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INDEX Particulars Page No. 1. Introduction to Aviation Insurance 3


Risk covered in Aviation Insurance 3.1 Normal Risk 3.2 Liabilities



Future of Aviation Insurance


4. 5.

Aviation Insurance in India Indian Government on Aviation Insurance

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Case Studies



Recommendation ,Conclusion & Hypothesies





Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a governmentowned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Aviation accidents are serious accidents, especially those that happen while the plane is in flight. Aviation or plane accidents do not only mean pilot error. It could also be caused by malfunctioning gauges as a result of product liability or failure of maintenance. Also, aviation accidents do not only connote plane crashes or mishaps. Aviation insurance is different from other forms of insurance in that it is very subjective. Due to the vast array of aircraft types, uses and pilot experience, policies should always be specifically tailored to suit the unique requirements of each individual applicant. For this reason it is recommended that a broker, specializing in aviation insurance be engaged to arrange cover. The Indian aviation industry has witnessed remarkable growth in recent years, with key drivers being positive economic factors, including high GDP growth, good industrial performance, and corporate profitability and expansion. Other factors include higher disposable incomes, growth in consumer spending, and availability of low fares. Aviation insurance business is a high severity loss business and in the future you could see a lot of Indian insurance companies joining hands to manage airline accounts. Aviation has come a long way the last 100 years. The industry is still developing. With growth comes a problem that must be solved before the industry can go to the next level.

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Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people. The origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. It was an extension of London-Karachi flight of the Imperial Airways. In 1932, JRD Tata founded Tata Airline, the first Indian airline. At the time of independence, nine air transport companies were carrying both air cargo and passengers. These were Tata Airlines,

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Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways, Orient Airways and Mistry Airways. After partition Orient Airways shifted to Pakistan.

In early 1948, Government of India established a joint sector company, Air India International Ltd in collaboration with Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The inaugural flight of Air India International Ltd took off on June 8, 1948 on the Mumbai-London air route. The Government nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established by 1995, several private airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways. But only Jet Airways and Sahara managed to survive the competition. Meanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian aviation industry is dominated by private airlines and these include low cost carriers such as Deccan Airlines, GoAir, SpiceJet etc, who have made air travel affordable.

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India is one of the fastest growing aviation markets in the world. The Airport Authority of India (AAI) manages a total of 127 airports in the country, which include 13 international airports, 7 custom airports, 80 domestic airports and 28 civil enclaves. There are over 450 airports and 1091 registered aircrafts in the country. The genesis of civil aviation in India goes back to December 1912 when the first domestic air route between Karachi and Delhi became operational. In the early fifties, all airlines operating in the country were merged into either Indian Airlines or Air India and, by virtue of the Air Corporations Act 1953, this monopoly continued for the next forty years. In 1990s, aviation industry in India saw some important changes. The Air Corporations Act was abolished to end the monopoly of the public sector and private airlines were reintroduced. With the liberalization of the Indian aviation sector, the industry has witnessed a transformation with the entry of the privately owned full service airlines and low cost carriers. In 2006, the private carriers accounted for around 75% share of the domestic aviation market. The sector has also seen a significant increase in the number of domestic air travel passengers. Some of the factors that have resulted in higher demand for air transport in India include the growing middle class and their purchasing power, low airfares offered by low cost carriers like Air Deccan, etc. Increasing liberalization and deregulation has led to an increase in the number of private players. The aviation industry comprises of three types of players:

Full cost carriers Low cost carriers (LCC) Other start-up airlines

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1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (NonResident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval. However, the government policy bars foreign airlines from taking a stake in a domestic airline company.

2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to launch an airline. Private airlines are known to hire foreign pilots, get expatriates or retired personnel from the Air Force or PSU airlines in senior management positions. Further, they outsource such functions as ground handling, check-in, reservation, aircraft maintenance, catering, training, revenue accounting, IT infrastructure, loyalty and programme management. Airlines are known to take on contract employees such as cabin crew, ticketing and check-in agents.

3. Attraction of foreign shores: Jet and Sahara have gone international by starting operations, first to SAARC countries, and then to South-East Asia, the UK, and the US. After five years of domestic operations, many domestic airlines too will be entitled to fly overseas by using unutilised bilateral entitlements to Indian carriers.

4. Rising income levels and demographic profile: Though India's GDP (per capita) at $3,100 is still very low as compared to the developed country standards, India is shining, at least in metro cities and urban centres, where IT and BPO industries have made the young generation prosperous. Demographically, India has the highest percentage of people in age group of 20-50 among its 50 million strong middle class, with high earning potential. All this contributes for the boost in domestic air travel, particularly from a low base of 18 million passengers.

