DOSSIER AVIATION RISKS

SAFETY AS A TOP PRIORITY MÁRIO LOBATO DE FARIA

ARE YOU STRAPPED IN? MARK SPERRING

FROM SPACE TO THE GROUNDS NICK REDGROVE

AVIATION CLAIMS – LOCATION, LOCATION, LOCATION STEVEN EAGLE

ENVIRONMENTAL AVIATION RISK – A SERIOUS BUSINESS STEPHEN ANDREWS

THE ERA OF DRONES JEAN FOURNIER

WHAT’S NEXT? Anna Bordon SAFETY AS A TOP PRIORITY

In aviation, the goal is to run operations with minimal risks. This article discusses how Management, Repair and Overhaul (MRO) activities ensure the safety of planes and ultimately that of passengers, and how risk management is integrated into Safety Management Systems. by Mário Lobato de Faria · TAP Air Portugal

2017 was the safest year in world aviation since 1946 and ever since we started keeping records on aviation accidents and incidents, considering both the number of events and the victim total.

SOURCE: AVIATION SAFETY NETWORK Mário Lobato de Faria is 55, married with two children and has a degree in mechanical engineering (thermodynamics), from the IST, Lisbon. He started his career in 1988 as an engineer with Profabril, responsible for mechanical equipment, and in January 1989 joined TAP as an engines and fuel systems engineer, where he stayed until 1993. In October 1993 Mário was asked by Portugália to manage its engineering services and in 1995 he became maintenance and engineering director. In July 2006 he was invited by the shareholder Embraer to join OGMA as vice president of industrial operations and following a company restructuring, Mário became vice president of the MRO unit. An approach by TAP’s CEO saw Mário return to the company in March 2014 as executive vice president of maintenance and engineering. He is now Executive Vice President of TAP Engineering and Maintenance.

86 “We need some As managers, we never tire of hearing AIRCRAFT MAINTENANCE testimonies about the link between PROGRAMME (AMP) blindness when success and a desire to take risks. In reality, risk is inherent in everyday The maintenance of aircraft, engines and we take risks” life and all human activities. However, components is necessary, not only to in aviation and particularly when ensure the safety of people and cargo, but Bill Gates. undertaking Maintenance, Repair also for economic reasons, as in the long– & Overhaul (MRO), the goal is to run term they are not disposable goods. operations without risks or with The AMP is the key reference point acceptable risks. for MRO activities; it is a document In light of the potential for disastrous approved by the aeronautical authorities consequences, the operational culture and produced by operators following must be one of risk aversion. This means aircraft manufacturers’ guidelines. a thorough and consistent approach Known as MSG3 it defines which tasks to risk management; from identifying must be fulfilled and how. the risks and measures to remove and In reality, this wasn’t always the mitigate them to creating indicators case. Until the advent of jet aviation, that allow us to monitor the success of it was the mechanics themselves the actions implemented. who empirically developed aircraft Because safety is the top priority maintenance programmes. Later on, for all aviation activities, this risk during the development of the B747 management process is integrated into project, Boeing felt the need to produce a Safety Management System (SMS). something more robust. Today, maintenance activities analyse all of the plane’s systems, taking into account the safety, operational and economic risks and their consequences, whether visible to the crew or not. This means all maintenance activities connected with aircraft, engines and

87 components are nothing more than the A safety­‑focused organisational careful risk management of the planes’ structure has the following features: systems, operating or at rest. a. Specific procedures for the Maintenance intervals are measured in recruitment, integration, training hours of flight time, cycles (one taking­ and development of employees ‑off and one landing constitutes one b. Management and employee safety cycle) and calendar days. Experience awareness training and probability models determine these c. Early monitoring procedures and parameters. corrective actions for equipment, system or service safety failures d. Means to monitor and record safety SAFETY MANAGEMENT standards SYSTEM (SMS) e. Effective management of resources to correctly identify safety threats Safety management is the systematic and to analyse and control risks management of risks associated with f. Change management strategies MRO activities to ensure the highest levels g. Processes that enable employees of protection. SMS in any airline or MRO to voluntary report safety­‑related organization is one of the responsibilities issues to line managers for solving of senior management who must publish a and monitoring actions taken In 1922, the first safety policy and manage it as an integral h. Regular exercises to test the part of the business. effectiveness of emergency southern Atlantic It is important the SMS follows quality response plans journey took place. management protocols and is considered i. Safety impact assessments on trade by differing management levels as an policies Portuguese aviators essential strategic tool, as for example, an accident or near accident may have Effective monitoring systems should: Gago Coutinho and serious financial consequences. a. Analyse and monitor flight records Sacadura Cabral If a culture of safety exists at all levels in order to assess performance and within an organisation, it will strongly detect any unreported safety issues flew a plane from influence its working practices. b. Collate and document all safety reports Lisbon, Portugal, The SMS should be both proactive and c. Focus on safety audits results and reactive, providing via processes and problems as they arise to Rio de Janeiro, procedures, mechanisms to predict, d. Publish the results of internal safety Brazil. prevent and mitigate the effect of safety investigation processes and any hazards. Implementation success is respective corrective actions SOURCE: MARINHA PORTUGUESA closely linked to three pillars: corporate e. Share safety data when evaluating safety compliance, a safety­‑focused organisational performance and organisational structure and effective include structural changes within monitoring systems. the risk management process

The requirements of corporate safety Finally, a robust SMS must have in place compliance are: processes to consistently promote a. The publication of the differing safety and evaluate the results management safety responsibilities achieved, adopt the best industrial and main stakeholders practices and use an independent b. A definition of the requirements of body to periodically review their the safety person in charge effectiveness. c. An ability to demonstrate the For the aerospace industry and its management team promotes a MRO activities, risk management is an positive safety culture throughout essential safety tool and key contributor the organization to business success. Such is the level of d. Evidence that safety is top priority in attention it requires and in recognition all business policies, principles and of the importance of the processes and practices technology involved, and its economic e. A commitment to a process of impact, SMS was given ISO 9110 independent safety monitoring, not accreditation in 2016. · dependent upon managerial strategies f. Regular analysis to improve safety plans g. Formal processes for safety analysis

88 89 ARE YOU STRAPPED IN?

Risk management, compliance and safety intelligence are intrinsically linked with aviation insurance. Find out how these crucial elements work together to keep AIG ahead of the underwriting market. by Mark Sperring · AIG

