The Future Of Aviation Insurance


Insurance and the Future of Aviation
AVM 401
Analysis of Issues in the Aviation Industry
Southern Illinois University, Carbondale
September 26, 2000
Assignment #2
Introduction
This report will discuss the future of the aviation industry and the effects of high insurance cost. 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 FBO's 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.
Insurance and the Future of Aviation
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 problems that must be solved before the industry can go to the next level. As the industry enters into the millennium, the insurance industry must look at several problems that face the aviation industry.
Legal concerns, in many cases, they're influenced by our society. The court system plays a big part by their decisions that are passed down. It's rare when an aviation case goes to court, because insurance agencies know they'll lose when the jury hears the case. It's just too easy to prove pilot negligence; most aviation accidents result from pilot error. Also, when they do go to court, they very seldom mount a defense due to the unreasonable verdicts, and ridiculous awards.
These practices has forced aircraft owners to stay away from new policies and let their insurance coverage lapse. Aircraft owners pay three to five times the amount for adequate liability coverage than their counter parts else where in the world.
Survival for the small business operators is getting harder each day due to the General Aviation Revitalization Act (GARA); the threat of financial devastation is real when it comes to lawsuits. The (GARA) defects lawsuits from manufacturers to aviation service providers. FBOs' insurance rate are skyrocketing because of this, which contributes to the cycle by causing higher repair cost. Many small business operators really don't want to take the chance and can't afford the rising cost that's associated with liability insurance. ?As of February 2000 at least three aviation insurance under writers ceased writing coverage for the small business operators, saying it's a major risk? (Chappell, T. 2000, p.2). One of the main reasons is the cost to the underwriters.
Aviation insurance companies have paid out a dollar and quarter for ever dollar they've taking in, for each of the last several years. No wonder so many are closing down, merging, or getting out of the historically riskier aviation activities (Chappell, T. 2000, P.2).
General aviation may be forced to change its way of doing business and become more like the military and commercial airlines. Maintenance problems may be identified by computers, and then repaired by the manufacturers. The industry is coping with the mounting cost associated with liability insurance.
?Remove and replace maintenance? is the attitude the industry must lean towards. The manufacturers would set up new factory service centers and repair facilities for the general aviation customers. This system wouldn't help the rising cost of insurance, but maintenance and ground liabilities would rest on the shoulders of the manufacture.
The market itself is shrinking, we've had a generation of pilots from WWII, Korea, and Vietnam that was introduced to aviation and trained at the government's expense. Because of modern technology, we'll never again have the numbers that we once had. The aging fleet and pilots can't help the situation that the industry is facing; the average aircraft age is 15 to 20 years, and the post Vietnam pilot is now 50 to 60 years of age. The underwriters are very worried about the age of both the pilots and the aircraft.
During a telephone interview with Darrel Hyde of CS&A Insurance, he stated; ?Aircraft hull and liability insurance for