Piiq Perspective | Grounding

GROUNDING

Volume 1: March 2020

For our inaugural Piiq Perspective, we have selected grounding as the subject for discussion. Our team has been inextricably engaged in the advancement of grounding language on behalf of clients, and we continue to be committed to influencing the best possible outcome for our clients in this changing market. This is an important and topical area for so many aerospace companies, and we believe this to be an ideal starting point.

Grounding exposures have been around since the dawn of aviation and grounding cover for many decades. Why then is grounding coverage, availability and pricing, currently attracting such widespread attention in the aviation insurance market? What led us to this point? How do insureds achieve the best available coverage fit for their needs at the best available price?

Aviation underwriters are currently taking a range of positions when it comes to grounding. Some of the issues that have been raised as causal to the focus on grounding coverage availability, limits and pricing include the following:

• Quantum and frequency of claims in recent years
  The frequency of grounding claims contrasts with the industry safety record and worldwide aircraft accident rate trends in recent years. The number of grounding events impacting the industry in the last eight years is equivalent to those for the previous fifty years. Grounding claims can be complex from a loss adjustment standpoint, and recent airframe and engine grounding events have presented claims that are significantly larger than historical grounding claims.
• Reinsurance
  Particularly with the introduction of enhanced grounding wording (non-occurrence and partial grounding covers), many underwriters were taking on those exposures on a net basis. It appears that increasingly, reinsurance is unavailable or not commercially priced. Underwriters are cutting back lines and, in some cases, no longer offer enhanced grounding coverage due to the lack of reinsurance.
• Potential for new technologies to introduce claims
  There is no debate - aerospace manufacturers have moved the dial forward on safety improvements across the spectrum. When it comes to grounding claims though, underwriters are articulating the concerns about how product innovation and new product entry into service has, and will, impact the frequency of grounding claims.
• Regulatory authorities’ approaches to grounding
  Underwriters have been monitoring the actions of airworthiness authorities worldwide with domain over grounding of aircraft, and they have concerns about the discipline that will be applied by some authorities in considering post certification issues.

Coverage focus

While aviation underwriters are universally communicating concerns about grounding, one leading underwriter has taken the initiative to advance updated grounding wording. The view that the carrier has articulated is the need to continue to offer a sustainable grounding cover that is updated to reflect wording relevant to today’s exposures. Of course, any coverage changes need to be thoroughly evaluated, negotiated and agreed. Our mission is to optimize the language in line with our clients’ needs and priorities.

Below we highlight the key areas where the proposed traditional grounding wording is changing (we have intentionally limited the scope of our wording discussion here to the traditional scope of grounding coverage).

• Complete and continuous
• Immediacy – timing of removal from flight operations in terms of flight hours/cycles in the triggering mandatory order
• Definition of the Regulatory Authority

There are several new/revised exclusions in the proposed wording, including but not limited to the following areas:

• Minimum time period of grounding
• Contractual provisions
• Compliance with corrective actions by the owner/operator
• Introduction of Certified Aircraft

We should acknowledge that there are a few small modifications that will serve to clarify or expand coverage, particularly where exposures have evolved from the time of original market wording construction, in many cases, decades ago. For example, there is a carve out for military derivatives within the military aircraft exclusion.

We take the view that the proposed language overall represents a limitation in the scope of cover, and any revised grounding language presented to a client should be carefully evaluated.

Note actual policy wording will vary, and this is a high-level summary discussion of key features. There are a number of additional changes encompassed in new market-proposed wording.

What is currently available?

Coverage for grounding exposures has been widely available in the market, and in the most recent years, the scope of cover has expanded in an effort to match the coverage with the evolving needs of insureds. Presently, there is substantial disparity in the positions being taken

by underwriters when it comes to availability of grounding coverages and limits offered. The extent to which individual underwriters will continue to be a part of the solution to the grounding cover need will vary.

Pricing considerations

Underwriters are focused on building an adequate premium base to support sustainable grounding coverage. Historically, there has not been a high degree of transparency in the pricing of grounding coverage that is embedded within comprehensive aerospace programs. The added pressures on pricing of aviation product liability risks generally add to an already relatively complex environment in which to contain the pricing expectations around grounding.

What should be done?

Our view is that the partnership among the stakeholders in the aviation insurance market has always been the hallmark of a successful aerospace insurance program. While the challenges and opportunities are many when it comes to grounding exposures and coverage, the insured, the market and the broker all have a role, a mission and a unique perspective. There are steps we recommend for consideration in order to achieve the best possible outcome.

• Close review and analysis of program history
• Engagement around product life cycle management, safety programs, contracting practices and advanced manufacturing processes
• Program structure analysis and retention capability in light of the insureds’ needs in an evolving market
• Insurance market partner reviews and mapping based on capabilities and strategic relationship elements

We continue to encourage the market to meet the insureds at their point of need, and we are focused on asking the right questions in order to drive the best possible outcome.

The grounding insurance landscape can be reasonably expected to continue to evolve over the coming months, and we will provide updates. We welcome you to contact a member of our team to further discuss this important topic with you.

Authors

DEBRA FANJOY - SENIOR PARTNER

Debra is the Piiq Risk Partners US Aerospace Leader, focused on thought leadership on the aerospace front and supporting the development of a robust complex risk offering. Debra has held aviation broker and underwriter roles throughout her 25-year carrier. Most recently, she led a large Chicago-based aviation broker team for Marsh in Chicago, and she helped drive the strategy for the US aviation practice.

Debra joined the industry with a passion for aviation and armed with a degree in Aeronautical Science from Embry-Riddle Aeronautical University. She holds Commercial Pilot and Certified Flight Instructor certificates, and she earned CPCU, ARM, and CAIP (Certified Aviation Insurance Professional) designations.

debra.fanjoy@piiqrp.com

OYIN HEATH - SENIOR PARTNER

Oyin is a senior partner in the Piiq UK team based in London. She is responsible for driving the international client engagement strategy as well as developing and delivering a differentiated and compelling client value proposition to Aerospace clients.

Before joining Piiq in February 2020 Oyin was the UK Aerospace Practice Leader at Marsh. This role involved leading a large team of people and managing the risk and insurance requirements of some of the Aerospace sector’s leading companies.

During her 25-year career Oyin has successfully worked in all sub-sectors of the aviation insurance market and in doing so has cultivated strong relationships with key stakeholders. She is focused on delivering favourable outcomes for aviation clients in the current insurance marketplace.

Oyin is an Associate of the Chartered Insurance Institute (ACII).

oyin.heath@piiqrp.com

The information contained herein is based on sources we believe reliable and should be understood to be general risk management and insurance information only. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.
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