Yaw Otu Mankata Nyampong

The Insurance of Aviation Risks by the Conventional Insurance Markets

This chapter provides an overview of the concept of insurance as applied to all forms of human endeavor, especially air transportation. It discusses the concepts of direct insurance, reinsurance and retrocession, and the various legal principles that, to date, have shaped the evolution of the insurance industry in general, and the aviation insurance market in particular. It also defines and sets out the scope of aviation insurance and the types of risks typically covered under this branch of insurance. Further, this chapter explains the inner workings of the insurance industry, particularly how risks are placed with, and rated by, insurers; how insurance companies (i.e., direct underwriters, reinsurers and retrocessionaires) assess risk and liability exposure, and set premiums; and, the role of the various actors in the market (e.g. brokers, direct insurers, reinsurers and retrocessionaires). The object of this chapter is not to provide a detailed treatise on insurance and aviation insurance, for such an exercise would be beyond the scope of this thesis. Rather, the overview contained in this chapter is intended to provide an insight into the complexities of the law governing insurance in general and aviation insurance in particular in order to place the subject matter of this thesis—aviation war risk insurance—in its proper context.

Catastrophic Risks and Reflexes: Some Theoretical Perspectives on the Use of Insurance as a Risk Management Tool for Large Catastrophic Risks

This chapter investigates the economic and behavioural reasons underlying the reactions of extreme event insurance markets such as the aviation war risk insurance market following the occurrence of an extreme insured event. Two broad areas of legal scholarship are conscripted to provide a theoretical basis for this investigation: the traditional law and economics movement on the one hand; and, the behavioural law and economics movement on the other. Both schools of thought involve economic analysis of law, a concept which has been used both in an effort to explain the legal system as it is (i.e., positive or descriptive analysis) and also to recommend changes that might improve it (i.e., normative or prescriptive analysis). The difference between the two schools lies only in the nature and scope of the underlying assumptions which drive their respective analyses and conclusions.

The Insurance of Aviation War and Terrorism Risks by Specialist War Insurance Markets

This chapter focuses on the manner in which insurance coverage for aviation war and terrorism risks and such other closely related perils (referred to altogether for the sake of convenience as aviation war risks) has been provided and/or excluded by the different insurance markets in the period before and after the fateful events of September 11, 2001. In order to provide a broader perspective of the subject, this chapter begins by tracing the historical development of insurance coverage and/or exclusion of war, terrorism and related risks in the London marine market, and the extent to which the practices of the London marine market have been extended and adapted to, or implemented in, other relevant insurance markets, particularly the aviation market. A survey of the judicial interpretations that have been ascribed to some of the specific perils cumulatively described as war and terrorism risks in aviation then follows. The chapter concludes by establishing a consistent trend of aviation war risk insurance market failure each time an extreme insured event materializes. In support of the foregoing, the chapter particularly focuses on documenting the reactions of the air transport industry, national governments as well as other stakeholders to the most recent war risk insurance market failure: that which occurred in the immediate aftermath of September 11, 2001.

Enhancing the Insurance of Aviation War and Terrorism Risks Through the Use of Alternative Risk Transfer and Risk Financing Mechanisms

This chapter discusses alternative/complementary mechanisms for enhancing the ability of conventional insurance markets to provide sustainable coverage for aviation war and terrorism risks. At the outset, it is important to recall that one of the fundamental reasons why conventional insurance markets withdraw coverage and sharply raise premiums charged for insuring aviation war and terrorism risks following the occurrence of a catastrophic event such as September 11, 2001, is the immense difficulty they experience in raising capital during those periods. As such, the need to find innovative, non-conventional ways of raising capital to back insurance coverage of catastrophic risks has been a subject of much deliberation in the conventional insurance industry over the years, and a number of steps have been taken in that direction. Alternative Risk Transfer (ART) mechanisms are one of the major areas that have been explored.

Findings and Conclusions: Towards Sustainable Insurance of Aviation War and Terrorism Risks

The object of this book has been to explore the central issues underlying the perennial problem of providing the air transport industry with adequate and sustainable insurance coverage for aviation war and terrorism risks. We began by describing the manner in which the conventional insurance industry has been used as the primary risk management tool for addressing the massive economic repercussions of such risks upon the air transport industry. We also made an effort to identify the fundamental reasons why conventional insurance markets covering such large catastrophic risks “fail” in the period immediately following the occurrence of an extreme insured event. We then analyzed various complementary solutions that have been advanced for the purpose of enhancing the ability of the conventional insurance industry to provide coverage for such risks as well as alternative solutions advanced and even implemented as substitutes for conventional insurance coverage. Below, we conclude by setting out some of the major findings and conclusions that were made during this research.

The Insurability of Aviation War and Terrorism Risks Under ICAO’s Unlawful Interference Convention of 2009

In the aftermath of the events of September 11, 2001, the Council of the International Civil Aviation Organization (ICAO) established a Special Group on Aviation War Risk Insurance (SGWI). The Special Group was tasked to review the problem of aviation war risk insurance in light of the then prevailing situation, and to “develop recommendations for coordinated and appropriate assistance mechanisms for airline operators and other affected parties to be operated if and when necessary to the extent that the conventional insurance markets were unable to provide sufficient war risk coverage”. As a short term solution, the SGWI recommended the establishment of a captive insurance organization that would provide aviation war risk coverage to operators in the global air transport industry, with multilateral government support. ICAO’s attempt to implement this recommendation resulted in the rather unsuccessful Globaltime scheme discussed in the immediately preceding chapter.

Governmental Involvement in the Insurance of Aviation War and Terrorism Risks

At various points throughout this book, the case has been strongly made that States and their governments quite clearly have, at the very minimum, a moral obligation to provide insurance coverage or other suitable financial equivalent to the air transport industry against aviation war and terrorism risks (at least in the upper echelons where these risks are largely considered to be uninsurable by conventional means). Although these State obligations may not be legally binding and/or enforceable, they are nonetheless underscored by the fact that, in the overwhelming majority of cases, the acts of unlawful interference involving aircraft that underlie aviation war and terrorism risks are directed primarily at States, their peoples, values, governments and other institutions. As such, it seems highly inappropriate to even characterize such risks as forming part of the core risks which the air transport operators must necessarfily address in the course of their routine operations. Air transport operators are victims of such catastrophic risks in much the same way as third-party victims.

International regulation of emerging modes of space transportation

Abstract by B. Goswami: “With the advent of scientific advancements, space transportation is becoming more feasible and sub-orbital – orbital space flights are becoming a reality. This chapter aims at identifying means and methods that have evolved over the time having potential for transportation in astonishing shorter period of time, this, would radically change the way we see transportation between destinations on earth, but also make space tourism and transportation possible in a way we observe civil aviation today. With that backdrop, the legal regime to regulate such activity is largely inadequate, as space treaties today have become obsolete compared to the growth in methods of explorations and use of space. Legal regime for international civil aviation has been quite successful in its domain, applicability of the same is recommendable with possible adaptations for specificities of space transportation while maintaining responsibility and liability regime vested in the international space law. Analysis and arguments to that effect have been provided in this chapter.”