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Insurance Special Report 2018 by Kim Rosenlof Industry Players Outline Challenges, Opportunities

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Insurance Special Report 2018 by Kim Rosenlof Industry Players Outline Challenges, Opportunities SPECIAL report Insurance Special Report 2018 by Kim Rosenlof Industry players outline challenges, opportunities Keynote speaker Dr. Doris Höpke, a mem- ber of the Board of Management of Ger- man insurance giant Munich Reinsurance Company (Munich RE) since 2014, painted a cautiously optimistic picture of the U.S. general aviation insurance industry at the 2018 Aviation Insurance Association (AIA) conference held April 29 to May 1 in Austin, Texas. Höpke noted that while profitability remains a challenge in an environment where a judgment in excess of US$100 million can wipe out nearly 10 percent of aggregate annual premiums, new technologies and markets provide opportunities to return to profitability. JOHN A. MANFREDO “These days we are facing some chal- lenges that…could potentially change insurers can make a living on investment loss premium. This is an exposure show- that everybody adds value beyond capac- the entire business model of what we gains,” said Höpke. “This is in essence a ing that certainly the market cannot stand ity and beyond simply taking risks onto do,” said Höpke, “The biggest challenge misunderstanding of what insurance is on its own and it requires reinsurance to your balance sheet.” for us as a reinsurer is the [low] interest about. Our core is assessing and bearing transfer risk…But if historically the largest rate environment.” risk, and if we are not able to make a loss is 16 percent of the largest policy limit, New Insurance Markets: living on our underwriting results, there what about the remaining 84 percent? Cyber, Space, and Drones are many reasons to rethink how this This is capacity that is not needed. We Höpke briefly mentioned cyber and the industry works.” should not raise the appetite for claims internet of things (IoT) as new markets Profitability in the GA insurance indus- by simply making larger limits available if for reinsurers, noting the total size of the try has become challenging in recent they are really not needed.” cyber market is already at $4 billion and Dr. Doris years. According to figures Höpke pre- Despite profitability challenges, avia- expected to grow to $8- to $10 billion Höpke, sented, the U.S. GA insurance market tion remains a good portfolio diversifica- by 2020. She said that cyber provides Board of combined ratio of incurred losses (claims) tion market because of its low systemic opportunities in risk management and Management plus expenses was approximately 105 and accumulation risk, compared to other Munich RE percent of earned premiums in 2016. insurance markets, Höpke said. But even that figure was obtained by “I can hardly imagine any [other] insur- These days we spreading out large (greater than US$50 ance segment that has so much data are facing some million) single-judgment losses over a available,” said Höpke. “Other business 10-year period rather than the years the lines can only envy this. We can make Scott Ross, challenges that…could losses actually occurred. The U.S. GA better informed decisions...And the entire vice potentially change the insurance market is hit with a liability loss aviation industry is really geared to safety, president, entire business model greater than $50 million every 1.2 years whether it is governing bodies, manufactur- Global and greater than $100 million every 2.2 ers, pilots, as well as insurers. So the efforts Aerospace of what we do.” years. Currently the highest single policy in loss prevention of all of these parties are Low interest rates present multiple chal- loss so far is approximately $120 million, highly aligned with insurers and reinsurers. The highest lenges to the aviation insurance industry or nearly 10 percent of the GA insur- Information available is second to none and density of space by preventing insurers and reinsurers from ance industry’s $1.3 billion gross written alignment interest is also very positive.” offsetting operating losses with interest premium. With the current profitability Höpke encouraged insurers, reinsurers, debris is in low earth gains, and by inviting investors seeking challenges, Höpke questioned the need and brokers to differentiate themselves orbit, and with the higher returns to infuse more capital for exceedingly high liability limits, sug- with bespoke products and to take into the aviation insurance market. The gesting that writing higher liability limits advantage of technology, such as digita- forecast growth in low increased capital comes with increased encourages courts to award increasingly lization, to offer more than just “capacity earth orbit nanosat competition, driving down premiums and larger judgments. at a cheap price.” constellations, the making profitability even more challenging. “Reinsurance provides the backbone “If we compete only on price, it comes “If I can find something positive in [low for the U.S. GA market,” said Höpke. “The to a dead end very quickly when cost cut- congestion issue will interest rates], it’s that it provides a wel- largest policy limit in the market [at $750 ting and risk selection is optimized,” said continue to be an area come pause for those who believe that million] can cost 58 percent of the total Höpke. “We believe it’s on us to ensure of concern.” 