UNIVERSITY OF MUMBAI

PROJECT REPORT

ON

AVIATION INSURANCE

BY

MS. SHWETA G. MAHADE

BCOM (BANKING AND INSURANCE)

SEMISTER VI

(ACADAMIC YEAR 2010-2011)

PROJECT GUIDE: PROF. RAHUL CHOPRA

PARTE TILAK VIDYALAYA ASSOCIATION’S

M.L. DAHANUKAR COLLEGE OF COMMERCE

DIXIT ROAD, VILE PARLE (E)

MUMBAI-400057
 CERTIFICATE

We, hereby certify that MS. SHWETA GANESH

MAHADE of Third Year Bachelor of Commerce (Banking and
Insurance), Parle Tilak Vidyalaya Association’s,
M.L.Dahanukar College of Commerce has completed the project
on AVIATION INSURANCE in Semester VI of the academic
year 2010-2011. The information and facts as submitted in the
project are true and original to the best of our knowledge and
information.

Project Guide

Internal Examiner Coordinator

External Examiner Principal

Date: _______
Place: _______
 DECLARATION

I, SHWETA GANESH MAHADE, of PARLE TILAK

VIDYALAYA ASSOCIATION’S, OF M.L.DAHANUKAR
COLLEGE OF COMMERCE of T.Y.B.Com. (Banking and
Insurance) (Semester V) hereby declare that I have completed
this project on Aviation Insurance in the Academic year 2010-
2011. The information submitted is true and original to the best
of my knowledge.

_____________________
(Signature of Student)

ACKNOWLEDGEMENT

To list who all have helped me is difficult because they are so numerous and
the depth is so enormous. I would like to acknowledge the following as being
idealistic channels and fresh dimensions in the completion of this project.

I take this opportunity to thank the University of Mumbai for giving me

chance to do this project.

I would like to thank my Principal, Dr.(Mrs) Madhavi S. Pethe for

providing the necessary facilities required for completion of this project.

I take this opportunity to thank our Coordinator Prof.Mrs.Mitali

Shelankar, for her moral support and guidance.
 I would also like to express my sincere gratitude towards my project guide
__prof. mr. rahul chopra_whose guidance and care made the project successful.

I would like to thank my College Library, for having provided various

reference books and magazines related to my project.

Lastly, I would like to thank each and every person who directly or
indirectly helped me in the completion of the project especially my Parents and
Peers who supported me throughout my project.

INTRODUCTION OF INDIAN AVIATION

SECTOR

A proud Air India Flying

 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.

HISTORY OF AVIATION INSURANCE

Aviation Insurance was

first introduced in the
early years of the 20th
Century. The first
aviation insurance policy
was written by Lloyd's of
London in 1911. The
company stopped writing
aviation policies in 1912

A light flight of 1911

after bad weather and the resulting crashes at an air meet caused losses on many of
those first policies.

It is believed that the first aviation polices were underwritten by the marine
insurance Underwriting community.

In 1929 the Warsaw convention 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.

By 1933 realising that there should be a specialist industry sector the

International Union of Marine Insurance set up an aviation committee, and by 1934
eight European aviation insurance companies and pools were formally established
and the International Union of Aviation Insurers was born.

The London insurance market is still the largest single centre for aviation
insurance. The market is made up of the traditional Lloyds 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). Most airlines arrange
"fleet policies" to cover all aircraft they own or operate.
 RISK COVERED IN AVIATION INSURANCE

There are different types of risk which takes place in aviation insurance and
those risks are covered in aviation insurance they are as follows:

AVIATION INSURANCE

NORMAL
LIABILITIES
RISKS
The
above diagram suggests that there are mainly two kinds of risks which an aviation
insurance company will cover which has been divided into two parts. They are:
1. Normal Risks
2. Liabilities

These two risks are further divided into various parts which involve various
risks and liabilities they are which is explained in detail later on.
 NORMAL RISKS
These risks are those risks which every aviation company in this industry
carries it on its back when it enters into the business. These risks may differ from
time to time and situation to situation. These are

1. Hull Risks
2. Hull War Risks
3. Spares All Risks/ War Risks
4. Hull total Loss Only cover

These risks are those risks which takes place when these takes place when
any of these factors comes into action. Because all the above risks mentioned
above are unpredictable and may occur at any time
 HULL RISKS

The hull "All Risks" policy will usually refer to something like "all risks of
physical loss or damage to the aircraft from any cause except as hereinafter
excluded".

Airline hull "All Risks" policies are subject to a standard level of deductible
(that is an uninsured amount borne by the Insured) applicable in the event of partial
(non-total) loss. Currently, this deductible can range from $50,000 in respect of a
Twin Otter to $1,000,000 in respect of a wide-bodied jet aircraft, such as a Boeing
747.

Deductibles too can be reduced by means of a separate "Deductible

Insurance" policy. The Deductible Insurance Policy is affected to reduce the large
"All Risks" policy deductibles to a more manageable level. For example the
US$1,000,000 applicable to a Boeing 747 can be reduced to say US$100,000.