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5. Untapped potential of India's tourism: Currently India attracts 3.2 million tourists every year, while China gets 10 times the number. Tourist arrivals in India are expected to grow exponentially, especially due to the open sky policy between India and the SAARC countries and the increase in bilateral entitlements with European countries, and US.

6. Glamour of the airlines: No industry other than film-making industry is as glamorous as the airlines. Airline tycoons from the last century, like J. R. D. Tata and Howard Hughes, and Sir Richard Branson and Dr. Vijay Mallya today, have been idolized. Airlines have an aura of glamour around them, and high net worth individuals can always toy with the idea of owning an airline. All the above factors seem to have resulted in a "me too" rush to launch domestic airlines in India.

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The growth in the aviation sector and capacity expansion by carriers has posed challenges to aviation industry on several fronts. These include shortage of workers and professionals, safety concerns, declining returns and the lack of accompanying capacity and infrastructure. Moreover, stiff competition and rising fuel costs are also negatively impacting the industry.

1. Employee shortage: There is clearly a shortage of trained and skilled manpower in the aviation sector as a consequence of which there is cutthroat competition for employees which, in turn, is driving wages to unsustainable levels. Moreover, the industry is unable to retain talented employees.

2. Regional connectivity: One of the biggest challenges facing the aviation sector in India is to be able to provide regional connectivity. What is hampering the growth of regional connectivity is the lack of airports.

3. Rising fuel prices: As fuel prices have climbed, the inverse relationship between fuel prices and airline stock prices has been demonstrated. Moreover, the rising fuel prices have led to increase in the air fares.

4. Declining yields: LCCs and other entrants together now command a market share of around 46%. Legacy carriers are being forced to match LCC fares, during a time of escalating costs. Increasing growth prospects have attracted & are likely to attract more players, which will lead to more competition. All this has resulted in lower returns for all operators.

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5. Gaps in infrastructure: Airport and air traffic control (ATC) infrastructure is inadequate to support growth. While a start has been made to upgrade the infrastructure, the results will be visible only after 2 - 3 years.

6. Trunk routes: It is also a matter of concern that the trunk routes, at present, are not fully exploited. One of the reasons for inability to realize the full potential of the trunk routes is the lack of genuine competition. The entry of new players would ensure that air fares are brought to realistic levels, as it will lead to better cost and revenue management, increased productivity and better services. This in turn would stimulate demand and lead to growth.

7. High input costs: Apart from the above-mentioned factors, the input costs are also high. Some of the reasons for high input costs are:Withholding tax on interest repayments on foreign currency loans for aircraft acquisition. Increasing manpower costs due to shortage of technical personnel.

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There are different types of risk which takes place in aviation insurance and those risks are covered in aviation insurance they are as follows:

The above diagram suggests that there are mainly two kinds of risks which an aviation insurance company will cover which has been divided into two parts. They are: 1. Normal Risks 2. Liabilities These two risks are further divided into various parts which involve various risks and liabilities they are which is explained in detail later on.
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These risks are those risks which every aviation company in this industry carries it on its back when it enters into the business. These risks may differ from time to time and situation to situation. These are; 1. Hull Risks 2. Hull War Risks 3. Spares All Risks/ War Risks 4. Hull total Loss Only cover These risks are those risks which takes place when these takes place when any of these factors comes into action. Because all the above risks mentioned above are unpredictable and may occur at any time.

The hull "All Risks" policy will usually refer to something like "all risks of physical loss or damage to the aircraft from any cause except as hereinafter excluded". The term "all risks" can be misleading. "All risks of physical loss or damage" does not include loss of use, delay, or consequential loss. "Grounding" is a good example of consequential loss. Some years ago when there had been a couple of accidents involving DC10 Aircraft, the Civil Aviation Authorities throughout the world imposed a "grounding order" on that type of aircraft.

That order in effect said until certain things had been established and checked out those aircraft could not fly. The operators of those aircraft were unable to fly them and as a consequence of that they "lost" the use of them. But the aircraft were not "lost" - it was known precisely where they were but they could not be used to carry

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passengers. Such an eventuality would not be covered by an "all risks" policy because in such circumstances there is no PHYSICAL loss or damage.