The aviation insurance industry aircraft is four to six times greater. This demonstrated profitability over the data is based on a relatively short time years spanning the early part of span (three years), given the relative this decade, driven from the 09/11 infancy of composite fleets, but the rating environment. Behind this was potential impact to an insurer is clear. the airline industry’s sterling safety Other factors that are likely to change record, which had been driven by a the claims picture are the emergence combination of technological and of a more litigious judicial system, managerial improvements across the characterised by a rise in class actions globe. The high cost of oil had boosted and an increase in the size of liability the introduction of a new generation of settlements, as well as a sharp increase fuel­‑efficient aircraft, while a proactive in the number of flights and passenger and systematic analysis of safety movements. The Boeing 2017 Market trends had dramatically improved risk Outlook predicts passenger numbers to mitigation within airlines – 2012 was so increase by 4.7% per year over the next far, according to IATA, the best year in 20 years (based on revenue passenger the history of aviation safety with one kilometres (RPK)). This growth will be Mark Sperring started his accident every five million flights. supported by an additional 40,000 new Aviation Insurance career at Ace However, 2013 was the year that aircraft deliveries through to 2036. At Global Markets in 2001 before marked a turning point, as market the same time, consolidation amongst quickly moving on to the Aviation conditions started to deteriorate. airlines will tend to reduce premiums Underwriting team in Lloyd’s. This was not because of an exceptional further. In the absence of evasive action, From there he saw a wide range increase in major loss events, the market is heading for a crash. of business from airlines, GA, but following years of continuous aerospace and war. In 2006 Mark reductions, premiums had just was part of the team that formed become too low in the face of any AVOIDING A COLLISION QBE’s Aviation Syndicate where loss against attritional claims and he specialised in Airports and with the backdrop of marketplace Albert Einstein is sometimes quoted Products and drove a market commoditisation. With market saying: The definition of insanity is doing leading facility which showed mutualisation a distant memory and the same thing over and over again and QBE’s leadership skills. Mark an increase in insurer capacity, prices expecting a different result. joined AIG Europe as UK Head of continued to drop. Put bluntly, that is what the aviation Airports and Products with a Looking forward, exposures will insurance industry has been doing. particular emphasis in improving inevitably continue to rise with But there are signs that this insanity is the Aerospace portfolio, which increased hull values, especially with the about to come to an end. particular emphasis on growing introduction of difficult and expensive There is no magic recipe for turnaround, the product offering and service to repair composite materials. Recent but risk selection and adherence proposition. industry analysis suggests that although to underwriting discipline will most we are seeing fewer major events due probably be key factors of success in to the overall improving technology both the insurance and reinsurance in the industry, the per­‑hull cost of markets. Insurers will have to learn repair for a composite airliner versus to say “no” again, and look to protect similar structural damage to an alloy their bottom line with underwriting

90 discipline. In addition, cost control will standard, with gap analyses used for and who simply wait for a hypothetical inevitably increase as margins reduce. actuarial study. market turn are likely to face turbulent This needs to be done while paying Underwriters themselves need to stay times. The focus has to be on close attention to service, as insurers on top of market developments, a sustainability and thus profitability need to recognise that clients now responsibility made easier by various rather than top line growth. In the same have a wider choice of options when market publications and social media way that the aviation industry has deciding on the signing of their channels covering the aviation industry made constant and successful efforts policies as insurance is effectively in more detail than ever. The onus is also to improve safety to an unprecedented a service industry. To avoid the on clients to ensure their employees are level, so insurers must pay them the further commoditisation of their aware of these market developments. compliment of showing the same product, insurers will have to move Insurers can also provide customised dedication, underwriting discipline and the discussion with clients away from safety and risk management training imagination. · one which is focused solely on price to courses for employees at every level of emphasise the other benefits they can the organisation on a variety of leading­ offer, such as superior claims handling, ‑edge safety topics. client risk solutions, industry expertise Simply put, it is probable that those and underwriting excellence. insurers who are not prepared to adapt Innovation will also represent a key to success. The aviation industry has seen spectacular technical and commercial progress over the years. Insurance must embrace that trend.

MOVING THE NEEDLE

A number of insurers have already made significant investments in order to differentiate their offering to the market and provide more holistic solutions, as they position themselves to aviation insurance buyers as strategic partners in managing their operational risks. Some insurers, such as AIG, now offer safety consulting and data services in partnership with specialist risk management consultants who provide a full range of innovative, state­‑of­‑the­ ‑art loss control tools. With the regulatory environment constantly changing, compliance is a key issue. In addition, robust risk management programmes need to be adopted by all clients whatever their size of business. Buyers should expect a comprehensive onsite audit to verify that their operation complies with the International Standard for Business Aviation (IS­‑BAO) protocols toward their certification. This would include a gap analysis of their systems, policies, processes and procedures, either onsite or remotely. Other important tools include safety intelligence reports and pilot and aircraft safety surveys. Insurers can offer access to the largest, most up­‑to­ ‑date database of charter operators, pilots and aircraft, allowing airlines to create due­‑diligence reports for every flight against their company’s safety

91 FROM SPACE TO THE GROUNDS

Compared with other main markets the Aviation Insurance market is relatively small but as soon as there is an aircraft accident it very often becomes big headline news. There are not many classes of insurance where this happens in quite the same way. by Nick Redgrove · Ed Broking

Although airline companies and aircraft to logistics companies delivering goods manufacturers purchase sizable third airside at an airport. party liability limits in­‑case an accident Banking and finance companies that are occurs, safety and regulation is involved in aircraft leasing is another paramount within the industry. Whilst it exposure that you may not realise comes is not entirely natural for human beings under aviation coverage. Although the to be sitting in a missile shaped object aircraft are generally insured by the moving at 500mph up at 40,000 feet operator/lessee for hull, liability and it is an extremely safe way to travel, war risk per the lease agreement, it is in especially when you consider you are the best interest of the lessor to seek 7.5 miles above terra firma. In fact, contingent hull and liability coverage in Aviation terms 2017 was one of the for their asset, this policy would also safest years on record with no jet airline cover possessed aircraft for hull, war risk passenger fatalities. and third party liability that have been As with many product lines, aviation returned from lease. keeps evolving, aircraft are safer, larger, A policyholder may not own or operate Nick Redgrove is the Managing can fly further, while being quieter an aircraft but they may have aviation Director of the Ed Aerospace team. and more fuel efficient than their exposure elsewhere and that their general He joined Lloyd’s of London in 1981 predecessors. For passenger airlines liability policy could exclude the coverage. and started his broking career with the experience on board is also more A prime example is an insured that Bristow Syndicate. He moved to a refined for passenger comfort. manufactures a component (sheet small Reinsurance Broker called metal or fasteners for example) that Harrington Austin in 1983 and was is used in the automobile industry but appointed Aviation Director in 1987. ANYTHING THAT FLIES somewhere in the supply chain may end In 1990 Nick joined Fenchurch which up also being used within the aircraft then merged with Lowndes Lambert to The perception of aviation insurance industry. A full breakdown of parts sold become Lambert Fenchurch and then is “anything that flies” but there are to customers and the end product is vital merged with Heaths to become Heath many coverages that fall within aviation to understand the risks of your insured. Lambert. liability insurance including products, In 2002 Nick was asked to start up an premises and hangarkeepers liability, Aerospace department at Cooper Gay maintenance, repair and overhaul, (now Ed Broking) to where he remains. airport liability, air traffic control Nick is responsible for the broking liability, service providers airside and client servicing of many of our including refuellers, refiners, fuel major clients which include Airports, storage, baggage & cargo handlers, Airlines, Aircraft Manufacturers and aircraft cleaners, construction Aircraft Leasing Companies companies working at airports, down

92 KEEPING PACE WITH THE RATE autonomously in the near future. OF CHANGE Fuel efficiency and protecting the environment from emissions and Of course with every new aviation also noise pollution are also a major product that enters the public domain research and development directive we also need to ensure that the for manufacturers as well as being an insurance industry is ready for the important topic for aircraft operators exposure of the new product. /owners. The more information we can provide to the underwriter the better understanding they will have to RECOGNISING WHERE determine the exposure. A RISK EXISTS One area which is seeing a great deal of research and development is Unmanned Sometimes it isn’t obvious that a client Aerial Vehicles (UAV); the various civil has an aviation exposure. As I have aviation authorities have a busy time illustrated above there doesn’t actually regulating UAV use. have to be an aeroplane involved. It’s Are there many people that would fly important to understand what the on an aircraft that does not have a policyholder’s end product or service pilot? Well, commercial aircraft do fly will do or where it will end up. And of automated but personally if I’m on a course, it is always a good idea to speak plane I have more peace of mind if a to a broker with aviation or aerospace pilot is sat in the cockpit as backup! expertise to help work through the risk However, I can see cargo being flown exposure. ·