The term "all risks" can be misleading. "All risks of physical loss or
damage" does not include loss of use, delay, or consequential loss. "Grounding" is
a good example of consequential loss. Some years ago when there had been a
couple of accidents involving DC10 Aircraft, the Civil Aviation Authorities
throughout the world imposed a "grounding order" on that type of aircraft.

That order in effect said until certain things had been established and
checked out those aircraft could not fly. The operators of those aircraft were unable
to fly them and as a consequence of that they "lost" the use of them. But the
aircraft were not "lost" - it was known precisely where they were but they could
not be used to carry passengers. Such an eventuality would not be covered by an
"all risks" policy because in such circumstances there is no PHYSICAL loss or
damage.

What the policy will cover is the reinstatement of the aircraft to its "pre-loss"
condition, if repairable damage is involved, or some other form of settlement in the
event that more substantial damage is sustained. Exactly what form of settlement
will depend on the policy conditions.

Today, the vast majority of airline hull "all risks" policies are arranged on an
"Agreed Value Basis". This provides that the Insurers agree with the Insured, for
the policy period, the value of the aircraft and as such, in the event of total loss,
this Agreed Value is payable in full. Under an Agreed Value policy the
replacement option is deleted.

The hull risks does not cover some risks whish are as follows

1. Wear, tear and gradual deterioration - in common with most non-marine

policies (which includes aviation insurance) these perils are thought to be
a trading expense and not a peril to be insured.
2. Ingestion damage - caused by stones, grit, dust, sand, ice, etc., which
result in progressive engine deterioration is also regarded as "wear and
tear and gradual deterioration", and as such is excluded. Ingestion
damage caused by a single recorded incident (such as ingestion of a flock
of birds) where the engine or engines concerned have to shut down is
not regarded as wear and tear and is covered subject to the applicable
policy deductible.
3. Mechanical Breakdown - likewise is thought by aviation insurers to be an
operating expense, but subsequent damage outside the unit concerned is
usually covered. However, it is possible to obtain insurance coverage
against mechanical breakdown of engines by way of a separate policy.
This coverage has a high degree of exposure and as a result is relatively
expensive. The majority of airlines do not purchase it probably viewing
such exposure as a part of the "engineering"
 HULL WAR RISKS

The hull "All Risks" policy will contain the exclusion of "War and Allied
Perils". Generally speaking, throughout the aviation insurance world, "War and
Allied Perils" have a defined meaning. In the London Aviation Insurance Market
the standard exclusion is called the War, Hi-jacking and Other Perils Exclusion
Clause (currently known by its reference - AVN48B for short) this lists and defines
these so-called war and allied perils. It say,

1. War - this includes civil war and war with no formal declaration.
2. The detonation of a weapon
3. Strikes, riots, civil commotions and labour disturbances.
4. Political or terrorist acts.
5. Malicious or sabotage acts.
6. Confiscation, nationalization, requisition and the like by any
government.

7. Hijacking or Unlawful exercise to control plane other than crew

members of the flight concerned.
The brutal second plane crash in World Trade Center, New York, United States of Ameica, 11 September,2001
 The majority of the excluded "War and Allied Perils", other than the
detonation of a nuclear weapon and a war between the Great Powers (the aviation
insurance world identifies these as the U.S.A., the Russian Federation, China,
France and the UK), can normally be covered by way of a separate "War and
Allied Perils" policy. Aircraft deductibles are not normally applied in respect of
losses arising out of "War and Allied Perils".

Other exclusions insurers will usually apply are, as follows:-

1. Confiscation etc. by the "state" of registration (this exclusion can often be

deleted in respect of financial interests - albeit, in some instances at an
additional premium charge)
2. Any debt, failure to provide bond or security or any other financial cause
under court order or otherwise;
3. The repossession or attempted repossession of the Aircraft either by any
title holder or arising out of any contractual agreement to which any
Insured protected under the policy may be party;
4. Delay and loss of use. (Although there is often an extension to the policy for
a limited amount for extra expenses necessarily incurred following
confiscation or hijacking).

The aircraft hull "War and Allied Perils" policy will cover the aircraft on an
"Agreed Value" basis against physical loss or damage to the aircraft occasioned by
any of these perils. This statement is made carefully and deliberately in order to
highlight the essential difference from a "Political Risks" Insurance.
 SPARES ALL RISKS

First of all we must identify what we mean by a "spare" or perhaps - "when

is a spare not a spare" to which a simple answer is "when it is attached". Under
most "Hull" policies the word "Aircraft" means Hulls, machinery, instruments and
the entire equipment of the aircraft (including parts removed but not replaced).
Once a part is replaced it is no longer, from an insurance viewpoint, part of the
aircraft. Conversely once a spare part is attached to an aircraft as a part of that
aircraft (not in the hold as cargo or on the wing as an extra pod) it is no longer a
"spare".

