The Value of Aviation Insurance free essay sample

Air travel has become a necessity or a way of life if you may, for all of us in the society we live in today. It has come to be a commonplace and a convenient means of transportation. When booking a flight though, most of us tend to take for granted that the plane will take off and land at our destination intact. We tend to focus more on the airlines service and comforts offered on board that the great amount of risks involved in each journey.The average passenger on board an aircraft does not understand that airline operators and airports across the world are faced with diverse and challenging risks that can affect the operation of their business. We are mainly concerned as to whether or not our luggage will be waiting for us at arrivals. To name a few of the many factors that can affect an airlines performance there’s aircraft structure, air traffic control, pilot experience, fuel availability, ground crew competence, weather conditions and many more. We will write a custom essay sample on The Value of Aviation Insurance or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The most important factor which, under law, must be met before any aircraft can fly is insurance. Insurance is among the most vital and valuable assets enabling an aircraft to fly. Of course all airlines require financial means, aircraft, experienced staff and fuel, but without insurance no aircraft will ever take off. Aviation Insurance has been around since the early part of the 20th century, with the first aviation insurance policy being underwritten by Lloyds of London in 1911. However the company pulled out of the sector a year later after bad weather and crashes caused severe losses.By 1933 the airline industry was well-established, and it was realized that there needed to be specialized insurance for it. The International Union of Marine Insurance set up an aviation committee and by 1934 eight European insurance companies were finally established, and the International Union of Aviation Insurers was set up (Kranse, 2011). Insurance guarantees a monetary compensation for losses which the insured may incur and it replaces uncertainty of a possible large loss into the certainty of a smaller but fixed annual cost. In the case of aviation, insurance provides a financial guarantee for huge amounts at risk.Todays global fleet consists of some 21,400 western built airlines, representing a hull insured value of approximate 570 billion dollars. On average, aviation insurers grant liability policy limits of around 750 million dollars for every single departure of which there are roughly 31 million annually. The sums potentially at risk amount to hundreds of billions of dollars (Peter, 2004). To be more precise as to why insurance is essential in the overall operation of an aircraft let us take a look at the following example shown in Andreas F. Peter’s publication of â€Å"The true value of aviation insurance†. The hull value of a fully booked aircraft en route from New York to London with approximately 400 passengers and 19 members of crew may amount to about 150 million dollars. In the event of a fatal accident the potential liability for the passenger awards could reach 1. 5 billion dollars and this without taking any third party losses on the ground into consideration. In mentioning this example, the following figures based on the annual losses of airline insurers for 2009 being compared to 2008 will be clearer (Schmitz, 2010).