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Aviation Insurance
Friday, December 1, 2006
Beware the suitcase brigade

The aviation insurance industry in South Africa has become a shadow of its former self. A few years ago there were eight local insurers and Lloyd’s all licensed to sell insurance in the country. Today there are only Santam and Regent doing their own underwriting.

SA Eagle outsources its aviation underwriting now; and then there are, of course, a variety of Lloyd’s Syndicates. Allianz also operates through an underwriting manager, although to get a quote the business seems to be always referred back to London, which rather spoils the effect.
Of the Lloyd’s syndicates, several have outsourced their underwriting to local brokers. This is a very arguable course of action – how can a broker be the underwriter? Whose side is he going to be on when a disputed claim hits the surface? In my view it is quite against the regulations to operate in this way. The FAIS regulations lay down very detailed requirements for a broker and especially his duties to his client.
If a Lloyd’s syndicate, or even an international company, wants to underwrite in this country then let it set up a specific operation for this. If it wants to use a broker – heaven knows why – he will want to get business so he can earn commission; so is he going to be anything but the cheapest in town? The broker must set up a watertight underwriting operation that is fully protected from the broking side, preferably in a separate building.
In days gone by, several brokers ran ‘binders’ as they are called, only one ever ran successfully and most of the others disappeared in a cloud of claims, which cost the underwriters a pretty penny.
Other insurers are available to the local market, but they are not licensed and may only be used by a broker with express permission of the authorities. Most of these markets are well-financed and well-run operations, but there are, inevitably, the rough stuff that will quote cheap. But getting claims paid is a long and arduous task. Insolvency looms round many corners.
As I have written on several occasions, let your broker use the dodgy markets at your peril! It doesn’t help, of course, if your broker hides the market he is using by fraudulent paperwork. And don’t think that the authorities will help; it’s not their problem if you want to be insured by far away companies with strange sounding names. And don’t forget – if you have a hassle with one of these boytjies you will have to fight them in their own country under their laws, and with their lawyers – there are no assets in this country you can get your mitts on!
It would be a help if the authorities were to take a stronger line in enforcing their own regulations.
Further problems arise as a Ukraine Insurer, Busin Insurance Co, tries to enter the RSA market. It has no rating from Standard&Poors or Bests and has to get a licence from the Financial Services Board before it can operate. However this hasn’t stopped it from attempting to get round the regulations and attack business in South Africa. This has led to some pretty bad tempered complaints to the FSB. The problem for anyone who takes on these guys to cover their aircraft or anything else is that there are no assets in South Africa; and if there is a bunfight you will have to go to the Ukraine to do battle. The track record is pretty well unknown. By Henry Tours, aviation consultant.
 

Copyright © Insurance Times and Investments® Vol:19.6 1st December, 2006
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