AVIATION INSURANCE BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER VI (2011 – 12) Submitted by: ANANDNARAYAN SINGH ROLL NUMBER – 44 Under the guidance of SIVABHAGYAM NALLASEKHARAN SIES COLLEGE OF COMMERCE AND ECONOMICS, Plot No. 71/72, Sion Matunga Estate T.V. Chidambaran Marg, Sion (East), Mumbai – 400022 AVIATION INSURANCE BACHELOR OF COMMERCE BANKING & INSURANCE SEMESTER VI (2011 – 12) SUBMITTED In partial fulfillment of the requirement for the award of Degree of Bachelor of Commerce – Banking and Insurance Under the guidance of SIVABHAGYAM NALLASEKHARAN SIES COLLEGE OF COMMERCE AND ECONOMICS, Plot No. 71/72, Sion Matunga Estate T.V. Chidambaran Marg, Sion (East), Mumbai – 400022 SIES COLLEGE OF COMMERCE AND ECONOMICS, Plot No. 71/72, Sion Matunga Estate T.V. Chidambaran Marg, Sion (East), Mumbai – 400022 CERTIFICATE This is to certify that Mr. / Mrs. ANANDNARAYAN SINGH Of B. Com – Banking and Insurance, Semester VI (2011-12) has successfully completed a project on AVIATION INSURANCE Under the guidance of Mrs. SIVABHAGYAM NALLASEKHARAN Course Coordinator Principal Project Guide/ Internal Examiner External Examiner DATE: PLACE: DECLARATION I ANANDNARAYAN SINGH, student of B. Com – Banking and Insurance, Semester VI (2011-12), hereby declare that I have completed the project on The information submitted through this project is true and original to the best of my knowledge. DATE: PLACE: SIGNATURE ANANDNARAYAN SINGH Roll number –44 INDEX Sr.no. Particulars Page No. 1 Introduction to Aviation Insurance 3 2 History of aviation industry 4 - 6 3 Risk covered in Aviation Insurance 7 – 21 3.1 Normal Risk 3.2 Liabilities 4 Future of Aviation Insurance 22 – 29 5 Aviation Insurance in India 30 – 33 6 Indian Government on Aviation Insurance 34 – 41 7 Effect of 9/11 on Aviation Industry 42 – 44 8 Case Studies 45 – 47 9 Recommendation & Conclusion 48 10 Bibliography 49 EXECUTIVE SUMMARY Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government- owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Aviation accidents are serious accidents, especially those that happen while the plane is in flight. Aviation or plane accidents do not only mean pilot error. It could also be caused by malfunctioning gauges as a result of product liability or failure of maintenance. Also, aviation accidents do not only connote plane crashes or mishaps. Aviation insurance is different from other forms of insurance in that it is very subjective. Due to the vast array of aircraft types, uses and pilot experience, policies should always be specifically tailored to suit the unique requirements of each individual applicant. For this reason it is recommended that a broker, specializing in aviation insurance be engaged to arrange cover. The Indian aviation industry has witnessed remarkable growth in recent years, with key drivers being positive economic factors, including high GDP growth, good industrial performance, and corporate profitability and expansion. Other factors include higher disposable incomes, growth in consumer spending, and availability of low fares. Aviation insurance business is a high severity loss business and in the future you could see a lot of Indian insurance companies joining hands to manage airline accounts. Aviation has come a long way the last 100 years. The industry is still developing. With growth comes a problem that must be solved before the industry can go to the next level. AN INTRODUCTION TO INSURANCE With the insurance sector in full bloom, today, it would not be wrong to say that in the present market scenario, there is an insurance available for just about anything and everything. With even a bourgeois family man opting for various insurance schemes, the question today is not whether you have insurance or not. Instead it is, whether you need a particular insurance or not? Insurance is no doubt an area of immense importance in regards to the financial and monetary sectors of every individual. The whole idea behind Insurance as a financial security tool was to design something which could secure the financial well-being of an individual as well as his/her dependents, in case he/she undergoes an unforeseen loss. These losses could be related to health, property, assets or life in general. Insurance helps people manage monetary risks and losses related to investments, liabilities for wrong financial actions, and risks for inability to earn income at any stage of life. Insurance generally covers all these risks. Insurance may be described as a social device to reduce or eliminate risk of loss to life and property. Under the plan of insurance, a large number of people associate themselves by sharing risks attached to individuals. The risks, which can be insured against, include fire, the perils of sea, death and accidents and burglary. Any risk contingent upon these, may be insured against at a premium commensurate with the risk involved. Thus collective bearing of risk is Insurance. ―Insurance is a contract between two parties’ viz., the insurer and the insured, whereby the insurer agrees to compensate the insured in the event of any loss, in return for consideration (premium) from the insured‖. In short, the insurance company promises to make good the loss, in the event of occurrence of any incidence. 1.INTRODUCTION TO AVIATION INDUSTRY Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people. The origin of Indian civil aviation industry can be traced back to 1912, when the first air flight between Karachi and Delhi was started by the Indian State Air Services in collaboration with the UK based Imperial Airways. It was an extension of London-Karachi flight of the Imperial Airways. In 1932, JRD Tata founded Tata Airline, the first Indian airline. At the time of independence, nine air transport companies were carrying both air cargo and passengers. These were Tata Airlines, Indian National Airways, Air service of India, Deccan Airways, Ambica Airways, Bharat Airways, Orient Airways and Mistry Airways. After partition Orient Airways shifted to Pakistan. In early 1948, Government of India established a joint sector company, Air India International Ltd in collaboration with Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The inaugural flight of Air India International Ltd took off on June 8, 1948 on the Mumbai-London air route. The Government nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established by 1995, several private airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways. But only Jet Airways and Sahara managed to survive the competition. Meanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian aviation industry is dominated by private airlines and these include low cost carriers such as Deccan Airlines, GoAir, SpiceJet etc, who have made air travel affordable. THE AVIATION SECTOR India is one of the fastest growing aviation markets in the world. The Airport Authority of India (AAI) manages a total of 127 airports in the country, which include 13 international airports, 7 custom airports, 80 domestic airports and 28 civil enclaves. There are over 450 airports and 1091 registered aircrafts in the country. The genesis of civil aviation in India goes back to December 1912 when the first domestic air route between Karachi and Delhi became operational. In the early fifties, all airlines operating in the country were merged into either Indian Airlines or Air India and, by virtue of the Air Corporations Act 1953, this monopoly continued for the next forty years. In 1990s, aviation industry in India saw some important changes. The Air Corporations Act was abolished to end the monopoly of the public sector and private airlines were reintroduced. With the liberalization of the Indian aviation sector, the industry has witnessed a transformation with the entry of the privately owned full service airlines and low cost carriers. In 2006, the private carriers accounted for around 75% share of the domestic aviation market. The sector has also seen a significant increase in the number of domestic air travel passengers. Some of the factors that have resulted in higher demand for air transport in India include the growing middle class and their purchasing power, low airfares offered by low cost carriers like Air Deccan, etc. Increasing liberalization and deregulation has led to an increase in the number of private players. The aviation industry comprises of three types of players: Full cost carriers Low cost carriers (LCC) Other start-up airlines REASONS FOR BOOM IN THE AVIATION INDUSTRY 1. Foreign equity allowed: Foreign equity up to 49 per cent and NRI (Non- Resident Indian) investment up to 100 per cent is permissible in domestic airlines without any government approval. However, the government policy bars foreign airlines from taking a stake in a domestic airline company. 2. Low entry barriers: Nowadays, venture capital of $10 million or less is enough to launch an airline.