1. AVIATION INSURANCES
The history of aviation insurance is bound up with the development of civil aviation especially after
World War II when the large numbers of aircrafts left over. In the early days of civil aviation it
became clear that the successful conduct of aviation insurance business required a sound technical
knowledge and it was transacted in a very specialized market. This was written by Lloyd's London in
1950's.
Number of offices to form a pool or group to handle aviation insurance business and the limited
technical staff available could build up a sound business and provide a foundation of experience for
the member companies and underwriters.
The first pool in the UK was British Aviation Insurance Group composed of the Union of Canton and
some of the Lloyd's underwriters in 1931. In order to control the market security the controller
offices have been established. In 1950's hen the amphibian aircrafts were used the risk variety had
been expanded and insurers started getting together and new policy conditions were established.
In 1960 when the bombings started Hull War Insurance was separated from the Hull policy.
Developments of aviation insurance in the rest of the world have lagged a little behind the
developments in the UK and USA.
Aviation insurance by its nature has always been a potentially hazardous market for insurers.
Therefore it made sense for the risks to be spread as widely as possible.
2. THE PRINCIPLES OF AVIATION INSURANCE:
The principles of Insurance are:
2.1. Utmost Good Faith: This is a must. All contracts of aviation insurance must be entered into the
utmost good faith on both sides.
The proposer must not only answer the questions on the proposal form but must also reveal any
additional material information which may affect the underwriters' risk assessment.
The majority of the risks placed in aviation market are on slips. Also a broker employed by the
insured is expected to have the advantage of a high degree of knowledge both of insurance and the
market.
2.2. Insurable Interest: This arises from ownership or possession (e.a. bailers, such as hangar
keepers, aircraft repairers) or contract
Indemnity: The insured is never fully indemnified for their loss because no allowance is made in the
claim settlement in respect of the reduction in value caused by the accident. An aircraft which had an
accident has lower value when it is resold.
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2.3. Subrogation: Where the insured has legal rights against a third party the insurer after
indemnifying the insured takes over those rights. This is the doctrine of subrogation. It has assumed
great significance in aviation insurance because of large amounts of money involved in both hull and
liability insurances.
2.4. Contribution: A person insured with more than one insurer may, claim in full against any one
insurer. These days it is rare in aviation insurance for an insured to be doubly insured.
3. DESCRIPTION
Aviation insurances can be studied in two parts:
3.1. Manufacturing-ownership-operation and maintenance risks
3.2. Ground risks of aviation
Due to technological developments the new type of risks are appearing such as deductible insurance,
profit commission insurance, period premium loss insurance etc.
4. COMPULSORY INSURANCES
Civil Aviation Authorities requires Liability insurances as obligatory insurances.
If the aircraft is leased or bought with Bank Financial Credit then the lesser or banks requires Hull,
Hull War insurances as obligatory as well.
5. WARSAW CONVENTION
During the years a number of safety regulations were introduced and international conferences of
lawyers were held to discuss the rules of public international law and conflict of laws. It was realized
that these matters would need early attention in respect of international potential of flights and the
carriage of passengers and cargo. The rapid growth in numbers of aircrafts and the uses to which
they could be put made the need of international regulations urgently.
It was clear that the rules in international carriage of passengers by air were needed to put an end to
the conflict of laws which was arising all over the world.
Warsaw Convention of 1929 updated by Lahey Protocol and Montreal Protocol is still being used and
brings limitations to the liability and forces the passenger tickets to be issued and provides that the
carrier must deliver a baggage check .Montreal Protocol of 1978 brings liability limits to be based on
the SDR Special Drawing Right.
6. STRUCTURE OF AVIATION MARKET
It is of course insured and insurer. However inside this relation various types of companies are
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involved. Such as Agents who are representing the insurance company and insurance/reinsurance
brokers who issues the policy on behalf of insured, determines the terms and conditions of the
policy, to place the business in international insurance markets, to collect the premiums from the