A BREAKDOWN OF AVIATION/AEROSPACE COVERAGES

Airlines Space Airports & Ground Service Operations . Aircraft ‘all risks’ hull . Pre­‑launch . Airports . Comprehensive airline liability . Launch and in orbit . Air traffic control . Aircraft hull war risks . Space third party liability . Refuellers / refiners . Excess war (AVN52) liability . Service providers . Deductible buy back insurance General Aviation & Executive Jets . Products liability . Loss of use . Aircraft ‘all risks’ hull . Airport premises liability . Personal accident / loss of license . Aviation liability . Hangarkeepers liability . Mechanical breakdown . Aircraft hull war risks . Excess war (AVN52) liability . Excess war (AVN52) liability . Airport contractors Products Liability . Deductible buy back insurance . Prime airframe manufacturers . Personal accident / loss of license Banks, Finance Houses, . Major engine manufacturers . Mechanical breakdown Aircraft Leasing Companies . Sub­‑airframe manufacturers . Contingent aircraft hull . Component part manufacturers Helicopters . Contingent aircraft liability . Electronics / avionics . Aircraft ‘all risks’ hull . Repossessed aircraft hull . Maintenance, repair and . Aircraft liability and liability overhaul (MRO) . Aircraft hull war risks . Aircraft hull war risks . Excess war (AVN52) liability . Political risks Coverages . Deductible buy back insurance . Residual value insurance . Product liability . Personal accident / loss of license . Excess war (AVN52) liability . Grounding liability . Airport premises liability Remotely Piloted Aircraft . Hangarkeepers liability Systems / Unmanned Aerial Systems . Working parties liability . Aircraft ‘all risks’ hull . Excess war (AVN52) liability . Third party liability . Products recall . Manufacturers hull risks . Manufacturers hull risks

93 AVIATION CLAIMS LOCATION, LOCATION, LOCATION

Using a case study, this article demonstrates the importance of a specialized broking team when handling an aviation claim. by Steven Eagle · Ed Broking

When you mention aircraft, many people have a mental picture of bright, shiny, The Concorde, passenger jets, landing at modern, well the one aircraft equipped, airports in prime locations, that could fly like New York, Dubai, or London. faster than the This is a great image and would reflect some of the larger aviation risks, but Earth rotates, aviation insurance is an incredibly operated without diverse sector and many insureds operate a vast variety of aircraft types incident for 24 to numerous destinations with complex years. The only jurisdictions that can complicate matters, when claims occur. fatal accident it Steven Eagle heads up Ed’s was involved in Here are brief details of a claim and the Aerospace Claims team in London and real issues that arose: he has been with the company since occurred in the 2008. Steven has over 40 years year 2000, at the A few years ago, in a North African experience of handling claims in a country, an aircraft was chartered to variety of Senior Management roles Charles de Gaulle carry a group of prominent politicians with major Lloyd’s brokers. He airport in Paris, on a tour of villages in a remote region. also represents Ed Broking on the Unfortunately, whilst carrying out Aviation Claims Sub‑Committee­ of because another the tour, the aircraft took off in poor LIIBA (London and International weather and crashed into a mountain Insurance Brokers Association). airplane leaked top, totally destroying the aircraft and oil onto the killing everybody on board. tarmac. As the London brokers, we arranged hull, liability and crew personal accident SOURCE: FEDERAL AVIATION coverage, on a full reinsurance basis, ADMINISTRATION for the local insurance company. The reinsurance was subject to a claims control clause, that gave reinsurers full control over the instruction of experts and subsequent claims agreements and settlements.

A prompt advice was given to the reinsurers and they instructed the London office of a major international adjuster.

94 As the country where the incident The London underwriter quickly agreed not from the country, so there was occurred was the subject of sanctions, the claim and a release was obtained to extensive liaison with their embassy there were immediate problems for the allow the claim to be collected. and it was a protracted process, before adjuster, in obtaining the necessary settlements could be arranged. visas and arranging travel to the Whilst every collection is subject to In the meantime, claims were being region. In the end, this took around sanction checks, this particular claim presented from the families of the three weeks and the visas were only was being paid to a sensitive area, so deceased passengers and the adjuster’s obtained with the assistance of the local particular care had to be taken by all investigation was in progress, with the insurance company, who had excellent involved, the underwriter, adjuster and first priority being to seek legal advice connections in the government of the us as brokers, to confirm the status of on any legislation that was applicable to country. the insured and the loss payees. When air travel, in this location. the checks were finalised to everyone’s Unfortunately, by the time the adjuster satisfaction, the collection was As this was an internal flight, the arrived, the official investigation had completed and a payment sent to the adjuster found that there was local been completed and the remote site appropriate parties. legislation, that provided a fixed level had been abandoned. The adjuster was of compensation, equivalent to around advised that this was because of local Moving on from the hull claim, the EUR 26,000.00, at the current exchange insurgent activity, so sensibly decided adjuster then focussed on the rates. Accordingly, when the adjuster to remain in the capital and meet with passenger liability and the crew responded to representatives of the the insured and members of the local personal accident, which would be passengers, they offered this figure. Civil Aviation Authority investigation handled by their specialist liability team. team, instead. With fixed benefits, any crew death Surprisingly, the offer was rejected claims under personal accident and the lawyer who was acting for the From the discussions, it was possible coverages are normally simple to claimants, started legal proceedings. to confirm that the aircraft had crashed collect, just requiring death certificates, due to probable pilot error and this the identification of beneficiaries and In response and with underwriter’s allowed the adjuster to report and then the collection. Unfortunately, in agreement, the adjuster contacted a recommend a hull total loss settlement. this instance, the deceased crew were local lawyer, who was instructed to

95 96 respond to the complaint. It was hoped the adjuster and us, which resulted in that the process would be simple, but reinsurers granting an authority to try this did not prove to be the case, as and settle the matter. The figure was the plaintiff lawyer contended that below the court award, but was made the limitation act had not been legally on the basis that underwriters could issued. The defence lawyer argued back, continue to appeal and it would take that if this was the case, then earlier several years to go through the higher legislation existed, which provided even courts. lower limits (around 20% of the amount mentioned above). After much discussion, between the local lawyers, the negotiated figure At this point, the plaintiff lawyer, was finally accepted and the collection somehow, discovered that the crew process began. In this instance, around benefits had been settled at three hundred individuals were named EUR 60,000.00 and demanded a similar as beneficiaries, so protracted sanction payment for each of the deceased checks were required, before the claim passengers. Matters took a turn for the was finally collected and distributed to worse and court accepted the plaintiff the appropriate people. arguments and agreed that this should Alberto Santos be the settlement figure. In comparison to many western jurisdictions, the final settlements Dumont, Brazilian Somewhat bemused by the decision, were relatively low, but this case was inventor and the defence lawyer filed an immediate an interesting example of how the appeal and further hearings were interpretation of local law is sometimes airman, designed, arranged, to review the matter. It was not as clear cut as you would hope. believed that the defence was still The insured, ceding company, adjuster built and flew the strong, so the appeal was viewed with a and defence lawyers, did a great job first gasoline­ degree of optimism. defending the claims and they might, reasonably, have hoped for a better ‑engine airships Again, there was a surprise, as the first outcome. Fortunately, we had reinsurers having won the appeal was rejected and the lower court that understood the region and were decision was ratified, so a further appeal prepared to support the insured and Deutsch de la was filed and the matter was taken up to the local insurer, by paying “above the Meurthe prize in the next level. odds”, to conclude the matter. 1901 for a flight It still seemed that there was no basis of As brokers, we are aware that local that rounded the law for this award and it was hoped that courts can be unpredictable, so even more senior judges would recognise this with the best defence lawyers, results Eiffel Tower. fact, but this was to no avail. might not go as planned. In that situation, it is good to have supportive SOURCE: SMITHSONIAN OFFICE The defence team’s frustration reinsurers, with a realistic view of the OF EDUCATION increased, as the claimant’s lawyer jurisdiction. · moved to enforce the awards and sought to freeze the assets of the Insured and the Ceding Company, to compel settlement.