Today, the vast majority of airline hull "all risks" policies are arranged on an "Agreed Value Basis". This provides that the Insurers agree with the Insured, for the policy period, the value of the aircraft and as such, in the event of total loss, this Agreed Value is payable in full. Under an Agreed Value policy the replacement option is deleted.


The hull "All Risks" policy will contain the exclusion of "War and Allied Perils". Generally speaking, throughout the aviation insurance world, "War and Allied Perils" have a defined meaning. In the London Aviation Insurance Market the standard exclusion is called the War, Hi-jacking and Other Perils Exclusion Clause (currently known by its reference - AVN48B for short) this lists and defines these so-called war and allied perils. It say, 1. War - this includes civil war and war with no formal declaration. 2. The detonation of a weapon 3. Strikes, riots, civil commotions and labour disturbances. 4. Political or terrorist acts. 5. Malicious or sabotage acts. 6. Confiscation, nationalization, requisition and the like by any government. 7. Hijacking or Unlawful exercise to control plane other than crew members of the flight concerned.

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The majority of the excluded "War and Allied Perils", other than the detonation of a nuclear weapon and a war between the Great Powers (the aviation insurance world identifies these as the U.S.A., the Russian Federation, China, France and the UK), can normally be covered by way of a separate "War and Allied Perils" policy. Aircraft deductibles are not normally applied in respect of losses arising out of "War and Allied Perils". Other exclusions insurers will usually apply are, as follows:1. Confiscation etc. by the "state" of registration (this exclusion can often be deleted in respect of financial interests - albeit, in some instances at an additional premium charge) 2. Any debt, failure to provide bond or security or any other financial cause under court order or otherwise;

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3. The repossession or attempted repossession of the Aircraft either by any title holder or arising out of any contractual agreement to which any Insured protected under the policy may be party; 4. Delay and loss of use. (Although there is often an extension to the policy for a limited amount for extra expenses necessarily incurred following confiscation or hijacking). The aircraft hull "War and Allied Perils" policy will cover the aircraft on an "Agreed Value" basis against physical loss or damage to the aircraft occasioned by any of these perils. This statement is made carefully and deliberately in order to highlight the essential difference from a "Political Risks" Insurance.


First of all we must identify what we mean by a "spare" or perhaps - "when is a spare not a spare" to which a simple answer is "when it is attached". Under most "Hull" policies the word "Aircraft" means Hulls, machinery, instruments and the entire equipment of the aircraft (including parts removed but not replaced). Once a part is replaced it is no longer, from an insurance viewpoint, part of the aircraft. Conversely once a spare part is attached to an aircraft as a part of that aircraft (not in the hold as cargo or on the wing as an extra pod) it is no longer a "spare". If the equipment is insured on the hull "All Risks" policy the automatic transfer of coverage from "aircraft" to "spare" and vice versa is automatically

accomplished.Having established when a spare is a spare how is it insured as such? Usually in one of two ways. Either under a "spares" section of a hull policy or by a separate Spares Policy. In either case the scope of coverage will probably be

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similar. All Risks whilst on the Ground and in Transit for a limit of [so much] any one item or sending or any one location. War Risks can also be covered (in respect of transits), Strikes, Riots, Civil Commotions can be covered in accordance with standard market clauses. Spares coverage is usually subject to a small deductible except, however, in respect of ground running of spare engines when the appropriate Ingestion deductible will be applied. Spares are normally covered on an agreed value basis - usually their replacement cost (be it new or reconditioned as is required).

A flight cockpit with its spare parts

An engine with its spare parts working inside

Spares installed on any aircraft are not covered by the Spares Insurance. They become, from an insurance standpoint, a part of the aircraft upon which they are installed and a part of the Agreed Value for which it is insured. This becomes particularly important if the parts are loaned to another airline.

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The Aerocor (Aerolineas Cordeillra) DC-3 used in 60s and 70s

This is similar to Hull All Risks cover given above but will respond only to total losses of aircraft, whether actual, constructive or arranged. This is particularly given for old aircraft since the old aircraft are heavily depreciated and insured for low sums and premium on such low sums would result in low premium, which would be inadequate for the partial losses. The ratio of partial losses to total losses in such old aircraft is distorted.