insured, to collect the sound information in the market for the insured and for itself, to be aware of
the poorness of the market or to follow up the market trends, to defend the insured if insured faces
to certain conditions that may give damage to him. They also appoint the independent loss adjusters
and surveyors with the underwriters in the beginning of the policy. Loss adjusters advise the insurers
on liability claims whereas surveyors use their expertise on hull claims. It is common to employ both
types of expert within the same claims organization.
When a Claim or an occurrence likely to give rise to a claim, it is notified to insurers, they will instruct
a firm of surveyors or loss adjusters to represent their interests, investigate the loss and report back.
Agents act on behalf of the insurance companies and they get commission from the insurance
companies.
The problem of insuring the World’s aviation business is not only a commercial one of assessing the
risk but also a marketing one based on the size of the risks to be covered.
The largest wide bodied aircraft and supersonic aircraft are valued up to and over one hundred
million dollars each. Liability covers may have limits of up to or more of billion dollars each in the
case of a large airline or manufacturer.
For this reason the world market is dominated by brokers of which only a few of the largest firms
have the ability, financial backing and experience to handle such large risks.
Aviation insurers may be divided into categories according to the way in which they are constituted
such as Groups or Pools of Companies, Specialist Companies, Departments of Composite Insurance
Companies.
7. COMPULSORY INSURANCES
Civil Aviation Authorities require Liability Insurances including AVN52E Terror, Sabotage and war risks
If the air vehicle is bought with a Financial Credit or Leased, then these parties require Hull, Hull War
And Hull deductible insurance.
8. AVIATION UNDERWRITING AND RATINGS
The Underwriters bases their rates on statistics from the past experience and from their assessment
of the risk.
Statistics of the past years can only be used as a guide because:
1. They are obtained only for a small part of the aircrafts operating therefore does not show the full
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picture.
2. The introduction of a new type of aircraft or any alteration to the basis of the risk can affect the
experience
3. Even with an aircraft which currently is in use, risks can change within a short period. For example
a handling problem or some limitations for the reliability in certain conditions can easily change the
risk.
4. Current market status also affects the risk (supply and demand)
9. FACTORS AFFCTING THE RISK
Underwriters set their premiums from which to pay the claims. The premium charged for most of the
hull risks are calculated as a percentage of the sum insured.
General Factors affecting the risk are:
1. Experience of the aircraft as reflected by the underwriter’s experience and opinion
2. New equipment can also change the complex of the risk such as new landing gears, simulators,
navigation systems.
3. Each type of an aircraft goes on an “experience curve” as the type introduced, used, modified,
fixed with more advanced machines.
4. Pilot experience directly affects the risk in general aviation mostly
5. The use of the aircraft, or in the case of product liability the purpose of the manufactured
equipment
Geographical limits as they are related to the temperature, natural hazards, landing facilities or
communications and mostly to the political situation of the certain areas in the World. In this case
LSW617G Geographical Areas Exclusion Clause is applied.
10. KILN GEOGRAPHIC AREAS EXCLUSION CLAUSE (03/08/11) LSW617G
10.1. Notwithstanding any provisions to the contrary and subject to clauses 2 and 3 below, this Policy
excludes any loss, damage or expense howsoever occurring within the geographical limits of any of
the following countries and regions:
(a) Algeria, Burundi, Cabinda, Central African Republic, Congo, Democratic Republic of Congo, Eritrea,
Ethiopia, Ivory Coast, Liberia, Mauritania, Nigeria, Somalia, The Republic of Sudan, South Sudan.
(b) Colombia, Ecuador, Peru.
(c) Afghanistan, Jammu & Kashmir, Myanmar, North Korea, Pakistan.
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(d) Georgia, Nagorno-Karabakh, North Caucasian Federal District.
(e) Iran, Iraq, Libya, Syria, Yemen.
(f) Any country where the operation of the insured Aircraft is in breach of United Nations sanctions.
10.2. However coverage pursuant to this Policy is granted:
(a) For the over flight of any excluded country where the flight is within an internationally recognized
air corridor and is performed in accordance with I.C.A.O. recommendations; or
(b) In circumstances where an insured Aircraft has landed in an excluded country as a direct
consequence and exclusively as a result of force majeure.
10.3. Any excluded country may be covered by underwriters at terms to be agreed by the Slip Leader
only prior to flight.
03/08/11
LSW617G

