Ensuring adequate insurance cover for aircraft

Commissioner for Insurance and Chief Executive Officer of the National Insurance Commission, Mr. Fola Daniel

Following the recent crash of Dana aircraft, which resulted in the death of 153 persons, NIKE POPOOLA writes on the role of different insurance covers meant to protect air travellers and third parties.
 Ever the years, the foreign insurance and reinsurance firms have continued to be the major players in the insurance of aircraft in Nigeria.
 The aviation insurance is a juicy business area, which is domiciled in dollars. However, it can be very costly to the underwriters, most especially in the event of a major loss because it is always accompanied by huge claims.

In the absence of plane crashes, insurance of aircraft could be very lucrative. It is one of the major areas of capital flight in the country. This is because the level of involvement of local underwriters in the business is still very low.

Unfortunately, each time any plane had dropped, it had always been trailed by controversies because these underwriters and foreign insurers usually delayed the payment of claims or under paid the relatives of the victims.

Local underwriters had always blamed this on the fact that they only took a minimal part of the risk, while the foreign reinsurers took the major portion.

Insurance of aircraft consist of three major aspects, which include the passengers’ liability, the third party liability and the insurance of the haul.

The Managing Director, Anchor Insurance Company Limited, Mr. Ademayowa Adeduro noted that it was mandatory that an airline should be properly insured before it could be given the license to fly.

According to him, the passengers liability cover compensation should be paid to those who are in the plane if it crashes, while the third party liability covers damages that may be done to the lives and properties of those on ground, if the plane should crash on them.

He also noted that it was necessary to insure the haul, which is the aircraft itself.

Adeduro, however, expressed worry that most times, when such huge losses occured, it was usually discovered that the underwriters did not charge appropriate premium to do the business.

He noted that because of the nature of the risk and the huge capacity required to do the business, there were some pool of funds into which insurers had been contributing into, to enhance the capacity to do such business.

He said, “There is the African Aviation Ppool, which is under the management of Africa Reinsurance, and that combines all the risks of African countries.”

The insurer noted that generally, the claims profile in Africa had not been encouraging because of several cases of plane crashes which the region had recorded.

These incessant mishaps, he noted, had made getting an aviation cover very expensive because local underwriters lacked sufficient capacity to underwrite a larger proportion of the risk.

The foreign underwriters, who are the major insurers, he added, had continued to charge outrageous rates in order cover the risks.

He said, “There is poor maintenance of the aircraft and infrastructure. All these have made aviation insurance very expensive. The foreign reinsurers charge high, and penalise us for the poor risks that we are introducing.”

Consultant, National Insurance Commission, Mr. Yemi Soladoye, observed that all over the world, 90 per cent of plane crashes occurred as a result of human error.

An aviation accident, he noted, could also be caused by bad weather. Expressing his disappointment, he said that just when there was high anticipation for no mishap in the aviation industry in the last 10 years, unfortunately, the recent crash of the DANA airline was a bad loss.

Soladoye said, “In general, in the past six years, we have had a record that compares favourably well with what happens in the developed world. Unlike years before 2006. I think there has been a lot of improvement in our air travel.”

The former President, Institute of Loss Adjusters of Nigeria, Mr. Darlington Mgbojikwe, said that in the country, a larger percentage of the aviation risk was usually insured abroad.

He added that planes were not allowed or given the license to fly without proper insurance cover. The passengers in the plane, he noted, were covered under insurance policy.

He said, “A comprehensive cover for the passengers and third party is mandatory. However, in the aspect of the insurance of the aircraft, the operator may decide to have higher cover if he has more aircraft and exposure, but if it is smaller, he may decide to have smaller cover.”

The loss adjuster noted that the people whose properties were damaged when the plane crashed would also be compensated to the minimum amount of insurance stipulated by the regulator.

Explaining the insurance of the aircraft, he said that it depended on the value that the operator placed on it.

Some operators, he said, might not want to pay much premium on their aircraft, depending on the size, number of aircraft and the coverage.

While there is no fixed amount to be paid to the third party, he said such covers were usually regulated.

He said, “The regulator may say that the minimum you may cover for third party is $10m. The operator may decide to go for a higher rate depending on the kind of exposure and number of aircraft. If you have more aircraft, you have wider coverage and vice versa.”