Many are asking – is flying becoming more dangerous?
How is an aeroplane normally insured?
In aviation insurance, we make a distinction between
- Hull insurance – for the aircraft itself
- Passenger legal liability – if passengers are harmed
- Third party liability – which covers damage caused by the operation of an aircraft, for example if it crashes on the ground.
There is also the aircraft hull war market, where special cover can be bought for losses arising from acts of war or terror against an aircraft. This insurance protection also covers civil war, sabotage, strike, civil unrest, internal commotion, hijacking, etc. Losses caused by nuclear weapons are always excluded. Liability policies generally exclude war, terrorism and similar situations. Cover can usually be restored in full with respect to passenger legal liability against payment of a corresponding premium, but sub-limits are set for third-party liability. Airline insurance policies usually cover the whole fleet and are typically concluded for a period of one year. The sum insured for an aircraft varies greatly – depending on type, age, and technical equipment. Coverage is also offered on the basis of an "agreed value" – this means the airline decides on the amount of the sum insured. This may reach US$ 250 million or more. Insured indemnity limits for personal injuries also vary greatly, and may reach up to US$ 2.5 billion.
How are aviation risks assessed?
How important is the age of the aircraft?
Aircraft accidents are very expensive. How are such large risks spread across the insurance community?
There are three main constellations:
- A primary insurer takes on 100% of the policy, and then divides that part of the risk that it does not wish to hold between other insurers, who all then technically act as reinsurers.
- Several primary insurers are involved in the policy, with one acting as lead insurer. When there is a loss claim, it is handled by the lead insurer.
- Some countries have a statutory requirement that insurance policies — such as for an airline – should be issued by a local insurer. When this local insurer has neither the financial strength nor the specific know-how to take on this transaction, the risk is passed on to the international aviation market in the form of reinsurance. A lead reinsurer then often takes over the administration and claims settlement.
Most primary and reinsurance policies are placed by specialist brokers, and the London market plays a major role in aviation insurance.