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Liabilities are those risks which may arise due to some consequences or some reasons the company has to face. Those reasons are as follows

1. Aircraft Liability 2. Excess Liability 3. Aerospace Manufacturers products and Grounding Liability 4. Airport Owners and Operations Liability 5. Product Liability A liability is a present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits. The explanations of all the liabilities are given below

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Here in aircraft liability there are many other liabilities involved which are further divided into four parts. They are






These are the kinds of liabilities which are covered in aviation insurance the explanation in detail is given below

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Coverage for aircraft operators in the event a passenger is injured, killed or disabled during an accident while aircraft. aboard an insured policies


divided liability coverage into two parts--general liability

Passengers injured in 'Turkish Airlines Plane Crash in Netherlands' Feb 25, 2009

(excluding passengers), and passenger liability.

A Passenger Liability policy covers incidents resulting from the transportation of passengers by land, sea or air and can often be included as part of a aviation insurance policy. However care must be taken to check that the motor policy wording does not exclude fare-paying passengers, which is often the case. It is unlikely that an underwriter will be prepared to cancel or amend the wording of a standard motor vehicle policy. For this reason Daily Cover policies are specifically for to cater for fare-paying passenger liability.

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This program offers 3rd Party Liability insurance coverage for non-

commercial operations only. Pilot and passenger injuries and aircraft physical damage are not covered. This member benefit program is designed to allow noncommercial pilots the benefits that insurance coverage can offer. While pilot and passenger injuries and damage to the aircraft itself are not covered under a Third Party program, financial responsibilities bodily injury or property damage caused by the aircraft for which the pilot is found to be legally liable to pay to others is covered. Additional insured parties such as landowners, municipalities and airports, can also be covered under this type of policy. Because the possession of Third Party coverage provides landowners with a Certificate of Insurance showing that coverage is in place, access to more flying sites are accessible for the operation of your aircraft When one engages in recreational activities requiring the use of a vehicle whether it be land, water, or air sports related - there are inherent factors that could result in liability issues. No one wants to enjoy an activity and then have the pleasure of it clouded with possible situations that would result in liability claims against their hard earned savings. This Third Party liability insurance for USUA members can help relieve the worry of possible claims against the pilot should this type of situation occur. Additionally, access to airports, flight parks, and flying events often require liability coverage. Many states require insurance of this nature just to operate an airplane of any description. Third party liability coverage is also less expensive than full coverage, and therefore allows the members (insurance holders) the opportunity to enjoy the thrill of aviation without the worry of liability concerns or the expense of high-priced insurance.
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This kind of liability may include various reasons in the happening. They are as follows:

1. Delays
If your bags are delayed, try not to panic. The airlines typically have ways to track them, and about 98 percent of all misplaced luggage is returned eventually. If your bags are on the next flight, you could have them within a few hours. If they've been sent to the wrong airport, it could take a couple of days. Make sure to file your claim immediately at the airport and to give the attendant a hotel or home phone number and address. The airlines will typically bring you your luggage when it is found; you will rarely need to return to the airport to pick it up. Additionally, many airlines will reimburse any unexpected expenses caused by the loss or delay (keep your receipts!). But be careful here -- the airline sometimes has the option to deduct any reimbursement or stipend from any subsequent awards. Before you leave the airport, be sure you know how to check on your bag's status; some airlines have an online system while others will provide you with a phone number to call for updates.

2. Lost Baggage
If the airline loses your bags, make sure you get a written claim for damages. This may require a different form than the original "missing luggage" form. This can be done at the airport or by mail.

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On domestic flights, the airline baggage liability is capped at $3,300 per person. On international trips, the liability limit may vary, as it is governed by various international treaties, including the Montreal and Warsaw Conventions. You may need to produce receipts to prove the value of items you had in your suitcase. If you have them, include copies in any documentation you send to the airline. (Keep in mind that you will be reimbursed for the depreciated value of your items -- so the airline won't give you the full $1,000 you paid for that suit you purchased two years ago.) You can purchase "excess valuation" protection if your checked baggage is worth more than these limits (but before doing so, make sure the items aren't already covered by your homeowner's or travel insurance policy). The airlines typically have a long list of items for which they will not be held responsible; these include jewelry, money, heirlooms and other valuables. These sorts of items should always be packed in your carry-on bag.

3. Stolen Baggage
Head directly to the baggage carousel when you get off your flight. Many airlines scan bags when they're loaded into the baggage claim area and keep records, especially at larger airports. Once you've left the baggage claim area, your claim is no longer with the airline, but with the police.

5. Damaged Baggage
Once you've gotten your bags off the carousel, immediately check them for damage or other signs of tampering or mishandling. Report any damage before leaving the airport; airline customer service will often want to inspect the bag. Keep in mind that most airlines won't cover minor wear and tear.

