Of Aviation Insurance and Passenger Awareness

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Ebere Nwoji reckons that aviation insurance claims often generate controversies due to ignorance on the part of the passengers on the limits of their claims or failure by airline operators to get their insurance policies right

In Nigeria insurance market today, when one talks about taking insurance policy and making claims when the unforeseen happens, one class of business that has so much exposed insurance sector and its operators to public criticism erroneously or constructively is aviation insurance and its associated claims.

This is because, aviation risk attracts much public concern and sympathy because the outcome is so appealing to people’s emotion that they feel like killing the airline operators and their insurers in terms of claims.

But the truth remains that as emotional as any air mishap is, there are both local and international rules that guide aviation insurance contract just like every other contract and these rules cannot be violated in demanding for or paying for damages incurred during the course of air trip.

However, the problem that often arises is that air passengers, neglect reading these aviation insurance rules and regulations written at the back of their passenger tickets and the result is that when the unforeseen happens, argument follows either because the victim or their relatives in case of death are making wrong claims or some mischievous airline operators and their insurers want to take advantage of the victims’ ignorance to short pay their claims.

Apparently, aviation insurance is one of the technical classes of insurance business. It is so technical that insurance managers regard it as a business that requires well experienced, highly technical and thorough breed professionals, who specialise in the business to handle it.

Being part of aviation business which is mainly international in nature, aviation insurance is effected in the international market more than any other branch of insurance.

This is why knowledge of laws governing air transport and aviation insurance in various countries both locally (Nigeria) and internationally is important to keep abreast of changes in this class of business.

People fly both locally and international and therefore the question now is, in the event of loss or death of a passenger, which law will be applicable for purposes of jurisdiction.
Aviation insurance experts noted that after the first world war, there was very rapid advancement in Aeronautical engineering.

According to them, today, the size and type of aircraft in operation is unimaginable. The recent advancement in aircraft manufactured today in terms of number of passengers, load carried and distances covered when compared to those in use 20 years ago, is also unbelievable. That also means that these aircrafts are high valued and therefore value at risk is quite high. Therefore, there is need for an insurer with a lot of financial strength to play in this class of business. Even locally, strict regulations by the insurance regulator are in place for any operator that wants to participate in aviation business.

Here in Nigeria, among all the classes of insurance that are made compulsory for the protection of the third party’s interest, enforcement of aviation third party liability insurance is much more serious than any other of its sort.

The regulators are alive to their duties in this regard while government is much more interested in seeing the law obeyed to the last. This is because of the risky nature of air transport and the high risk associated with air travels.

In Nigeria, after the incidence of two major passenger bound air disasters in 2005, aviation industry regulators became much more critical in accessing insurance status of every aircraft that flies out of Nigerian airports. The situation became tougher since January 1st, 2013, when the National Insurance commission began enforcement of ‘no premium no cover’ policy among insurance underwriters. These have put airline operators in tighter corners insurance wise.

Currently, due to huge premium involved in aviation insurance and the refusal by underwriters to grant cover on credit, airline operators buy their insurance cover monthly instead of annually. This has exposed them to the risk of being grounded by their regulators once there is little mistake or omission in their aviation insurance.

This risk was almost suffered by Arik Air last year when on account of a public holiday that delayed renewal of its insurance by one day after expiration, the airline was stopped from flying and the passengers discharged by the officials of NCCA until NAICOM confirmed that it has put its insurance package in order.
These strict regulations by both NCCA and NAICOM are put in place for security, safety and in the interest of passengers.

Most air accidents claim lives of all the passengers on board including the cabin crew and at the same time cause damages to the ground. Insurance by its nature is a risk bearing mechanism that indemnifies victims of such huge losses which are usually so huge that no airline can bear it alone. Even among the insurers who bear the risk, no insurance firm alone carries any aviation risk. The risks are undertaken by the lead insurer who shares it among some other insurers, tagged co-insurers; each according to its retention capacity while the excess is insured abroad. Both the lead insurer and the co-insurers also reinsure the risk with indigenous and foreign reinsurers. These are done to ensure that in the event of risk, claims are contributed by all who participated in the business to ensure that victims are adequately indemnified.

Most times, claims from air crash are of two folds as the insurance companies involved are not only paying for damages incurred by the passengers but also those of ground victims where the accident occurred.

In the past, and even at present, where airlines fail to get their insurance policies right, they often cash in on the ignorance of the passengers to underpay their relatives because even the victims were ignorant of their insurance rights. This being the case, airline operators and their insurance companies take advantage of the ignorance of the passengers on their legal insurance rights to shirk the claims or poorly compensate the passengers.