Unfortunately, it became clear that the decision of the court would not be changed, so urgent meetings were held to try and find an appropriate resolution to avert the financial orders against the Insured and the Ceding Company.

Luckily, the lead underwriter was highly experienced in handling claims from this region and agreed that it was time to increase the offer and negotiate a resolution, rather than keep launching appeals. Conference calls took place, involving the local insurer, reinsurers,

97 ENVIRONMENTAL AVIATION RISK A SERIOUS BUSINESS

On a cold and windy day 115 years ago this December, Orville and Wilbur Wright made the first successful flight of a self‑propelled,­ heavier‑than­ ‑air­ aircraft. That momentous day in Kitty Hawk, North Carolina, spawned an industry that is now worth hundreds of billions of dollars a year. It has changed the way we not only travel but also how think about the world. by Stephen Andrews · Aspen Insurance

Stephen Andrews is Head of in New York, London and Paris International Environmental and focused on the development at Aspen Insurance. He has of international environmental responsibility for Aspen liabilities, international Insurance’s portfolio of specialty products, growth environmental accounts across strategies and underwriting. Europe and the London Market. He sat on the Insurance Europe Stephen has over 25 years of global environmental task force regarding environmental experience including the Environmental Liability insurance, as well as within Directive. Stephen holds a industry as an environmental Bachelor of Engineering degree, specialist, regulatory consultant Chemical Engineering, from Stevens and chemical engineer. Prior to Institute of Technology, in joining Aspen, Stephen worked Hoboken, USA.

Cyber attacks on the aviation industry have become a serious concern. As increasingly complex and integrated information systems are adopted by the aviation sector, the threat of vulnerability to cyberattack increases. It has been estimated that the aviation sector faces over one thousand attempted cyber attacks each month.

SOURCE: CLYDE & CO NEWSLETTER, JULY 2017

98 From that first landing on sand after a POLLUTION FROM AVIATION A London based company which 12­‑second flight, aviation has become SECTOR AND POLLUTION FROM supplied and distributed fuel at an one of the world’s biggest and most ‘FIXED BASE OPERATIONS’ airport severely polluted groundwater important industries, with associated with at least 139,000 litres of fuel, at a sectors from safety, refuelling, inflight When looking at the aviation sector, we rate of seven litres a second. The leak entertainment and refreshments, to air need to question what are the prevailing was inadvertently discovered during an traffic control and baggage handling. environmental exposures? Are airport investigation into an unrelated incident. The link between aviation and pollution owners and operators exposed to The fuel is likely to be recovered at 80 liability was late being made, with environmental risks? Is there insurance litres a week, or slower, at a cost of environmental impairment liability protection in general liability policies? around £1m. insurance not being introduced until Pollution can be introduced into the the late 1970s. But there are many environment from many sources in the De­‑icing factors that those involved in aviation­ aviation sector. For instance, those An airport executive was fined for ‑associated sectors must bear in mind introduced over a widespread area such polluting a river by irregular release of today. as aircraft emissions and vehicle traffic de­‑icing compounds from activities on in and around an airport. There are also a runway. Contamination of 85 times Environmental risk exposures for those resulting from more specific the acceptable level were found after companies (and their risk managers) activities at an airport (a ‘Fixed­‑Based a control process to avoid spills broke continue to increase due to changes Operator’), for example: down. The airport was warned after a in legislation and an increase in social . Fueling operations previous event approximately a year awareness and public pressure. In . Fuel storage and hydrant systems earlier and the incident was noticed due addition, there is anecdotal evidence . Operation of aircraft to monitoring controls. of an increase in consistency in . Aircraft and ground service enforcement in many markets of new equipment maintenance Fire fighting environmental regulation. . Firefighting training areas A Port Authority recently detected Overall, we see two main pillars that . De­‑icing activities contaminated soil and groundwater at drive the discussion of environmental . Terminal operations including waste one of their Airports, which has been risk and increase the value of specialized management traced back over 50 years. environmental insurance programs. They entered into a voluntary clean­ These can all be exacerbated by ‑up agreement primarily focused 1. Increase in frequency of claims –­ construction and expansion activities on chemical compounds PFOS as new regulations emerge and take including the acquisition of additional land. (perfluorooctane sulfonate) and hold, coupled with public awareness Costs arising out of pollution events PFOA (perfluorooctanoic acid). An and consistency in enforcement, can include: investigation into the extent of the we see a future of increased claims . Third­‑party bodily injury claims contamination is ongoing. PFOS and activity. Although one could question . Third­‑party property damage PFOA have been classified as a potential the pace of this increase, it would . Investigation, clean­‑up and threat to health, wildlife and the be hard to argue that there would remediation costs environment. There is concern that be an actual global decrease in . Oversight and monitoring costs these could contaminate drinking water. claims activities for companies that . Legal defense costs The chemicals do not readily breakdown, fail to manage their environmental . Loss of use and business interruption so airports should be prudent about exposures properly. expense costs their existence, even if their use has 2. Increase in claims complexity/cost . Natural resources and environmental been phased out many years ago. It is ­‑ our experience illustrates that as damage claims likely the contamination stems from fire time goes forward, claim complexity training as far back as the 1960s, when increases. This is primarily as a foams that contain PFOS and PFOA had result of the implementation of REAL EXAMPLES TELL been used to extinguish fires. new regulations, globally, and the THE STORY OF RISK increased number of stakeholders Ground transportation involved when a pollution incident or Construction work Late last year, a ground transportation environmental damage event takes In the case of a contractor working at company at a major UK airport was place. an airfield, 36,000 gallons of fuel leaked fined when staff poured waste material into the ground rather than being directly into a river, rather than taking it So overall with a trend in increasing delivered to aircraft. An investigation to a regulated disposal site. While it may claims frequency coupled with an found part of a drilling machine stuck seem quite difficult to trace the cause increase in claims complexity, we can see into the fuel pipe. Even after mitigation of pollution, environmental regulators that the demand for education around measures, the pipe still continued to have the technology and skills to environmental exposures and available leak. The incident raised questions identify the sources of contamination. environmental insurance coverage will around underground hazards, and the continue on its growth path. role of site owners and contractors. Fuel Distribution

