Aviation Insurance: Need for a Consortium

Aviation insurance is one of the products of insurance which though lucrative, is yet to attract the expected volume of business in Nigeria. Unlike other areas which have continued to receive tremendous embrace, only a few insurance companies have dared to show very active involvement. One of the reasons often advanced for this is that it is a highly specialized and costly venture.
 A comprehensive aircraft policy involves insurance cover of the aircraft itself, the cargo they carry and of particular interest; the operators’ liability for any damage done to the third party property as well as injury or death to passengers.
However, while motor vehicle insurance continues to generate the greatest volume of premium to most insurance companies, aviation insurance is still treated as a sacred area where only the lion- hearted dare to tread.
Airline business has grown in Nigeria to an enviable height.  Gone are the days when only the national carrier and one or two others with few aircrafts dominated the scene.  Today, we have so many registered airlines with so many aircraft on their fleet.  Yet, the industry is not attracting the expected volume of business.
Over time, there has been scramble for business in the oil and gas sector without paying a corresponding attention to the aviation sector.  What is responsible for this lack of interest, in spite of the lucrative ness of the sector?
Isaac Omoakia is an insurance consultant with interest in aviation insurance.  He said the reason aviation insurance has not been generating the expected interest could be traced to the high risk involved in the business.
He explained that before taking up an aviation insurance cover, the number of aircraft in the fleet of the airline has to be considered alongside the premium that could be generated from such.  He said aviation insurance is in place but not with the kind of enthusiasm with which other classes of insurance are being pursued.
One reason there may have been this slow pace, he said, is that “Nigerian airline operators usually go for old aircraft whose airworthiness cannot be guaranteed, and    “how would you expect an insurance company to cover such unworthy aircraft especially in a country where until recently operators hardly take out their airplanes for the necessary checks.”
Omoakia added that the number of air crashes that the country has witnessed in the past he said is nightmarish enough to scare away potential insurers.
The result is that because of the high risk involved, any crash would attract huge claims, a situation which would wipe off whatever premiums that such policy may have attracted in the first place.
This, therefore, can be explained from the point of view of some operators who though realize the lucrative ness but are cautious in their moves to cover aviation.  According to Mr. Ladipo Ajayi, managing director of Lasaco Assurance Plc, while commenting at a forum, most of the aircraft in Nigeria are old, stressing that in giving insurance cover, the nature of risk has to be considered.  Aviation insurance is therefore such area where calculated risk has to be taken.
Omoakia called on insurance companies to form a consortium in the aviation insurance as they did with the oil and gas insurance.  He explained that with this, operators would be better empowered to achieve higher retention capacity and bear higher risk.
He said the lack of a consortium in the areas explains why the few insurance companies with aviation cover do so only at the level of smaller aircraft which attract lower risk.  These smaller aircraft like helicopters are not prone to the bigger hazards of passenger aircraft where a mishap could eat-up half of the entire capital base of an insurer and the reinsurance company put together.
While agreeing to his suggestion, Ibidapo Balogun, managing director of Equity Assurance is of the opinion that aviation insurance calls for serious attention.  He said the level of aviation development today makes its necessary for operators to come together as they did in the oil and gas sector, under the local content policy of the Federal government.
Balogun said aviation insurance covers three main sections; the haul, passenger liability and the third party liability.
Further, he said under the haul cover, the plane must be insured against any damage that borders on technical areas.
Noting the bi-literal agreements in aviation, the passenger liability is bounded by international laws which may arise in the course of its flight.  One peculiar area of aviation insurance is that the insured aircraft flies both locally and internationally.  The situation therefore calls for minimum internationally accepted protection for passengers in case of crash resulting in injury and death of passengers.
Under the third party liability, the insurance could cover damage done to other people’s goods.  An example of this could be found in the EAS passenger plane which crashed into a residential area in Kano some years ago.  It goes therefore that because the aircraft over fly the areas populated by people and by extension, property, it becomes highly demanding to cover such areas.
To underscore the value of aviation insurance and why there seems to be a slow development, industry analysts say the minimum standards prescribed by international laws, make it a specialized area which calls for caution.
For instance, going by the international rule, a minimum of $100,000 is placed on the head of each passenger who dies in an air crash.
Omoakia identified this as one area why many insurers may be scared.  He cited many air crashes that we have had in Nigeria and the attendant claims many of which the insurers involved are yet to completely settle. Using the minimum entitlement of $100,000 as a guide, Omoakia explained that the Nigeria insurance industry needs to do something to be able to remain competent in the sector.
Between 2002 till early part of this year, the aviation industry has been plagued by many crashes, occasioning death and wanton destruction of properties.  For instance in 2002, 148 people perished in the EAS air crash.  96 lives were also wasted in the ADC crash in 2006.In 2005, 106 people died in a Sosoliso air crash while another 117 people were skilled in 2005 in the Bellview air disaster.  Many lives have also been wasted in various military air mishaps such as the infamous 1992 disaster involving 158 young military officers. There was another ADC crash that consumed the lives of 142 people within same period. Stakeholders therefore are of the view that for the industry to be vibrant enough to cover higher risk in the aviation insurance, a consortium is needed as was done in the oil and gas sector, under the local content policy of the Federal Government.