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This type of insurance is essential for the manufacturer of aircrafts, its components and related equipment. In addition, it is also necessary for those engaged in selling airplanes, its parts or fuel, and for individuals who repair and/or maintain the aircrafts. There are different laws, federal regulations and considerations for commercial airliners versus small planes. General aviation refers to aircraft such as small planes that seat less than 20 passengers and were not engaged at the time of the flight in scheduled passenger-carrying operations. It includes helicopters, as well. Knowledgeable brokers can assist in the process of identifying what type of coverage is necessary on a case by case basis.

This policy protects parties from claims arising from injury or damage caused by defects in the products sold or manufactured or from improperly completed operations. Manufacturers, distributors and sellers can be open to liability even if it is proven that the product was used improperly. Insurance coverage will cover their legal fees needed for defense against claims and class action suits.

Though air traffic is considered to be a safe means of transportation, accidents do occur. Some of the more common causes of many of these incidents are faulty equipment and structural or design problems. Aviation products can cause catastrophic accidents as the result of relatively minor failures.
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This may include liabilities as follows

This basic part of the policy will protect the liability of the operation for the employees while performing their duties. This would be the fueling operation, and any part of the business associated with the office and ramp areas. The facility will add to this policy additional parts to cover the specific needs of each operation.

The larger operations, like a Bell service center with 8 to 10 beautiful ships in various stages of maintenance with full pilot training facilities for instance, is almost always going to have exceptional policies covering their business operations that include what you do. Their policy will cover any person acting on behalf of the operation in the carrying out of their duties. This policy will protect you if you should do something unintentional that causes damage. An example might be in the process of moving a helo in or out of the hangar with a power tug. If you are watching one side and start the turn too soon and catch the tail boom or rotor on the hangar door or another helicopter sitting next to the one you are moving, the damage you cause will be covered by the coverage.Now lets say you work for a maintenance only shop with just 1or 2 ships being worked on at any one time. In these difficult economic times, it is not unheard of for some operations to trim expenses and not purchase the Hangarkeepers option of the policy. If you are unsure, work up the courage to ask your boss if you are covered under this part of the policy. Seeing a copy of the declarations page with the policy effective dates will help reassure you and will operations Hangarkeepers also tell you if the coverage has been purchased.

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The work done by airport employees is considered to involve the greatest level of professional responsibility. Even smallest errors by airport personnel can result in enormous casualties and material losses. Therefore it is important for airport owners to insure not only their property but also third-party liability. Insurance objects: The Insureds liability as an airport owners and/or airport structures that may include: - airport terminal, airfield and other infrastructure; - fuelling station; - air traffic control center. Insurance risks: - liability for causing material damage to third parties; - liability for causing damage to life and health of third parties. Insurance period: Period specified in the insurance policy normally one year. The cost of insurance is influenced by: - number of takeoff and landing operations; - types of aircraft based at the airport; - passenger and freight flow volumes; - structures comprising the airport; - working conditions of air traffic control center.

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Exclusions: Standard: military risks; risks related to nuclear explosion effects and radiation hazard.

Specific: - liability to the Insureds personnel; - liability for property owned or temporarily possessed by the Insured; - liability for injuries to persons and property resulting unless such activities have been agreed on with the Insurer. Also to mention that airport owners liability also includes oper ations liabilities.

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Product liability is the area of law in which manufacturers, distributors, suppliers, retailers, and others who make products available to the public are held responsible for the injuries those products cause.

Theories of liability
In the United States, the claims most commonly associated with product liability are negligence, strict liability, breach of warranty, and various consumer protection claims. The majority of product liability laws are determined at the state level and vary widely from state to state. Each type of product liability claim requires different elements to be proven to present a successful claim.

Plane crash due to manufactures and other members related with the airlines

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As the industry enters into the millennium, the insurance industry must look at several problems that also face the aviation industry. Survival for the small FBOs is getting harder each day; the threat of financial devastation is real when it comes to lawsuits. General aviation may be forced to change its way of doing business and become more like the military and commercial airlines. One can only hope that society will change their attitude towards the aviation industry and the litigation that surrounds the industry. We all hope for a positive future for the community.

The aviation industry, as it is known today, has grown into a set of definable industries. Modern aircraft range from military to commercial airlines to the most diverse group, general aviation. Aviation has come a long way the last 100 years. The industry is still developing. With growth comes a problem that must be solved before the industry can go to the next level. Because of modern technology, well never again have the numbers that we once had. The ageing fleet and pilots cant help the situation that the industry is facing; the average aircraft age is 15 to 20 years, and the post Indian pilot is now 50 to 60 years of age. The underwriters are very worried about the age of both the pilots and the aircraft.