99 GENERAL LIABILITY AND SPECIALIST ENVIRONMENTAL AVIATION INSURANCE MARKETS MARKETS

Environmental coverage in “traditional” The specialist environmental market’s property and casualty policies is products on the other hand are designed certainly inconsistent across global around a broad range of environmental markets. Additionally, the coverage liabilities and impairment risk. Specialist is typically not comprehensive with environmental underwriters, often regards to relevant environmental with environmental consulting and exposures. engineering backgrounds, have the In some cases, there is no pollution expertise to understand and provide coverage except if caused by hostile coverages for some of the more complex fire, and often then just limited only to elements. Coverage can include: third­‑party bodily injury and third­‑party . Gradual and S&A pollution property damage – not including any . Clean­‑up costs first party clean­‑up coverage. . Natural resources/biodiversity Some extensions provide coverage for damage named perils such as fire, windstorm, . Business interruption expense lightning, explosion, or collision, but are . Third­‑party bodily injury and property still limited only to third­‑party bodily damage injury and third­‑party property damage. . Legal costs Broader forms can grant some type of . Transportation The greatest sudden and accidental (‘S&A’) coverage . Non­‑owned waste disposal site aircraft ever with strict requirements for discovery liability and reporting periods, but again often . Underground storage tank liability built was the Graf limited only to third­‑party bodily injury . Pre­‑existing conditions Zeppelin II (LZ­ and third­‑party property damage. More specifically in the aviation Policies can be tailored to the owner and/ ‑130) airship, insurance market, one can often see or the fixed based operator’s liability which boasted the application of a restrictive AVN 46B but also to contractors’ coverage for (Noise and Pollution and Other Perils liability arising due to claims resulting an impressive Exclusion Clause) wording. This states from exacerbation of existing pollution that the policy does not apply to claims or other release caused by construction, 245­‑meter length directly or indirectly occasioned by, development or remediation activities. and a 41.2m radius. happening through or in consequence There are a number of actions that of pollution and contamination of any can be taken including ensuring that SOURCE: GUINESS WORLD kind whatsoever unless caused by pollution and environmental risk OF RECORDS or resulting in a crash fire explosion are evaluated properly, including or collision or a recorded in­‑flight historical contamination at the site. emergency causing abnormal aircraft It is also important to review if the risk operation. management practices used to manage Regardless of coverage in a “traditional” environmental risk are adequate. property and casualty policy, there Risk transfer and indemnification are still significant exclusions and language in vendor FBO (Federal exceptions such as gradual releases, Business Opportunity) contracts first party coverage, regulatory liability, should also be reviewed for adequacy waste disposal or natural resource and and consideration should be given to biodiversity damage. mandating insurance requirements In some cases there may be coverage for vendors and contractors. It is also “buy backs” for some elements of recommended that there is a review on statutory environmental liability the reliance on airport sovereign and and even natural resource and governmental immunity. environmental damage claims, but It is always good practice to review usually with low sub­‑limits and current insurance coverage for gaps and irrespective of the operation’s true consider the availability of specialist exposure. environmental insurance. ·

100 ,/ \. /-~

101 THE ERA OF DRONES

Three years ago, drone operators considered that the lack of availability of appropriate insurance was a major problem hampering the development of their business. Today, this concern is gone but major changes are ahead of us. A scan from the past to the future helps understanding how this evolution happens. by Jean Fournier · Global Aerospace

Jean Fournier is Managing Director of the French branch of Global Aerospace. Prior to joining Global in 2009, Jean was a Managing Director at Marsh where he spent 19 years, including 10 years as Head of the French Aviation and Space team and 3 years in charge of Innovation. Earlier in his career, he worked at Airbus on military and space programmes. Jean is a graduate engineer from Arts et Metiers, and holds a Master degree from Stanford University and a DESS in Finance from Sorbonne University. Jean is a member of the board of UVS International. FLYING DRONES ARE AIRCRAFT Systems (JARUS) published in summer they consider that the risk is not higher 20171. This document recommends a risk than the ones they already cover in a A debate took place in the early days assessment methodology to establish factory or a construction site. To the to figure out if the flying component of a sufficient level of confidence that a contrary, their use usually decreases Unmanned Aircraft Systems (UAS) – specific operation can be conducted the exposure of workers to hazardous i.e. the drone – was indeed an aircraft. safely. situations. Light devices designed for leisure These evolutions are major changes for Aviation insurers, with specialised were presented as toys or flying robots the aviation community. The transition professionals and limited resources, to avoid the application of aviation period needs to be managed as time is focus on more specific operations, such regulations. needed to accept the new environment. as long range mapping or flights over The clarification took place when cities. These operations should be carried administrations stated that whatever out by entities that are flight safety the weight and the use, a flying device THE ADAPTATION OF savvy, a point that aviation insurers is an aircraft subject to the related THE INSURANCE SECTOR check before underwriting the risk. regulations. This comprehensive and adapted Simultaneously, it was recognized that Insurance companies support these insurance approach is disseminated by the pace at which the sector grows, efforts with a balanced approach aiming the European Commission through the requires a considerable change to the at facilitating the experiment of new DroneRules.eu3 project. way these regulations account for new applications, while disseminating the devices. Where the sky accommodates safety culture of manned aviation to hundreds of thousand aircraft of all kind new comers to this field. WHAT IS NEXT? worldwide with well-established traffic The first step in the European Union regulation procedures, the challenge was to make clear that Regulation (EC) The change in mindset is happening. is to accept millions of drones without 785/2004 applies to drones that are Now that drones designed to transport impacting flight safety. recognised as aircraft. passengers have flown in China 2017, the safest year ever for airline For aircraft with a Maximum Take or in Dubai, voices are heard from passengers, recorded no fatality on Off Mass (MTOM) below 500 kg, the individuals saying that they are willing jet aircraft for more than 4 billion insurance in respect of liability for to use them. The aviation community passengers transported, and 2 fatal damages caused to third parties (airlines, air forces, airports) recognizes accidents of small turbo-prop aircraft shall be no less than 750 000 SDRs2 the potential of these aircraft and resulting in 13 lives lost. corresponding to approximately want to cooperate to speed up their How to manage the growth of a 900 000 EUR. This limit of insurance can deployment. promising activity in an economic sector be provided by any liability insurer. In such positive environment, capability where professionals have contributed Amongst the short list of exemptions, to detect and avoid other aircraft to reach such a high level of safety, is the one concerning model aircraft remains critical. This concern – common the challenge that the Civil Aviation with an MTOM of less than 20 kg was to autonomous car manufacturers – Authorities (CAA) currently face. controversial. The debate is hopefully should foster the efforts of tech firms in now closed on three grounds: this area. Flying without third party liability Aviation insurers will stay tuned SEGMENTING THE MARKET insurance is inconsistent with the to facilitate these changes while safety culture that the authorities want continuously promoting flight safety. The CAAs recognize the need to limit the to implement; this culture is based on This is our commitment at Global application of prescriptive regulations responsible behaviour. Aerospace worldwide. · currently used for manned aviation A restrictive application of this to drones that are designed to be exemption limited it to aircraft flown in integrated into the existing traffic. model aircraft associations or clubs, 1 https://rpas-regulations.com/wp-content/ uploads/2017/07/170626_JARUS_Specific- More flexible rules should apply to light which promote flight safety and provide Operations-Risk-Assessment_SORA_v1.0.pdf drones that are flown in a segregated insurance when you become a member. 2 Special Drawing Rights: http://www.imf.org/ environment, namely below the A wider reading of the exemption external/np/fin/data/rms_sdrv.aspx 3 http://dronerules.eu/en/ minimum altitude below which manned extended it to aircraft used for aviation should not fly except for take- recreational purposes; insurers off and landings. providing private liability insurance can A distinction should also be made insure such flights of light drones (MTOM between drones operations. Professional below 2 kg – 95% of the existing fleet) as use over cities should be subject to long as they remain within VLOS. This is greater constraints than occasional use done through private liability insurance, for leisure within Visual Line Of Sight which penetration should be increased (VLOS) in non-populated areas. in many European countries. Hence the concept of Specific Operation Most professional uses of light drones Risk Assessment (SORA) that the Joint can also be covered by general liability Aviation Authorities on Unmanned insurers. With the support of reinsurers, WHAT’S NEXT? TRENDS, EMERGING RISK AND OPPORTUNITIES FOR AVIATION AND SPACE INSURANCE by Anna Bordon · Lloyd’s