20 Aviation International News \ June 2018 \ ainonline.com mitigation services, “but it also comes continue to be an area of concern.” pilot certification requirements, or other including the AI, then liability coverage is with a very big challenge in accumula- Drones or unmanned aerial systems operational considerations under Part 107. generally precluded to all insureds under tion control...the next outage is something (UAS) make up the third relatively new the CGL policy, potentially excluding we cannot control with insurance means insurance market. Gerald Deneen, vice Don’t Be Too Quick certain of the coverages that the third and we need to make sure that cyber president at Swiss Re Management, To Be Added as party may have been seeking by asking becomes more insurable.” focused mainly on the small UAS market an Additional Insured to become an additional insured. Scott Ross, vice president at aviation of drones weighing less than 55 pounds While your aircraft is undergoing its annual “It can be beneficial in the aviation insurance company Global Aerospace, with payload and discussed both recre- inspection at the local FBO, a storm blows context to skip that automatic additional shared his insights on insurance for com- ational and commercial uses. through and collapses part of the hangar, insured reflex and just rely on the contrac- mercial space operations, a growing mar- damaging your aircraft. Whose insurance tual indemnity provision to transfer risk ket with the introduction of relatively new pays: the FBO’s or yours? instead,” said Vallach. “The ‘any insured’ launch vehicles and companies launch- It may be obvious that the FBO’s language means that simply adding an ing dozens of small nano-satellites for commercial general liability (CGL) pol- additional insured onto the policy can communications, earth observation, and icy should pay for the damage to your trigger the exclusion because the addi- future broadband purposes. Gerald aircraft. But according to Glenn Vallach, tional insured becomes ‘any insured.’” Ross noted that the 1984 Commercial Deneen, vice claims attorney for United States Aircraft Vallach says that Exclusion G essen- Space Launch Act (CSLA) tasked the president Insurance Group (USAIG), aircraft owners tially means there may not be GL cov- FAA to license all launch vehicles, sat- Swiss Re can get tripped up by exclusions in CGL erage behind hangar owners who add ellites, and launch sites under one pro- Management policies if the aircraft owner or operator customer aircraft owners onto their CGL gram, requiring the launch provider to demands to be added as an additional policies as AIs. “This stinks for the aircraft be responsible for all third-party liability The big question insured (AI) on the CGL policy. owner. They want to make a claim against insurance. A 1988 CSLA amendment set A standard exclusion on nearly any the hangar owner, but more important, up a three-tier system for third-party lia- is should insurers commercial GL policy, Exclusion G “Air- they want money for the claim. So it’s bility insurance with the first tier requiring provide drone craft, Auto or Watercraft” generally not ideal for them if the hangar owner is insurance up to $500 million based on a insurance, including excludes coverage of such vehicles uninsured. And of course it’s even more maximum probable loss (MPL) calcula- owned or rented by insureds of the policy. important for the hangar owner, because tion for the commercial launch provider, coverage for all Exclusion G is meant to separate aircraft GL is probably the only protection they or $100 million for government property. trespasses and exposure from building exposure, mean- have against this type of aircraft [prop- Above this tier the U.S. government pro- invasion of privacy?” ing that hull coverage on aircraft owned erty damage] claim.” vides a layer of $1.5 billion (in 1988 dol- or rented by the FBO should be provided lars or $3.5 billion today) if approved by “Property and casualty companies pro- under an aircraft policy, not under the Congress before liability once again falls viding homeowners insurance are really CGL. Vallach said that third parties some- to the launch provider, being the third tier. struggling with drones,” Deneen said. “The times get caught by Exclusion G when The FAA Office of Commercial Space big question is should insurers provide they become AIs. Transportation makes the MPL calculation drone insurance, including coverage for all “This specific aspect of Exclusion G can based on launch vehicle power, location of trespasses and invasion of privacy? Peo- be so broad in certain circumstances that Glenn Vallach, launch, and trajectory and what damage ple don’t like being photographed or being it can change the ‘tried and true’ ground claims to persons and property could occur in the filmed by someone they don’t know.
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