The future of the industry could hold a brighter outlook. The industry hopes that with the use of simulators at all levels of training will increase the number of better-trained pilots and hopefully lower insurance cost at the same time. Insurance can be one of the most expensive elements in the fix cost of owning an aircraft. To keep insurance cost under control in this difficult environment, aircraft and
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aviation business owners are going to have to make some changes in the way they purchase and think about insurance. There are ways to reduce your insurance cost, buying cheap insurance isnt always the best way to go, and its not heavily regulated by our government. Companies can write policies pretty much the way they want to, you must pick the right company for you and your aircraft. Aviation has come a long way the last 100 years, and the future could hold a brighter out-look for the industry. One can only hope that society will change their attitude towards the aviation industry and the litigation that surrounds the industry. In the future, this could drive cost down and make liability insurance affordable to the private owners, and to the FBOs. Aviation insurance business is a high severity loss business and in the future you could see a lot of Indian insurance companies joining hands to manage airline accounts.


In the future, some sectors of the aviation community may simply cease to exist as a result of the threat of financial devastation due to lawsuit. We've had a glimpse of this already when the escalating cost of products liability insurance practically stopped the production of light aircraft in the mid-1980s. It was only after a change in legislation limiting the time an aircraft manufacturer could be held responsible for products liability that our industry resumed production of new light aircraft. In the future, such sectors of general aviation as the small piston repair shop and the small flight training school may not be able to afford the increasing insurance premiums and in some cases may not be able to buy adequate insurance at any price. This may spell the end for many in these businesses. As of February 2000 at least three aviation insurance companies have ceased writing small "Instruction and Rental" risks while others have increased their premiums for this class.
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The unbridled growth in the aviation sector has come as a bonanza for the insurance sector. Thanks to capacity addition and the entry of new aviation players, a host of insurance companies are eyeing this growing market t offer insurance cover to new planes that are being brought to India.

Before the boom in the Indian aviation sector, the airline insurance market was dominated by the four state-owned general insurance companies: New India Assurance Company, Oriental Insurance Company, National Insurance Company and United India. However, with the growth in the Indian aviation story, private players like ICICI Lombard, Bajaj Allianz, Iffco Tokyo General Insurance and Reliance General Insurance Company are also trying to muscle their way into this lucrative sector. The unprecedented growth in this sector is also seeing private players join hands with each other to bid for accounts. The latest such case is the ICICI Lombard-Bajaj Allianz tie-up where they are jointly bidding for Air Indias insurance account which includes providing cover for 50 planes valued over $3 billion.

In India, this segment is highly reinsurance-driven. A majority of the players have re-insured the value of risk covered with foreign companies. Take the case of Air India where almost 90% of the risk is insured overseas through reinsurance arrangements, while the remaining cover rests domestically. Indian insurance companies do not have the financial muscle to address claims of airlines and generally go in for reinsurance which means sharing the risk of loss with another insurance company.

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The role of a reinsurer is important in the Indian context as most of the companies do not have the requisite experience of handling a market of this size. The reinsurer helps in providing the technical expertise, capacity to underwrite the business and their ability to handle such large risks. National reinsurer, GIC, leads Indias reinsurance treaties. Out of the eight private players, Bajaj Allianz General Insurance Company and ICICI Lombard General Insurance Company Limited are most active in this segment.

Although there are no official estimates, industry players put a ballpark figure of the Indian aviation insurance market at somewhere around Rs 400 cr to Rs 500 cr. With new aircraft being bought by new players entering the sky and the existing one in expansion mode, this segment will only grow.

According to Ernst & Young, a global consultancy firm, Indian skies would have over 700 aircraft - from 235 currently - by 2012, an increase of almost 200%. The numbers speak for the potential of this segment in the market, which is one of the fastest growing in the world. The total premium figures for aviation insurance in India for 2006-07 stood at Rs 417.29 cr. Typically, the premium depends upon underwriting factors such as age of the aircraft, experiences of the pilot flying the aircraft, make and model and use of the aircraft. It is generally 1% to 3% of the aircraft value.

The aviation insurance market is looking up and is currently at Rs 350 crore. But with new aircraft being bought by new players entering the business and the existing one on an expansion mode, the aviation market is set to take off.