Lloyd’s has always had a reputation demonstrating strong underwriting for innovation and is a pioneer when it discipline and sophisticated pricing comes to insuring aviation and space modelling techniques. Currently Lloyd’s activities. maintains one aviation and four space realistic disaster cenarios to stress The first­‑ever aviation insurance test both individual syndicates and the policy was written by Lloyd’s in 1911 and market as a whole. although it stopped writing policies a year later after bad weather caused a series of crashes, in 1919, far­‑sighted underwriter Cuthbert Heath started the British Aviation Insurance Association. The first­‑ever In 1965 the first space satellite Anna Bordon is an Executive in the insurance was placed, covering physical aviation insurance Innovation team at Lloyd’s where damage to the Intelsat 1 on pre­ policy was written she supports horizon scanning ‑launch, and from 1974­‑1982 the market and the delivery of the thought underwrote other satellites for up to by Lloyd’s in 1911. leadership reports. Subjects US$100 million each. In 1984, Lloyd’s covered recently include: stranded launched a successful salvage mission SOURCE: LLOYD’S WEBSITE assets (the transition to low to reclaim two rogue satellites, sending carbon economy), the exploration of a shuttle and five astronauts into orbit. aggregation modelling methods for liability risks and the application With expertise earned over centuries, of counterfactual risk analysis in Lloyd’s is the foundation of the the insurance industry. insurance industry and the future of it. Prior to joining Lloyd’s Anna was a Led by expert underwriters and brokers Policy and Research Officer for the who cover more than 200 territories and Principle for Responsible Investment countries, the Lloyd’s market develops Initiative where she worked on the essential, complex and critical the integration of environmental, insurance needed to underwrite human social and governance (ESG) factors progress. Lloyd’s can develop tailor­ in financial decisions. Previously ‑made policies for every customer in she held roles at the Chatham House every sector and it covers more than and the Financial Times. 60 lines of insurance and reinsurance Anna holds a BA in Languages, including space and aviation. Economics and Legal Institutions in Eastern Asia from Università London underwrites 60% of the global Ca’ Foscari and Beijing Language aviation market. In 2016 aviation University. In 2012 she obtained an accounted for more than US$1.2 billion MSc in International Management for in gross written premium for the China from the School of Oriental Lloyd’s market, with space contributing and African Studies (SOAS) followed US$200 million gross written premium by an MSc in Energy Management from to the total. Multiple syndicates at ESCP Europe Business School. Lloyd’s underwrite space and aviation,

104 AVIATION AND SPACE Trends As China’s air passenger market is set to triple over the next 20 years, China The world’s airlines carry more than Aviation will continue to invest in airports, three billion passengers a year and Low­‑cost carriers and ultra­‑low­‑cost airlines and aircraft in order to develop 50 million tonnes of freight. These carriers are still gaining market share a modern and sustainable aviation services generate 9.9 million direct jobs from the dominant full­‑service carriers. industry. Development is happening within the air transport industry and In the US, a wave of consolidation has so quickly that Li Jiaxiang, head of the support 2.7 trillion (3.5%) of the world’s resulted in 80% of US domestic travel Civil Aviation Administration of China, gross domestic product (GDP). Globally, being controlled by four major carriers. recently said: “We are still unable the UK has the third largest aviation They are, in order of passenger traffic, to catch up with demand for airport network after the US and China. American Airlines, Southwest Airlines, construction.” Delta Air Lines and United Airlines. In 2015 the space sector accounted Emerging markets are also driving Boeing and Airbus have forecasted for US$330 billion globally, with the US aviation growth. This year, passenger China will replace the US as the most space sector worth US$43 billion and traffic in China’s domestic aviation valuable market in the world for the UK space sector worth US$18 billion. market grew by 15.1% year­‑on­‑year, passenger jet deliveries by about The UK Government’s stated goal is to beating India’s 14.6% growth, according 2030. Recently, Airbus struck a deal to grow the space business to US$53 billion to data from the International Air increase the number of planes it makes by 2030. Transport Association (IATA). in China. China is also slowly developing a national commercial aircraft

105 manufacturing sector. The Commercial ‑flight connectivity is changing from nanosatellite launches. For example, Aircraft Corporation of China estimates being a luxury to a necessity as Wi­‑Fi in December 2017 China launched that Chinese airlines will need 8,575 new becomes more in demand than in­‑flight Algeria’s first communication satellite, planes worth US$1.21 trillion over the meals and in­‑flight entertainment. Nigeria has successfully launched next 20 years as strong travel growth Connected airports, encompassing five satellites from foreign territories continues. smart landing (which alerts pilots if in less than a decade and in May 2017 As aviation is one of the most energy aircrafts are approaching the runway engineers in Ghana converted an old and carbon­‑intensive forms of too high, too fast or are improperly telecommunications dish into the transport, whether measured per configured for landing), lighting control continent’s first functioning radio passenger km or per hour travelling the (which enables control and monitoring telescope outside South Africa. ongoing growth in travel and freight has within one series circuit), advanced put the spotlight on its environmental visual docking guidance system to Rapid technological developments impacts. Direct emissions from aviation optimise gate operations, mobile in satellite construction and launch account for about 6% of total UK devices to navigate the airports and infrastructure have enabled the emissions in 2014, 3% of the EU’s total face recognition systems will transform increasing use of nano/micro satellites greenhouse gas emissions and more how airports respond to passengers and (1 to 100kg). According to SpaceWorks’s than 2% of global emissions. The aim aircrafts needs. forecast: “2017 will be a record year is to reduce aviation’s CO2 emissions for nano/microsatellite launches, and then stabilise them at 2020 levels Space with 182 satellites expected to launch, (carbon­‑neutral growth) using aircraft In the space sector, new areas of representing an 80% increase from 2016. and operational efficiency, alternative business include emerging space The full market potential for the industry fuels as well as emission trading programmes in Africa and South remains high, but this year predicts and offsetting schemes (e.g. the EU America, and emerging private space only 10% growth year over year in the Emissions Trading System and ICAO’s companies and start­‑ups active in future.” Launch delays are the major CORSIA scheme). a variety of services such as human contributing factor to reduced market spaceflight, mining lunar and asteroids growth. In 2016, the US dominated the Overall a megatrend for the entire resources, suborbital and orbital management of nano/micro satellite aviation industry is connectivity. In­ launch services of small payload and launches (63%), with China second

