Aviation Insurance: Four Common Endorsements
Aviation Insurance: Four Common Endorsements
Air transport faces high risks despite being the fastest means of travelling. Some of these risks include accidents affecting the travelers and to the aircraft itself. The aircraft owners are forced to take insurance covers. As a result, this paper aims at assessing the four main endorsements incorporated by aircrafts owners. Further, the study explores how an insurance enterprise gives coverage against insured risks. Drawing information from insurance and aircraft companies, the four main insurance endorsements were studied. The circumstances under which an insured risk is compensated were evaluated to provide conclusive literature review on aviation insurance. The research revealed that aircraft transportation industries have sought to pool resources by introducing insurance policies. Thus, aircraft owners achieve this with the help of the four main endorsements. They encompass non-ownership liability, war and other perils extension liability, passenger voluntary settlement coverage and physical damage additional interest. In this regard, aircraft owners should implement insurance policies in order to pool resources in case of an accident.
Keywords: risks, compensation and insurance policy
Air transportation business is exposed to high risks as compared to other means of transportation. Statistics reveal that air transport corporation incurs considerable losses despite the perception of low risks associated with this industry. Additionally, the magnitude of losses sustained in case of an accident is tremendous. Therefore, aircraft transportation industries have sought to pool resources by incorporating insurance policies. Hence, this insurance policy covers risks entailing passengers, aircraft workers and transportation organization. Lloyds of London market was the first to develop the aviation insurance policies in 1911 (Axe, 2011). Thus, there are four central endorsements in aviation insurance, which include non-ownership liability, war and other perils extension liability, passenger voluntary settlement coverage and physical damage additional interest. Therefore, implementation of the four insurance policies will help the aviation industry pool resources in case of accidents that enormously affect both aircraft owners and travelers.
Non-ownership Liability Business Insured
The aviation liability insurance policy compensates for bodily and property damages caused by risks, which the insurance company has covered. The risk should fit the set schedule of the insurance enterprise. However, the non-ownership liabilities for business are provided to organizations making use of the aircrafts that they do not own. Thus, these planes are operated by third parties, and the non-ownership liability policy does not provide insurance for all risks covered by the aviation liability cover policy (Hicks, 2016). Some of these occurrences include damages at the airport locations, costs paid by the aircraft itself, and the breakdown of some of its parts. Therefore, the organizations that utilize this aircraft are liable for any damage caused to the airplanes or the third parties using these aircrafts.
Unlike personal non-owned aircraft liability insurance, corporate non-owned aircraft liability is fragmented according to the type of aircraft. For the chartered aircraft, the charter customer is not involved in the dealings and maintenances of the plane. Consequently, the risks identified with regard to the chartered aircrafts are contingent liabilities. In the instances where the pilot using the aircraft is a staff member of the organization, the policy may be limited to the type and model of the plane (Hicks, 2016). Some of the chartered non-owned aircraft exposures include individuals who operate on the leased property, an employee who rents a plane to use during companys dealings and an independent professional contracting an aircraft from the establishment. However, this clause does not cover damages resulting from the failure of the air industry.
Business insured sets high limits of liability. Besides, this is a consequence of the underwriting involved in the corporate non-ownership liability, which is very demanding. Additionally, the underwriting is dependent on the decision of the organization to incorporate the pilots as their employees. In cases where the pilots are the staff members of the corporation, anticipated hours of use and the geographical area where the aircraft is being used are factored in. In contrast to the corporate non-owned liability aircrafts, in case of the personal non-owned aircraft liability, the procedure required by applicants is more straightforward.
War, Hi-Jacking and Other Perils Extension Liability and Physical Damage
War policy covers risks incurred by passengers in an aircraft. Hence, this system encompasses risks caused by fortuitous events. Every aviation policy should have the war and perils clause. The latter provides that the insurance policy should not cover deliberate accidents such as an act of violence, hi-jacking or seizure by the aircraft operators. The AVN48B writes off damages inflicted by the intentional actions of aircraft operators (Margo, 2012). However, incorporation of clause AVN51 may include some of the parts covered by the war and perils clause omitted in the AVN48B. Aircrafts require full cover against military actions during the travel. Nevertheless, comprehensive coverage of the risk of war may be affected by the War and Allied Perils policy developed in the London war market. The policy dictates that the only covered risks are those provided by the AVN48B. Furthermore, this policy excludes wars resulting from superpowers, for example, the United Kingdom and China. Notwithstanding, aircrafts can be covered against a war in case of military conflict arising during the traveling period.
War risks policies are accompanied by the fleet aggregate limit. For instance, most of the international airlines are limited to an insurance policy within $600 million to $1 million. Hence, this adds up to the total cost incurred by the destruction of an aircraft. However, this does not cover damage inflicted by war on a fleet of aircraft in a particular place (Larsen, Gillick, & Sweeney, 2012). For example, during the invasion of Kuwait by Iraq, the policy covered the loss sustained by the damage caused by the fleet of Kuwaits aircraft. Thus, some accidents that occurred during military conflicts could lead to the reinstatement of the war policies.