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Indian Aviation Insurance Market Overview 2008 Anant Pawar* The author is the Vice President & Head Aviation at Aon Global Insurance Brokers Pvt. Ltd. Insurers on aviation growth path Indian Insurers have come a long way in developing the market capacity for aviation insurance business and as Indias growth story continues, Insurers have kept pace with the growing demand from buyers in India. Today the Indian market is playing a key role in supporting not only buyers in India but also buyers in the sub-continent, including major support to the SAARC region. As the Indian aviation industry continues to grow, many new buyers have entered the insurance market with requirement for different types of products. Apart from traditional airline and aircraft related insurances, Insurers are now covering different verticals of aviation industry ranging from airports to aircraft manufacturers with bigger risks appetite. The year 2008 has seen heightened level of competition amongst both Public and Private Sector Insurance Companies in an attempt to retain the current market share and to fulfill an ever increasing desire to participate in the aviation growth story.

This is more so in the General Aviation (generally aircraft with less than 61 seats) segment where the sum insured limits are within the capacities of many Indian Insurers. General Aviation buyers in India have enjoyed substantially lower premium payouts in 2008 compared to their world and regional peers, as buyers have bargained hard taking advantage of the soft market conditions and excess market quite a few buyers have switched their insurers. On the Airline front, pricing continues to be driven by leading international markets especially in
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London, as Indian Insurers continue to off load major risks to international companies mainly in the European sub-continent, with insurance brokers playing a very important role in the entire process. Market Potential For 2008, Aviations direct premium income in India is circa INR 3,750 million and this includes buyers from all segments including airlines, general aviation, aerospace, airports, ground handlers, catering companies etc but excluding satellite. Over 75% of the total premium comes from the airline segment with another 23% from General Aviation. A very small portion of 2% is contributed by airport, ground handlers, catering segment etc. In addition, capacity. In the process, National Reinsurer, GIC Re writes substantial international aviation business (mainly by way of inward reinsurance) coming into the country and gradually other insurers are following suit, but with caution.

Over the last 10 years GIC Re has emerged as one of the largest aviation reinsurer in the international market and is playing a key role in supporting Indian Insurers. Currently there are over 200 buyers of aviation insurances in the country who need aviation products in one form or other. Many new buyers have entered the market in 2008 and the trend is expected to continue in 2009 albeit at a slow pace. For the airline sector, customer base and number of aircrafts has increased significantly in the past three years but current economic situation is taking a toll on its future growth.

When one compares the above limits to 2-3 years back it signifies a jump of over 200%-250% and majority of the capacity comes from National Reinsurer, GIC Re. New capacity has entered Indian market especially during 2007, 2008 with Private Insurers buying reinsurance programmes to support their direct underwriting. At the same time existing Insurers have expanded their underwriting limits.
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Claims Scenario
Each Insurer will have its own underwriting experience to show and can vary from its peers considerably depending on their participation on the policies that has produced losses. General Aviation claims in 2008 are expected to exceed Rs. 500 million and 2009 has started on a bad note with claims in first five months exceeding Rs.350 million. As against this, past 10 years average general aviation losses are hovering around Rs.400 million.

When we compare these claim figures against the total general aviation premium in India, one may come to a conclusion from the insurers perspective that general aviation is profitable over the last 10 years period. This may not be true for all insurers, especially considering the fact that 10 years average loss figure consists of two or three major losses in each year. Insurers participating on these losses would have been hit hard. Majority of the losses in the last 10 years are on account of aircraft damages and liability claims forma a very small portion of it. However, by no means does this give any indication into the future considering the catastrophic nature of aviation business.

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Two private sector general insurance companies, ICICI Lombard General Insurance and Bajaj Allianz General Insurance, have bagged the insurance account of Vijay Malayas Kingfisher Airlines. This is for the first time that the private sector general insurance companies have made major inroads into the aviation sector, which has mainly been the forte of the public sector insurers. Both ICICI Lombard and Bajaj General Insurance will share the Kingfisher Airlines account in a 7.5:2.5 ratio. After a beauty parade by the public sector and private general insurance companies, the account was awarded to the two private sector general insurance companies last week. ICICI Bank, one of the promoters of ICICI Lombard, has also financed the aircraft acquisition plans of the Kingfisher Airlines. The insurance deal will be executed the moment Kingfisher Airlines acquires its fleet of aircraft. Kingfisher will be the first private carrier to be launched with an all-new fleet. The airline has signed an agreement with Airbus Industry of France for the purchase of three brand new Airbus A319 aircraft. With this new purchase, Kingfisher Airlines, which will launch its operations on May 7, has ordered a total of 33 brand new aircraft. Of these, a total of 13 aircraft 10 A320s and 3 A319s are on firm order, with options for buying a further 20 aircraft.