106 (13%). Between 2009 and 2016, the for aeronautics and US$161 million for commercial sector accounted for 40% of space (January 2017 data and exchange The first space nano/microsatellites, forecasted to rise rate). A further US$66 million in loans to 70% by 2019. That leaves governments has been allocated to the UK aerospace satellite insurance with 10% and academic with the rest. industry under the Europe’s programme is placed, covering for small and medium­‑sized enterprises This next generation of satellites is (COSME). physical damage supporting another area of business: monitoring. The UK Space Agency has Brexit might have significant impacts to the Intelsat 1 awarded a $19 million contract for a new for both aviation and space, but at the on pre‑launch,­ satellite monitoring programme, which moment its exact effects are uncertain. aims to protect 300 million hectares of and from 1974­‑1982 tropical rainforests across the globe. In terms of space, the UK wants to stay the market will Advanced use of earth observation data involved in the EU Copernicus, Galileo from satellites, aerial surveys, ground and EGNOS programmes, but questions underwrite others sensors and other sources will support remain as to what extent UK space for up to $100m decisions and actions for disaster companies will retain access to the EU response and security. For example, the single market. each. In 1984, NASA Disaster Applications programme Lloyd’s launches was able to create a Damage Proxy Map According to IATA, the regulatory depicting areas of southwestern Florida, impacts will depend on the nature of a successful including Key West and Naples, that were the future Brexit agreement and access salvage mission damaged by Hurricane Irma (Category 4 to the European Single Aviation Market. at landfall in Florida). The London Market IATA has modelled three different to reclaim two Association’s claims committee and scenarios and even in the case of a Lloyd’s have agreed to support and fund “hard” Brexit the UK passenger market rogue satellites, the satellite imagery service provided is expected to be 45.5% larger in 2035 sending a shuttle by McKenzie Intelligence Services. The than it was in 2015 (a “soft” Brexit would service attracted the broad support result in 55.2% change). and five astronauts of the Lloyd’s market, with 44 out of a into orbit. possible 59 managing agents having Nevertheless the UK and the EU would signed up by the time the hurricanes benefit from ongoing collaboration. SOURCE: LLOYD’S WEBSITE struck. Looking ahead, the race to Mars is also fuelling the development of THE CHANGING RISK methane­‑burning rocket engines and LANDSCAPE competition between SpaceX and BlueOrigin. The Google Lunar XPRIZE, What future risks and opportunities the sponsored by Google, has ignited trends discussed above will bring for global participation of privately funded space and aviation? spaceflight teams with five teams left in The following is an overview of these, the competition. Overall, the idea of low looking at three main categories: cost access to space and NASA’s support natural environment, technology, and for private spaceflight has paved the society and security. way for private sector investments, In 2016, 40 initiatives received US$1.5 billion in funding, down from 46 and Natural environment US$2.3billion in 2015. In December 2017, NASA announced its investment Climate change and solar weather in concept developments for the next As discussed earlier, increasing CO2 decade: a return mission to sample a levels are a concern from a sustainability comet and a drone­‑like helicopter that perspective, but climate change could would explore potential landing sites on also affect aviation by increasing clean­ Saturn’s largest moon, Titan. ‑air turbulence, cause injuries, delays, higher fuel consumption and increased Brexit emissions on transatlantic routes by the Under the 7th Framework Programme middle of this century. for Research and the Horizon 2020 Framework Programme for Research and Like weather on the earth, space Innovation (2014­‑2020), EU funding to weather comes in different forms and UK entities amounts to US$270 million

107 different strengths. Solar flares, coronal Similar to traditional mining, materials, airports in May 2017. BA cited “a mass ejections and geomagnetic technical mining skills, a licence to major IT system failure that caused storms could potentially create huge operate and financing will play a crucial severe disruption to flight operations disturbances in the transport, aviation role in making commercial exploitation worldwide” originated by a power and power sectors by interfering with of asteroidal resources a reality in the supply issue that led to an estimated ground technology, GPS systems for coming years. US$102 million loss. navigation and satellites. The risks posed by space weather are now In regards to regulations, the US and The year before, following a power also magnified through what some Luxembourg are at the forefront of control malfunction, critical systems commentators have called “creeping developing the regulations for asteroid and network equipment failed to switch dependency”, which means the growth exploration and exploitation. over to Delta’s backup systems. This of interconnected systems that In 2015 the Commercial Space Launch incident issue highlighted the airline’s business and other activities rely on. Competitiveness Act was approved reliance on ageing technology and the in the US with the aim to “facilitate interconnected nature of its systems, Another issue is asset stranding. a pro­‑growth environment for the and led to almost 1,000 flights being The world has a budget of estimated developing commercial space industry cancelled and delays of almost 3,000 carbon dioxide it can emit while still by encouraging private sector others worldwide. The airline was quick limiting the rise of temperatures over investment and creating more stable to deny a cyber­‑attack was the cause. 2C above pre­‑industrials levels. To stay and predictable regulatory conditions, In the same year Southwest Airlines within the budget countries will have and for other purposes.” It granted US grounded more than 2,000 flights due to to pursue further emission reductions. citizens rights to own, use, transfer what it described as a technical glitch This means that some fossil fuels and sell mined space resources without with a router. will be phased out of the economy granting exclusive ownership over the and assets such as airplanes that celestial bodies in compliance with Cyber­‑attacks and cyber security are still require them, will gradually lose international treaties such as the Outer rapidly developing issues and in 2014, value or become obsolete – becoming Space Treaty. the Aviation Information Sharing and “stranded”. This is why alternative, Analysis Center was created in the US low­‑carbon jet fuels will play a key role Since July 2017, Luxembourg has to act as the focal point for security in meeting the aviation industry’s target provided space law expertise and it is information sharing across the aviation of carbon neutral growth starting in the first European country to adopt sector. Two years later the European 2020. Electric planes will also play a legislation regulating the ownership Centre for Cyber Security in Aviation was role, for example EasyJet has recently of resources acquired in space by created by the European Aviation Safety partnered with Wright Electric to commercial companies. Agency. develop battery­‑powered planes for its short­‑haul flights such as London to The Internet of Things Amsterdam or Paris. Technology When looking at the Internet of Things (IoT) there are projects to improve Space mining Cyber threats and business every aspect of aviation: passenger Asteroid mining is another opportunity interruption experience, baggage handling, in the space sector. Asteroid resources In July 2015 the Prudential Regulation equipment monitoring, and improving include materials such as sulphur, Authority (PRA) at the Bank of England fuel efficiency. platinum, cobalt, ferrous metals and published a policy statement, which organic carbon. For example, according mentioned that casualty (direct Virgin Atlantic’s Boeing 787 uses IoT to Asterank, a scientific and economic and facultative), marine, aviation sensors to gain real­‑time data for a database that provides information for and transport lines are potentially number of things from performance to more than 600,000 asteroids, Asteroid significantly exposed to “silent” cyber maintenance (for example, detecting 162173 Ryugu would be the most cost losses (i.e. cyber exposures in insurance if the performance of a jet engine mid­ effective to mine with an estimated policies that may not implicitly include ‑air is not up to standards and sending value of US$82 billion and an estimated or exclude cyber risks). With aviation a message to airport engineers to be profit of US$30billion. companies relying on IT systems ready when the plane lands). The kind that are crucial for ground and flight of data collected by this sort of system Deep Space Industries and Planetary operations, cyber risks pose a major would help to boost engine efficiency, Resources are first movers and have threat as they can cause breaches and reduce travel times and cut fuel costs. already identified attractive asteroids. disruption, and can directly impact Companies such as Rolls Royce and services, reputation and financial General Electric use IoT technology to Despite large potential profits, in 2012 a performance. monitor the performance of jet engines. Keck Institute for Space Studies (KISS) study calculated that the cost for a For example, a technology failure at In 2015, Lufthansa Airlines launched the future mission to identify and return a British Airways (BA) led to delays, airport RIMOWA electronic tag, which enables 500­‑tonne asteroid to low earth orbit congestion and flight cancellations travelers to check in their luggage from would be US$2.6 billion. for thousands of customers at London the comfort of their home from their

