Aviation insurance is insurance coverage geared specifically to the operation of aircraft and the risks involved in aviation. Aviation insurance policies are distinctly different from those for other areas of transportation and tend to incorporate aviation terminology, as well as terminology, limits and clauses specific to aviation insurance.

History

Aviation

Aviation

Aviation is the design, development, production, operation, and use of aircraft, especially heavier-than-air aircraft. Aviation is derived from avis, the Latin word for bird.-History:...

 Insurance was first introduced in the early years of the 20th Century. The first aviation insurance policy was written by Lloyd's of London

Lloyd's of London

Lloyd's, also known as Lloyd's of London, is a British insurance and reinsurance market. It serves as a partially mutualised marketplace where multiple financial backers, underwriters, or members, whether individuals or corporations, come together to pool and spread risk...

 in 1911. The company stopped writing aviation policies in 1912 after bad weather and the resulting crashes at an air meet caused losses on many of those first policies.

The first aviation polices were underwritten by the marine insurance underwriting

Underwriting

Underwriting refers to the process that a large financial service provider uses to assess the eligibility of a customer to receive their products . The name derives from the Lloyd's of London insurance market...

 community. The first specialist aviation insurers emerged in 1924.

In 1929 the Warsaw convention

Warsaw Convention

The Warsaw Convention is an international convention which regulates liability for international carriage of persons, luggage or goods performed by aircraft for reward....

 was signed. The convention was an agreement to establish terms, conditions and limitations of liability for carriage by air, this was the first recognition of the airline industry as we know it today.

In 1931, Captain A. G. Lamplugh, the British Aviation Insurance Company's chief underwriter and principal surveyor, said of the new industry: "Aviation in itself is not inherently dangerous. But to an even greater degree than the sea, it is terribly unforgiving of any carelessness, incapacity or neglect."

Realising that there should be a specialist industry sector, the International Union of Marine Insurance (IUMI) first set up an aviation committee and later in 1933 created the International Union of Aviation Insurers (IUAI), made up of eight European aviation insurance companies and pools.

The London insurance market is still the largest single centre for aviation insurance. The market is made up of the traditional Lloyd's of London syndicates and numerous other traditional insurance markets. Throughout the rest of the world there are national markets established in various countries, this is dependent on the aviation activity within each country, the US has a large percentage of the world's general aviation fleet and has a large established market.

No single insurer has the resources to retain a risk the size of a major airline, or even a substantial proportion of such a risk. The catastrophic nature of aviation insurance can be measured in the number of losses that have cost insurers hundreds of millions of dollars (Aviation accidents and incidents

Aviation accidents and incidents

An aviation accident is defined in the Convention on International Civil Aviation Annex 13 as an occurrence associated with the operation of an aircraft which takes place between the time any person boards the aircraft with the intention of flight and all such persons have disembarked, in which a...

).

Most airlines arrange "fleet policies" to cover all aircraft they own or operate.

Types of insurance

Aviation insurance is divided into several types of insurance coverage available.

Public liability insurance

This coverage, often referred to as third party liability covers aircraft owners for damage that their aircraft does to third party property, such as houses, cars, crops, airport facilities and other aircraft struck in a collision. It does not provide coverage for damage to the insured aircraft itself or coverage for passengers injured on the insured aircraft. After an accident an insurance company will compensate victims for their
losses, but if a settlement can not be reached then the case is usually taken to court to decide liability and the amount of damages. Public liability insurance is mandatory in most countries and is usually purchased in specified total amounts per incident, such as $1,000,000 or $5,000,000.

Passenger liability insurance

Passenger liability protects passengers riding in the accident aircraft who are injured or killed. In many countries this coverage is mandatory only for commercial or large aircraft. Coverage is often sold on a "per-seat" basis, with a specified limit for each passenger seat.

Combined Single Limit (CSL)

CSL coverage combines public liability and passenger liability coverage into a single coverage with a single overall limit per accident. This type of coverage provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground.

Ground risk hull insurance not in motion

This provides coverage for the insured aircraft against damage when it is on the ground and not in motion. This would provide protection for the aircraft for such events as fire, theft, vandalism, flood, mudslides, animal damage, wind or hailstorms, hangar collapse or for uninsured vehicles or aircraft striking the aircraft. The amount of coverage may be a blue book

Blue book

Blue book or Bluebook is a term often referring to an almanac or other compilation of statistics and information. The term dates back to the 15th century, when large blue velvet-covered books were used for record-keeping by the Parliament of the United Kingdom.- Government :* At the European...

value or an agreed value that was set when the policy was purchased.

The use of the insurance term "hull" to refer to the insured aircraft belies the origins of aviation insurance in marine insurance. Most hull insurance includes a deductible to discourage small or nuisance claims.

Ground risk hull insurance in motion (taxiing)

This coverage is similar to ground risk hull insurance not in motion, but provides coverage while the aircraft is taxiing, but not while taking off or landing. Normally coverage ceases at the start of the take-off roll and is in force only once the aircraft has completed its subsequent landing. Due to disputes between aircraft owners and insurance companies about whether the accident aircraft was in fact taxiing or attempting to take-off this coverage has been discontinued by many insurance companies.

In-flight insurance

In-flight coverage protects an insured aircraft against damage during all phases of flight and ground operation, including while parked or stored. Naturally it is more expensive than non-in-motion coverage since most aircraft are damaged while in motion.