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In India the one company which provides aviation insurance as a service is New India Life Assurance Co. LTD This company provides this service as a

commercial product to the aviation sector. Started in 1946 as Aviation

Insurance of Air India, company


provides aviation advice and

professional insurance

solutions to the needs of small aircraft operators as well as scheduled airlines. The aviation portfolio encompasses following type of covers.

Hull All Risk Insurance Policy

This policy is suitable for small aircraft operators belonging to flying clubs, companies engaged in agricultural spraying operations, aircrafts especially designed for VVIPs, business executives and for those engaged in industrial aids. The policy scope includes all physical loss or damage sustained by the insured aircraft including total loss, disappearance. All losses are paid subject to deductibles.

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Spares All Risk Insurance Policy

Covers loss or damage to spares, tools, equipment and supplies owned by the insured or the property for which the insured is responsible whilst on ground or in transit by land, sea, air including in own aircraft or whilst on the premises of others for storage only.

Hull/Spares War Risk Insurance :

Indemnity is provided to the aircraft as well as spares caused by war, invasion, acts of foreign enemies, hostilities, civil war, rebellion, revolution, resurrection, martial law, strikes, riots, civil commotion, malicious acts, sabotage.

Hull Deductible Insurance :

Airlines at times have to bear a proportion of loss due to application of a deductible under All Risk Policy, which may impose considerable financial difficulty on the insured. Therefore the operators insure part of their deductibles under this kind of insurance.

Aviation Personal Accident (crew member) Insurance

This cover is designed to cover insured person against injury, disablement or death arising as result of an accident that is generally granted on annual basis. The cover operates while mounting or dismounting from and whilst traveling an aircraft while the aircraft is being used within the geographical scope as per its permitted usage. This cover can also be on 24 hours basis.

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Loss of License Insurance Operating crews of the aircraft are required to have valid license. License is liable to be suspended either temporarily or permanently on medical grounds. Consequential financial loss is covered by the loss of license policy. Cover provided is in respect of incapacity causing permanent total disablement or temporary total disablement due to bodily injury or illness. Besides the aforesaid general aviation policies New India Assurance Company also provides various other tailor-made insurance as per specific requirements of the insured.

In case of claims following are illustrative documents that are generally called for from the insured.

Documents in connection with aircraft details Documents in connection with flight details Documents in connection with the accident Certificate of airworthiness/registration Crew details Maintenance & engineering information Operational manual passenger documentation in case of claims.

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In the course of the analysis various trends and developments in the aviation industry were discussed that provide partial answers to this question. Airlines employ a wide variety of business models while taking an aviation insurance contract. For example, some companies like Kingfisher Airlines take policy with high premium while others like Air India take an aviation insurance contract with low premium. The aviation insurance market is highly volatile due to the inherent nature of the risk and the underwriting cycle of insurance. Historically, the market wide premium appears to be almost as volatile as the claims, suggesting a lack of consistency in underwriting this business. The major caveat to my conclusion is that there is significant amount of public data available to assist in underwriting and pricing aviation insurance. This data can be used to develop more effective underwriting rating models for aviation insurance and this should result in better selection of risks and more consistent profits for the insurer. The aviation insurance market, by its own nature, is highly volatile. There are many causes including the overall insurance underwriting cycle, the major accident risk, the short-term memory of the insurance market, and the long tailed nature of determining responsible parties. However, the increasing involvement of analytical professionals such as actuaries should introduce more effective methods for pricing airline insurance and this should help stabilize the premium component of the loss ratio equation.

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Premium rates in aviation insurance are highly volatile. An interview with the Sr. Deputy Manager of The New India Assurance Company Ltd, Mr. K.S.Kulkarni proves that premium rates can rise or fall sharply, apparently without rhyme or reason. However, he explains that this specialist market covers the enormous insurance risks of todays airline operations, where a single major accident might cost billions. Aviation insurance is one of the most complex and specialized fields in the insurance industry. It is a much smaller portion of the industry than home, auto, life, health and other general commercial insurance sectors. In fact, in premium volume, aviation insurance makes up less than 1 percent of the entire insurance industry.

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Aviation Industry: Global and Indian Scenarios Amit Kumar Singh, Suresh K Indian Aviation Industry- Opportunities And Challenges Ravi Kumar V V

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