General Market conditions which may take a desired rate commercially as impossible

Previous Claim / Loss record of the operator, their aviation experience and history,
including maintenance and financial arrangements.
11. LOSS ADJUSTING AND SURVEYING
Loss Adjusters advise insurers on liability claims. Surveyors use their expertise on the Hull Claims. It is
usual to employ both types of expert within the same claim .When a claim or occurrence happens it
is notified to the insurers, and then they instruct the surveyor or loss adjuster to represent their
interest, to make investigations of the loss and report back.
If the liability claim is involved in the occurrence then solicitors specialized in the aviation are
appointed by the insurers.
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PILOT CONFIRMATION
The undersigned Pilot confirms that he has the following valid License and Fixed Wing Aircraft
Flight Experience:NAME: .....................................
SURNAME: ................................
DATE OF BIRTH: ....................
LICENCE NO.: ...........................
 PPL
 CPL
 ATPL
 IFR
 FI
__________________________________________________________________________
1.
Flight Experience on Single Engine Aircraft:
........... Hours
Flight Experience on Multi-Engine Aircraft:
........... Hours
Flight Experience on Turbo-Prop Aircraft:
........... Hours
Flight Experience on Turbine (Jet) Aircraft:
........... Hours
______
Total Flight Experience on Fixed Wing Aircraft:
======
2.
3.
Information regarding the Aircraft type to be insured:
Make/Model:..........................
Reg.No.: ...........
Flight Experience on this type during the last 12 months:
........... Hours
Total Flight Experience on this type of Aircraft:
........... Hours
Date of last Simulator Training and/or Check Ride:
..........................
Name of Company which undertook Training/Check Ride:
..........................
Claims of Pilot the last 10 years
 no claims
 claims at: date and type
Date:.......................................
Pilot Signature:......................................
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12. PLACING THE RISK
If the risk is handled by one insurer the Broker offers it to the underwriters they think the most
suitable.
The underwriter says whether the business is acceptable and at what rate and what conditions he
provides. The terms and conditions are set up on the slip. The exact wording may be left until later in
these cases the slip usually is endorsed “wording to be advised” or to be agreed upon.
The Broker sometimes may have several competitive quotes and one of the underwriters states the
rate and initials on the slip .Slips are frequently over placed. If lines on the slip are expressed as a
percentage then here would be more than 100% on the slip. This is for to ensure that as many
underwriters as possible to have a share on the business. Also Broker mostly wants to close the
market to the other brokers for competition. When the closing details came to hand each
underwriter has their acceptance reduced in proportion. The acceptances of the underwriter are
called as “written line”. If they add up more than sum insured then the lines are reduced in
proportion so as to add up to 100% of the sum insured. These are then called as “signed lines”.
The Broker takes this slip for his approval. If it is agreed on it then Broker advises the underwriter
that they have firm order and the slip is completed to be issued later as policy.
13. THE SLIP
This document is made out by the Broker and contains the information that underwriters require.
This information must be very similar to the proposal from the information in which is obtained from
the Assured. All slips are now made out in the following pattern:

Form of policy wording

Name and address of assured

Additional assureds such as lessors or financial credit providing parties

Name of the operator

Period of insurance

Type and model of the aircraft

Manufacturers serial number of the aircraft

Registration number of the aircraft

Hull Agreed Value

Cew and passengers seat number

Hull deductible

Max. Takeoff weight of the aircraft in order to calculate the CSL limits of liability in
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respect of Third Party Legal Liability Sum Insured amount

Sum insured amounts of liability, personal accident and if there is any Loss of License

Conditions and exclusions

Geographical limits

Uses

Pilots (Pilot name & last name, License type ATPL,CPL or PLL, flight hours according to the
log book records for total fixed wing (or rotor wing if the subject air vehicle is a
helicopter)flight hours, jet hours and type hours, date and place of last simu or
recurrency training, and loss record must be shown and has to be signed and dated by
the pilot)

