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Aviation Insurance
Friday, February 1, 2002
US blow

Aviation underwriting rates have rocketed since the September 11th attack on the World Trade Centre, putting added pressure on an already beleaguered industry, says Anne Andrews of Glenrand MIB Aviation Insurance Brokers. As an initial reaction, certain insurers issued 7-day notice of cancellation in terms of Aviation War Liabilities cover as well as the War Risks (hull) insurance, leaving some operators temporarily without cover. That clearly untenable situation was short-lived, however, and within days of serving cancellation, the underwriters reinstated those covers, but with annual premium increases of 25% on the War Liabilities cover and 50% on the hull War Risks.

Also, in the case of Aviation War Liabilities, underwriters limited their liability to $10-million or the applicable policy limit. Moreover, those underwriters who did not serve immediate notice of cancellation of cover have increased their rates with effect from renewal date, at the same time reducing War Liabilities limits by a standard 25%, and by up to 200% in terms of War Risks cover.
Further fallout for airlines is that underwriters imposed aggregate limits of US$500m on any multiple aircraft losses derived from a single event. “In general, airlines are experiencing war rate increases of 400% and higher,” says Andrews.
“This is unprecedented in the airline industry; nor is it likely that rates will come down again, at least in the short term.
“The effect on airline costs will be severe and it’s difficult to see how fare increases can be avoided, although the fall in oil prices will have cushioned the impact to some extent. SAA for instance has already imposed a R90 war levy on its tickets.
“No sector of the industry has escaped and everything from a piper cub to a Jumbo jet is affected. Hopefully, if the terrorism scare settles down, rates should soften somewhat.”

Rand crash hits rates

A sign of the economic times is that S A Eagle, one of the leading aviation insurers in RSA has taken to adding 10% to its Hull rates if the sum insured is in US Dollars instead of Rand. However, before you rush off to change your cover into rands just remember that anyone whose aircraft was insured in rands in January 2001 effectively lost 40% of real value by the end of the year – a helluva lot worse than paying 10% to keep the cover in Dollars.
There is always an argument about whether you should insure your liability exposures in rands or dollars. One side says that if your risk is based in Africa you need only insure in rands as this will be the currency of any award in RSA. The other side takes the view that as your claim will involve dollar-based things like aircraft, insure in dollars. The third side says you can’t insure liabilities in dollars anyway as it is against South African regulations.
You pays your money and takes your choice, but at least give it some thought before rushing in to a decision.

Rights of third parties

The UK is working to change the legislation regarding rights of third parties to get at insurers who lie behind insolvent companies. This will enable third parties to claim directly against the insurer when the insured is liable but is insolvent.
Regrettably, we don’t have this law in RSA, which is sad for the families of DTI staff who were tragically killed in December 1999 in an aircraft accident at Rand Airport. Flightline Air Charter operated a Piper Chieftain on an international flight to Namibia and the aircraft crashed shortly after take-off due to overloading. The passengers’ families were unable to get any compensation, as Flightline, owned by one Van Der Molen, was declared bankrupt. The insurers refused to pay and there was no way the families could get to the insurer, SA Eagle, under SA law. The damages would have been automatic under South African law, although as there were few dependants the awards would have been small. (In SA a human life is worth zilch if you have no dependants).
Sad to say, Flightline was again involved in a fatal accident when a passenger, and the pilot, was killed in Mocambique in similar circumstances a few months later.
Interesting to find that Van Der Molen still runs a charter operation out of JIA, and that it has once again been involved in an accident.
Henry Tours, Aviation consultant
 

 

Copyright © Insurance Times and Investments® Vol:15.1 1st February, 2002
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