vehicle swept for incendiary devices and to be limited to the quantity of luggage you are allowed.
To prove that this adaption to global events has had a positive effect is this graph. It clearly shows that, prior to 9/11 we saw a lot of attacks that were spontaneous and often frequent, however straight after 9/11 the frequency decreased massively.
In terms of what is happening now, it must be recognised that there are issues and emerging risks coming to the aviation insurance class.
An existing risk is environmental issues such as El Nino events. Events such as these pose a risk to the aviation industry as well as the aviation insurance market because they have the potential to cause large-scale damage to aircraft or airports and can cause heavy disruption.
Another risk that is emerging mostly is cyber terrorism.
With airplanes and airports become more and more dependent on technology, a platform is emerging for possible hackers to penetrate software and cause losses for the aviation insurance industry.
For example, one theory for the Malaysian Airlines flight MH370 is that it was downed by cyber criminals.
The aviation insurance industry accumulated losses as an immediate consequence of MH370 and, if it was caused by cyber terrorists, then there is justifiable demand for advances and innovation to combat the threat of cyber terrorism.
Oil prices and inevitable scarcity as well prove a risk to the aviation insurance market because they have the potential to impact passenger rates and therefore hybrid alternatives are an example of a way in which the airline industry and insurance experts can adapt and manoeuvre around the issue.
And of course, proven by Otto the pilot, pilot quality is a topic under heavy scrutiny in recent times considering that abilities of pilots can worryingly vary seriously.
For example, in Glasgow in early July, two pilots set to fly 220 passengers to Canada were arrested after they were found to be intoxicated. These risks prove that consistently updating to evolve with global events is a necessity for the Aviation Insurance Industry; however this case study, Fort McMurray, goes a long way to show the innovation already being put into practice to adapt too globally, frequent events.
On May 1 2016, a fire began rampaging through Fort McMurray and other areas in the province of Alberta. 2,400 houses and buildings so far have been destroyed.
However, one aspect that worried insurers within the Aviation Insurance Sector was Fort McMurray airport and surrounding airports, and whether the fire was dangerous enough to damage the planes and infrastructure.
Cleverly, avoiding risk of danger to emergency personnel and equipment, drones were deployed providing main three benefits –
1. Damage could be assessed early to allow insurers to capitalise
2. Firefighters could be pointed towards key areas and people in distress
And the fact that no lives were risked to gain information
Because of this clear reflection of how adaption to global events can prove beneficial, insurance losses, although hitting $3bn, still were nowhere near as their potential, to this day direct fatalities of the fire is still at 0 and the Aviation Industry does not have to deal with damage to the Fort McMurray airport which is now back in service.
To conclude, aviation insurers need to carefully adapt to global events because there are so many emerging risks that can contribute and cause, and when they do, huge losses will be incurred by everyone.
For insurers involved within Fort McMurray, they proved that through the correct use of innovation, losses can be curbed and exposure limited, and therefore it is important that in the future the aviation insurance industry is constantly developing and adapting, to deal with the inevitable future global events.