Premiums, rates, brokerage and information

Schedule part of the slip showing serial number, registration number, type, agreed value
and number of seats of the aircraft
14. AIRCRAFT HULL POLICY
The insurers agree to insure the hull (body) of the aircraft against loss, damage arising out of an
accident occurring during the policy period as per AVN1C Insurance Policy Wording which is for hull
and liability insurance and used worldwide except USA.
Loss of or damage to the aircraft is divided into 3 parts:
1. Coverage
2. Exclusions applicable
3. Conditions applicable
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The insurers pay for replace, or repair the accidental loss or damage to the aircraft described in the
schedule part of the insurance policy arising from the risks covered (flight, taxiing and ground) .The
policy is on an agreed value basis which is agreed on by the insurers and insured. The amount to be
paid in the event of a total loss is set at inception on the agreed value basis. Only the aircrafts which
are not any more produced or spare parts hard to find in case of partial loss are usually insured on
“insured value” basis.
If aircraft is leased, Lessor usually requires having confiscation of the government condition to be
applicable.
If the aircraft is lost and disappears in flight and remains unreported for 60 days, then will be covered
as a total loss.
Any losses under partial loss are subject to the applicable hull deductible. If the agreed value is high
then assured may also take a hull deductible insurance separately.
If the aircraft is insured for flight risks insurers will pay reasonable emergency expenses necessarily
incurred by the insured for the immediate safety of the aircraft in the event of damage to the aircraft
or forced landing.
Aircrafts is a whole with its tires, landing gears, engines and all components.
Standard wear and tear/breakdown is exclusion in Hull policies. If a failure of the engine occurred on
takeoff, damage to the engine would be excluded but the damage to other parts of the aircraft
would be covered if, for example, the aircraft ran off the runway and sustained further damage.
However if an foreign object is drawn in by the sanction of the engine and causes damage to the
compressor blades and even to the core of the engine is covered if it is attributable to a single
recorded incident and damages to other parts of the aircraft consequent upon damage by ingestion
would be covered.
Also there is market for aero engine breakdown insurance.
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15. DISMANTLING TRANSPORT AND REPAIRS
No repairs or dismantling are allowed without underwriters’ permission, unless required in the
interest of safety to prevent further damage or under the order from the Authorities. Underwriters
will pay for repairs and transportation of labor and materials by the most economical means unless
they agree otherwise. It must be noted that the repairs will not be made by the quickest means
(airfreight of the parts well not be the most economical way).
15.1. Payment or replacement: In the event of a total loss underwriters pay the claim and may take
the aircraft and its papers as salvage.
No claim will be paid if there is another hull insurance in force unless underwriters are aware of it
(for example total loss insurance).
Premiums for Hull insurance are mostly calculated as a percentage of the aircraft agreed value. Other
methods are used for calculating premiums for short term cover such as a fixed amount per hour
flown.
In passenger legal liability insurance limits are determined by the Civil Aviation for commercial flights
SDR 250.000 per pax and SDR 100.000 for non commercial flights. The premium to that is usually
assessed as an amount per passenger seat. If an airline is insured the premium is often calculated on
the basis of the total volume of revenue passenger miles or kilometers flown by the insured. A
deposit is usually set and then adjested subject to a min. figure.
Third Party Legal Liability insurance limits are dictated by the Civil Aviation organizations according to
the max takeoff weight of the aircraft in SDR based equivalent Dollars or Euros.
16. HULLWAR INSURANCE
Is based on the Clause LSW555D and covers against Terror, Sabotage, War and Warlike Risks,
Hijacking, Strikes, Malicious Act and is compulsory if aircraft is leased or bought with financial credit.
17. LIABILITY INSURANCES
Covers the bodily injury and property risks to the third parties, passengers, cargo, and personal
effects of the passengers raised due to the operation of the aircraft under the Combined Single Limit
Liability Insurance.
CSL is a composition of Third Party Legal Liability, Passenger Legal Liability, Cargo Legal Liability, Mail
Legal Liability, and Delay of aircraft risks.
The sum insured is based on SDR.
In passenger legal liability insurance limits are determined by the Civil Aviation for commercial flights
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SDR 250.000 per pax and SDR 100.000 for non commercial flights. The premium to that is usually
assessed as an amount per passenger seat. If an airline is insured the premium is often calculated on
the basis of the total volume of revenue passenger miles or kilometers flown by the insured. A
deposit is usually set and then adjested subject to a min. figure.
Third Party Legal Liability insurance limits are dictated by the Civil Aviation organizations according to
the max takeoff weight of the aircraft in SDR based equivalent Dollars or Euros.
For Third Party Legal Liability SDR limit is found in accordance with the max. takeoff weight of the
aircraft.
Liability insurances are compulsory by the Civil Aviation Authorities.
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18. PERSONAL ACCIDENT INSURANCE
Covers per seat of the aircraft against any accidental damage or loss of the crew and passengers
whilst entering the aircraft, during flight and whilst alighting from the aircraft. The cover is for death,
temporary disablement and permanent disablement end extended as to cover the medical expenses.
In the case of personal accident insurance the premium will relate to the scale of benefits selected
by the insured such as to include Death /Temporary Disablement/Permanent Disablement/Medical
Expenses/to cover civil riots, terror or sabotage risks or not.
LOSS OF LICENCE INSURANCE
To cover the employees of the assured or the individual pilots against temporary and long term Loss
of Flight License(s).
It has a waiting period of mostly 6 months from the date of notification.
Provides also monthly benefit in case of temporary total disablement 2% of the sum insured for max.
365 days.
MANUFACTURER’S LEGAL LIABILITY INSURANCE
Aircraft manufacturers protect themselves for any legal liability arising due to design fault, material
fault or defect. This is the most difficult type of aviation insurances. It heavily needs special
experience since the insurance limits are too high, risk lays for a long period , and it is usually very
difficult to determine whether the cause of the accident is due to manufacturing default or not.
Furthermore any change of the parts and maintenances done on the aircraft during the years make it
more complicated.
It is very common to design special policy for each customer according to their needs.
The damages to the own employees due to faulty design, liabilities aroused due to the contracts,
damages occurred to the assureds’ own property are excluded from the cover.
If assured uses the rental equipment or parts bought from other manufacturers in his production line
then he has to inform the insurers for each new material or part for survey.
AIRPORT OWNERS AND OPERATORS LIABILITY INSURANCE
The basic airport liability wording is known as “Ariel Form” which takes its name from the Lloyd’s
Syndicate that pioneered this form to cover.
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