Airline Insurance

[RyanB]

In the wake of the 737 MAX accidents, I’m curious how airlines deal with multi-fatal accidents. The amount of potential litigation from one of these large scale crashes seems great enough to cause significant financial harm to an airline, not to mention the liability they carry on a day to day basis.

 

[alfadog]

 

[PPC1052]

Probably a large self insured retention backed up by several layers of excess coverage programs that are then split up by several entities in the insurance business to share the risk.

 

[Bell206]

I’m curious how airlines deal with multi-fatal accidents.

On the insurance side usually as mentioned above. Even large Part 135 ops are structured the same. However, on the airline side whether they are a party to the Montreal Convention will determine the extent of the airline's liability in the crash.

 

[PPC1052]

What will be kind of interesting (amusing?) to watch is the battle over which venue the lawsuits against Boeing will be filed. All the U.S. aviation plaintiffs' attorneys are salivating to proceed in Illinois state court, now that Boeing's headquarters are in Chicago. That wasn't real smart, in my humble opinion, and these cases will demonstrate in part why. I am sure Boeing will move to dismiss on the basis of forum non conveniens, arguing that the matter should proceed where there accidents occurred. That decision alone will make a huge impact on the payout. Good luck to Boeing with that argument, though. Given that the engineers are in the U.S., and it was an engineering issue that seems to have caused the accident, it will be hard to argue that Illinois is not a convenient forum for this law suit. So, Boeing may well get stuck with Cook County judges applying Illinois tort law. (shudder.)

 

[Clip4]

In the wake of the 737 MAX accidents, I’m curious how airlines deal with multi-fatal accidents. The amount of potential litigation from one of these large scale crashes seems great enough to cause significant financial harm to an airline, not to mention the liability they carry on a day to day basis.

Search Lloyds of London.

 

[PPC1052]

Probably a large self insured retention backed up by several layers of excess coverage programs that are then split up by several entities in the insurance business to share the risk.

Actually, I am thinking about U.S. based carriers. Hard for me to say what overseas insurance products would look like. Maybe Clip4 is right. Perhaps the Indonesian airline has insurance out of China, such as PICC (People's Insurance Company of China.) I honestly don't know if they offer aviation insurance.

 

[3393RP]

The liabilities from wrongful death suits are easily insurable. Consider the magnitude of operations compared to claims. They have been almost non-existent for decades.

Examine SWA's financial results for 1Q 2019 and you'll get an idea of how many flights are made by the majors day after day and the ratio of revenue to a possible payout for an accident. I wouldn't be surprised if the majors have $3-$4 billion per incident coverage, laid off through multiple layers of reinsurance.

First quarter net income and earnings per diluted share of $387 million and $.70, respectively

First quarter record operating revenues of $5.1 billion

Operating margin of 9.8 percent, and net margin of 7.5 percent

Operating cash flow of $1.1 billion, and free cash flow of $945 million

Returned $678 million to Shareholders through share repurchases and dividends

Return on invested capital (ROIC) pre-tax of 23.3 percent for the 12 months ended March 31, 2019, or 18.1 percent on an after-tax basis

 

[PPC1052]

The liabilities from wrongful death suits are easily insurable. Consider the magnitude of operations compared to claims. They have been almost non-existent for decades.

I don't know about that. I recently defended a claim against a major airline with a pre-suit demand of $50,000,000.00 for a delay in getting a lady her bag back to her. I mean, the delay was nearly 24 hours. Just imagine if they had actually lost the bag.

 

[Geosync]

I'm in aviation claims, mostly on the GA side but have been involved on the airline side. In general, American carriers have massive limits, 1 billion and above. These types of policies are "vertical". Which means several insurance companies get together and divvy up the risk. 5 or 6 companies take a share, adding up to 100%. The premium, and the claims payments are divided per the agreement. There is a "lead" insurer, who manages the claims on behalf of the following co-insurers.

In the case of a major loss with multiple fatalities, everyone will be sued, including various OEMs. It gets very complicated. Depending on the cause of the accident the airline can sue an OEM, co-defendants can work out settlements before trial, etc. Insurance pays for legal defense so there will be several firms defending depending on the where the suits are brought, and of course the airline legal counsel is involved.

Then insurers back themselves up with reinsurance, which is insurance for themselves. Which is a who other world.