If the equipment is insured on the hull "All Risks" policy the automatic
transfer of coverage from "aircraft" to "spare" and vice versa is automatically
accomplished.

Having established when a spare is a spare how is it insured as such?

Usually in one of two ways. Either under a "spares" section of a hull policy or by a
separate Spares Policy. In either case the scope of coverage will probably be
similar. All Risks whilst on the Ground and in Transit for a limit of [so much] any
one item or sending or any one location. War Risks can also be covered (in respect
of transits), Strikes, Riots, Civil Commotions can be covered in accordance with
standard market clauses. Spares coverage is usually subject to a small deductible
except, however, in respect of ground running of spare engines when the
appropriate Ingestion deductible will be applied. Spares are normally covered on
an agreed value basis - usually their replacement cost (be it new or reconditioned -
as is required).
 A flight cockpit with its spare parts An engine with its spare parts working inside

Spares installed on any aircraft are not covered by the Spares Insurance.
They become, from an insurance standpoint, a part of the aircraft upon which they
are installed and a part of the Agreed Value for which it is insured. This becomes
particularly important if the parts are loaned to another airline.
 HULL TOTAL LOSS ONLY COVER

The Aerocor (Aerolineas Cordeillra) DC-3 used in 60’s and 70’s

This is similar to Hull All Risks cover given above but will respond only to total
losses of aircraft, whether actual, constructive or arranged. This is particularly
given for old aircraft since the old aircraft are heavily depreciated and insured for
low sums and premium on such low sums would result in low premium, which
would be inadequate for the partial losses. The ratio of partial losses to total losses
in such old aircraft is distorted.
 LIABILITIES

Liabilities are those risks which may arise due to some consequences or
some “reasons” the company has to face. Those “reasons” are as follows

1. Aircraft Liability
2. Excess Liability
3. Aerospace Manufacturers products and Grounding Liability
4. Airport Owners and Operations Liability
5. Product Liability

A liability is a present obligation of the enterprise arising from past events,

the settlement of which is expected to result in an outflow from the enterprise of
resources embodying economic benefits.

The explanations of all the liabilities are given below

 AIRCRAFT LIABILITY
Here in aircraft liability there are many other liabilities involved which are
further divided into four parts. They are

AIRCRAFT
3RD LIABILITY
PARTY

PASSENGE
RBAGGAGE
CARGO AND MAIL

These are the kinds of liabilities which are covered in aviation insurance the
explanation in detail is given below
 PASSENGER LIABILITY

Coverage for
aircraft operators in
the event a passenger
is injured, killed or
disabled during an
accident while aboard
an insured aircraft.
Passengers injured in 'Turkish Airlines Plane Crash in Netherlands' Feb
25, 2009
Aviation policies
divided liability
coverage into two
parts--general liability (excluding passengers), and passenger liability.

A Passenger Liability policy covers incidents resulting from the transportation of

passengers by land, sea or air and can often be included as part of a aviation
insurance policy.

However care must be taken to check that the motor policy wording does not
exclude fare-paying passengers, which is often the case. It is unlikely that an
underwriter will be prepared to cancel or amend the wording of a standard motor
vehicle policy.
For this reason Daily Cover policies are specifically for to cater for fare-paying
passenger liability.

THIRD PARTY LIABILITY

This program offers 3rd Party Liability insurance coverage for non-
commercial operations only. Pilot and passenger injuries and aircraft physical
damage are not covered. This member benefit program is designed to allow non-
commercial pilots the benefits that insurance coverage can offer.

While pilot and passenger injuries and damage to the aircraft itself are not
covered under a Third Party program, financial responsibilities bodily injury or
property damage caused by the aircraft for which the pilot is found to be legally
liable to pay to others is covered. Additional insured parties such as landowners,
municipalities and airports, can also be covered under this type of policy. Because
the possession of Third Party coverage provides landowners with a Certificate of
Insurance showing that coverage is in place, access to more flying sites are
accessible for the operation of your aircraft
 Concorde crash on a hotel near Paris Airport just few minutes after the take off which resulted in destruction of
th hotel it fell on, 25 July, 2000

When one engages in recreational activities requiring the use of a vehicle - whether
it be land, water, or air sports related - there are inherent factors that could result in
liability issues. No one wants to enjoy an activity and then have the pleasure of it
clouded with possible situations that would result in liability claims against their
hard earned savings. This Third Party liability insurance for USUA members can
help relieve the worry of possible claims against the pilot should this type of
situation occur. Additionally, access to airports, flight parks, and flying events
often require liability coverage. Many states require insurance of this nature just to
operate an airplane of any description. Third party liability coverage is also less
expensive than full coverage, and therefore allows the members (insurance
holders) the opportunity to enjoy the thrill of aviation without the worry of liability
concerns or the expense of high-priced insurance.

The people can be only eligible who are a registered, certificated or licensed pilot
are eligible. Sport Pilot Students who are endorsed to solo are also eligible. Pilot
registration can be with any recognized organization.