Indeed, most of the plane crashes that occurred in Nigeria in recent past, only few of the airline operators and their insurance companies adequate compensated the victims’ relatives.
For instance, aviation insurance experts recently disclosed that relatives of 96 victims of the Sosoliso Airlines crash in 2005 were poorly compensated by the insurance companies concerned.

Commenting on this, an aviation insurance expert,Sunny Adeda, who was also a former president of Chartered Insurance Institute of Nigeria(CIIN) blamed this on the failure by the airline to adequately insure the aircraft.

He also blamed it on the regulator failure to ensure that the airline’s insurance certificate was up to standard.

He however said that the situation has improved with the passage of the Nigerian Civil Aviation Act 2006 into law. The Act empowers airline passengers to boldly ask the operator about its insurance status.

Also the enforcement of no premium no cover insurance law by NAICOM, has to a reasonable extent, helped to compel airline operators to get their insurance policies right.

On its part, the NCCA, after the enactment of the 2006 act, which obviously was facilitated, following the uproar among aviation stakeholders after the two plane crashes in the country within two months in 2005. The regulatory agency, after the air crashes ensured that no aircraft lifts passengers from Nigerian Airports without adequate insurance cover.

Following this directive, no passenger bound plane crash involving such crowd of people has been recorded except the military helicopter, associated airline helicopter and Bristow helicopters that crashed few years back.

As the regulators and airline operators try to put their houses in order regarding adequate regulations and insurance policies to ensure that passengers are adequately covered, the importance of passengers on board aircraft getting adequate information on their rights before embarking on any trip cannot be overemphasised.

Information on passengers’ rights, conditions for travel including insurance cover and the insurance legislation under which the airline insured the aircraft is written at the back of the tickets including passengers’ cargoes and insurance liabilities but passengers hardly take time to read them.
The result is that in the event of air mishap, some claims made by the passengers especially in case of misplaced or delayed luggage arrival are not covered by the contract stated at the back of passengers’ ticket.

On the other hand, some airline operators insure their aircraft abroad in contravention of the local content law. The reason often given by such airlines is that aviation insurance premium in Nigeria is the highest in the world .What such airline does is to pay the claims half hazardly; and oftentimes they go free because NAICOM has no power to compel the foreign insurer to pay adequate claims to the victims’ relatives.

Against this backdrop, it has become necessary for aviation passengers to know their rights before boarding any aircraft. They should also know the various insurance covers the airline operators supposed to put in place before leaving the shores of any country they are operating in.

The basic covers in aviation insurance which every airline operator is supposed to put in place for its passengers are Passenger and Passenger baggage Legal Liability Insurance. This type of cover is effected by an airline to protect itself against any sum or sums, which they would be liable to pay in respect of any accidental bodily injury/Death/Loss of baggage to any person being a passenger and holding a ticket. Another one is Third Party Legal Liability. This is effected by an aircraft operator to indemnify himself against all sums the insured would become legally liable to pay in respect of accidental injury/Death or accidental Property damage to third parties or to the public caused directly by the aircraft or falling of objects there from.

Others are Aviation Cargo, which indemnifies an operator for loss or damage (including delays) to goods shipped by him.
These liabilities were established at various global conventions instituted by international aviation committees for international trip but have been adopted by various countries for their domestic operations some of the liabilities regimes were adopted from agreements at conventions such as Warsaw Convention 1929,the Hague Protocol 1955,Montreal Agreement 1966,Montreal Protocols 1,2,4 1975, IATA Inter Carrier Agreement, Montreal Convention 1999, European Legislation, National Law e.g. NCAA .The purpose of the regime/Convention is for the unification of certain rules of international carriage by Airline operators.

In Nigeria, regulators mainly adopt the Montreal convention 1999 regime for international flights while currently, the NCCA Act 2006, is used as legislation regulating local flights.

Under this, the minimum combined single liability insurance (CSL) for domestic operations is clearly stated by the insurers and their airline clients.
For instance, the NCAA act prescribes for loss of baggage claim at US $20 per kilo. The total weight multiply by US $20 gives the maximum liability for unchecked luggage it is limited to 10kg Maximum liability.
Usually, items of value e.g. cameras, telecoms equipment etc. are valued separately and an All Risk Insurance is taken to cover loss or damages.
Insurers and their aviation clients should educate the public on their insurance rights.