Additionally, in the event of a disaster affecting the aircrafts and the third party, all hazards encountered are covered by the hull and liability policy. The damages as a result of self-inflicted violence are excluded from the hull and liability policy. In case where risks are sustained because of war, the compensation is provided by the policy LSW555B while damage inflicted on the third part is traced back to clause AVN52 of the insurance policy.
Passenger Voluntary Settlement Coverage
Within the framework of the airline insurance policy, this clause provides coverage to passengers involved in an accident during the flight. Some of the damages inflicted on travelers include loss of body parts such as legs, eyes, and hands. The policy requires the afflicted passengers to drop charges on the airline upon compensation. In cases where the injuries affect ones occupation, the individual is entitled to the monthly payment. Thus, the cover provided to permanent disability to the passenger is defined as the guest voluntary settlement.
Over the years, the GSV has been re-written to meet most needs of airlines. A few years ago, corporate employees seriously injured during a flight were subject to reimbursement limitations, which were set by the state workers compensation policy (Larsen et al., 2012). Most states dictated that the benefit would range from $8500 to $10,500. Besides, this amount was regarded as sufficient remuneration for the injured corporate workers. The GSV offers coverage to passengers even in the instances where the insured individual was negligent.
Margo (2012) reveals that the coverage ensured by the GVS policy has evolved to provide cover to members and nonmembers of the crew. It is worth noting that GVS does not compensate any injured individuals, it pays remuneration to those who lose body parts such as eyes, hands that may lead to permanent disability. Moreover, this coverage offers reimbursement in case of death during an accident. All payments made to the disabled passenger as a result of the crash are deductible from the total liability coverage. According to Larsen et al. (2012), cash payments received under GSV are provided to all people no matter whether they are eligible for WC and disability funds. Furthermore, this policy secures that the insured person gives direct proof of fatal injury to the particular passenger. The injured traveler is supposed to inform the airline company within the next 30 days. Failure to respond to the voluntary settlement will make the insurance company withdraw the solution offered.
The availability of GSV is widely available to the aircraft owners. Additionally, the cost used for the provision of GSV has significantly reduced due to the increased competition among the aviation insurance providers (Margo, 2012). Some of the firms offer extra insurance to aircraft owners. GSV is the most common coverage given by insurance organizations. Besides, this kind of GSV coverage is provided to passengers. Crewmembers are denied the GSV coverage. Therefore, the GSV insurance coverage is essential, as it helps decrease the number of cases presented in the court by injured individuals. A legal process is only developed when the disabled people do not receive the reimbursement. Additionally, the GSV provides reimbursement to the injured passengers within a short time.
Physical Damage Additional Interest
The present insurance policy gives coverage for bodily damages inflicted on the aircraft. Physical impairments affect the expensive hardware parts of the planes. Furthermore, it covers both the aircraft owner and other individuals with financial interests in the aircraft (Ricketts, 2017). Hence, this coverage provides compensation for the damages caused by the plane during wars and undeliberate accidents that occur during the flight. Notably, the amount of remuneration can be amended in the course of the insurance term. Thus, this is usually based on the improvements made in the aircrafts such as the addition of new equipment. However, the amount of compensation may be fixed during the insurance term.
Physical damage policies include various provisions and exclusions. Firstly, the aircraft has to be a newly acquired plane for the insurance company to provide reimbursement. Secondly, most plans ensure that the aircraft must fly within a specific region. Some of the recognized areas are the United States, Mexico and Canada (Ricketts, 2017). Thirdly, the planes are only compensated if specially qualified pilots operate them. Depending on the insurance enterprise, upon damage to an aircraft, the insured party is paid with regard to the aircrafts market value or total value indicated in the insurance form. Some insurance corporations realize compensation by providing an exact aircraft as the damaged one.
Hull insurance providers limit the insurers to damage caused by depreciation, mechanical crash, and conversion. For example, if the aircrafts mechanical valve crashes and leads to inefficient landing thus damaging the aircraft, the organization will offer compensation for the latter damage rather than the exhaust valve. According to Von Oijhuizen Galhego Rosa (2013), physical damage insurance incorporates most of the aircraft owners insurance policy. Therefore, this is estimated to amount to 65-70% of the total insurance cover (Von Oijhuizen Galhego Rosa, 2013). Nevertheless, the aircraft owners have to choose the best insurance policy for their aircrafts.
In summary, the aircraft owners should implement insurance policies to help them recover from the accident. The insurance policies improve the aircraft owners resilience losses resulting from the insured risks. The four major endorsements incorporated by aircraft owners are non-ownership liability, war and other perils extension liability, passenger voluntary settlement coverage and physical damage additional interest. The reports from insurance companies and aircraft owners prove the significant contribution to aviation insurance for the latter. Moreover, the circumstances under which insurance enterprises fail to offer compensation in case of an accident were outlined. Thus, it is important for the aircraft owner to adopt insurance policies to minimize the losses experienced upon occurrence of an insured accident.