108 smartphone via Bluetooth and hand in They could be solar­‑powered to pollinate have occurred if various influencing their luggage at a check­‑in station upon crops as the number of honey bees factors had been different. arrival at the airport. Helsinki Airport declines. In the case of a drone flying within 20 uses sensors in its terminal to track meters of a plane on the approach to passengers through their smartphones In 2015 a Lloyd’s report identified three Heathrow, a post event analysis could in order to help prevent queues and key areas that must be developed for take into consideration the proximity tailbacks and also be able to send the effective provision of insurance for to the plane as a severity measure notifications to passengers using their drone operations: and statistics of near misses as an locations. . Regulation, through the estimation of likelihood of a collision. implementation of a robust, This would help to understand potential As aircraft, ground facilities and other internationally­‑harmonious total economic loss and insurable losses critical infrastructures are vulnerable to framework from a catastrophic event on a scale of cyber­‑attacks, the risk could increase . Safety, through the continued the one that almost took place. with connectivity. However, as systems development of training and licensing become more interconnected, more schemes, and further enhancements Drones UK regulation is also changing. In up­‑to­‑date data becomes available and in ‘sense and avoid’ technology July 2017 the UK Government announced loss prevention services are developed. . Security, through the application of measures to place new responsibilities on This is an opportunity to better sufficient cyber security measures drones weighing more than 250g ­‑ such as understand risks and trends as well as mandatory registration of the individual planning mitigation and information As it’s a relatively new risk, claims owner and safety awareness tests. sharing frameworks. history for drone insurance is sparse. Finally, as mentioned in Lloyd’s 2017 In the case of drones, which have come report “The rise of the drone insurance Drones close to causing civil aviation disasters, market”, insurers might consider whether Drones are now used for a range of a downward counterfactual work would they can incorporate drones into their activities including military, agriculture, be insightful. own business model to collect quickly public services, wildlife protection large amounts of data to price risks and and research. The sector is expanding A downward counterfactual analysis, as process claims. This means that insurers rapidly with global expenditure set to explored in Lloyd’s report Reimagining might invest in drones with a view to double to US$91 billion over the next history published in 2017, is a different generate cost savings, reduce risk and decade. In the future drones could be way of exploring past losses or near­ provide a better service to clients. used to deliver parcels, move freight ‑misses by treating the past as one and carry people singly or in swarms. possible version of many that could

109 Flying cars Society and security Flying cars have been a popular theme Currently, the in science fiction and every day, Terrorism millions of hours are wasted on the road Recent attacks and threats to flights and world’s longest worldwide. In 2014 America’s drivers airports ­‑ the three coordinated suicide flight is Qatar wasted 6.9 billion hours stuck in traffic. attacks targeting Brussels’ Airport and Projects such as Uber Elevate that Zaventem and Maalbeek metro stations Airways route look into vertical takeoff and landing in 2016, and the arrest of Jaber al­‑Bakr, aircraft are currently being developed. 22, from Syria, who was allegedly between Doha At the moment there are several market planning to blow himself up at a German and Auckland, feasibility barriers including battery, airport, for example ­‑ demonstrate how air traffic control, safety, cost, noise, aviation and potentially space might New Zealand. The emissions and pilot training. continue to be targets of future attacks 9,032 mile trip with consequent psychological and Space manufacturing economic effects. takes nearly 17 Material from asteroids could be Another trend is the use of new hours and is flown processed directly and terrestrial technologies such as drones and manufacturing techniques could be terrorists’ tactical and technological by four rotating shifted into orbit. Moving factories into knowledge and experience accumulated pilots. space could reduce the need to open in conflict zones. In November 2017 new ones on earth but transport costs the US National Terrorism Advisory SOURCE: FLYING TIME AVIATION might offset any emissions reductions System stated that “some terrorist unless powered by sustainable energy. groups overseas are using battlefield In 2014, a 3­‑D printer was installed on experiences to pursue new technologies the International Space Station (ISS) and tactics, such as unmanned aerial and it validated the process for printing systems and chemical agents that in orbit, critical to making longer could be used outside the conflict journeys to Mars for example. zones. Additionally, terrorists continue

110 to target commercial aviation and losses due to cancellation and re­‑routing air cargo, including with concealed costs are being developed. The increasing explosives”. use of nano/micro satellites could generate more pre­‑launch and launch Space tourism insurance opportunities. Drone Space tourism has been developing deliveries, self­‑driving flying taxis, since the 1990s, but significant and Mars travel are also in the pipeline, uptake is yet to be seen. In 2001 and insurance will be a crucial component Dennis Tito became the first to visit in their viability and success. the International Space Station (ISS) through Space Adventures where he The challenge for insurers if they want stayed for seven days, becoming the maximise these opportunities is to first “fee­‑paying” space tourist for ensure their products keep pace and Only 5% of the US$20 million. Virgin Galactic, founded remain aligned with their customers’ world’s population by Richard Branson (Virgin Group), Blue insurance needs. They will need to make Origin founded by Jeff Bezos (Amazon) sure they have enough capacity to take has ever flown and Space X founded by Elon Musk on these new risks and to do so, ensure on an airplane. (Tesla and SolarCity) are all developing their models are up to date and fit for reusable suborbital launch systems purpose. New approaches to modelling However, at the specifically to enable space tourism. losses that have not yet occurred same time a small might be needed for space­‑related SpaceX has recently been approached to business, such as business interruption minority of the fly two private citizens on a trip around and environmental liability for space world’s population the Moon in 2018, while for US$250,000 mining missions, personal accident and Virgin Galactic offers a two and a half third­‑party liability for space tourism fly very regularly. hour flight after three days’ training. and space­‑specific travel insurance (including repatriation!). SOURCE: BAA TRAINING Moreover, the idea of developing a commercial lunar depot to provide How this all develops in reality is anchorage for significant lunar business unknown but one thing is for certain, development (hotels, for example) was insurance will be a key part of any future confirmed by Bigelow Aerospace and that unfolds. Those insurers who start United Launch Alliance in 2017. to think today about what is coming over the horizon tomorrow will be those best placed to take advantage of the many CONCLUSIONS new business opportunities that soon will surely be speeding into view. · From creating an aviation space consortium to insuring against airlines defaulting on loans for new aircraft Editor’s Note: Footnotes included in the article are available in our digital edition @mdsinsure.com/ to paying claims for tens of millions en/fullcover/ of dollars for a spaceship test flight programme accident, the London market and Lloyd’s are already deeply involved in insuring aviation and space developments. London in particular is the epicenter for space and aviation activities given the presence of infrastructure and expertise to support these sectors.

However, as this article shows, these sectors are entering a new age as risks mature and evolve. This represents a substantial opportunity for insurers in a number of business lines.

For example, business interruption products to insure airlines against large events (such as volcanic ash clouds, severe winter storms) that lead to

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