‘Underwriting probably owes more to art than science and the final rate charged depends upon the underwriter’s judgement in respect of a number of ‘soft’ factors’ (Hayes et al, 2009).
In general, any efforts to reduce risk have been viewed in a positive way by underwriters and have resulted in reductions in operator insurance premiums. There are many factors which can affect the price that an airline pays for insurance. There are factors which are inside the airline’s control (such as operational risk management and claims), and others (such as market factors) which are completely outside the airline’s control - but which can have a major impact on the cost of insurance.
Factors that can impact insurance rates (Hayes, 2009) include:
- Insurance market factors
- Factors applicable to the class as a whole; and
- Factors specific to the risk (Operator) itself
- Specific claims experience, Specific exposure profile (size, nature, complexity and risk of operations), and ‘Technical factors’ such as crew training, maintenance, equipment, safety culture (safety management) and financial health.
There is increasing focus on risk factors specific to the operator and how they are managed to ensure safe operations and differentiation to competitors in the market. Aircraft technology and system improvements continue to make significant contributions to aviation safety in terms of aircraft design and in their operation they are factors considered as part of the insurance risk process. However, in the last 15 years, the aviation community has been focussed on Safety Management Systems (SMS) as the primary means of assuring aviation safety. SMS is all about understanding the risk exposure of an operation and facilitating risk based decision-making throughout the organisation. The International Civil Aviation Organisation (ICAO) published its aviation safety standards in 2006, requiring member states to establish SMS and this has since been enshrined in aviation regulations for commercial certificate holders throughout the aviation industry.
Gallagher and Sirius Aviation are now proud to introduce the Insurance Aviation Safety Tool (ISAT). This model facilitates the risk estimation and evaluation process as it applies to the operator’s risk ‘exposure profile of its operations’. In a hardening insurance market, this tool provides a new capability to review and present to the market the client operational risk and safety performance. Developed over a 12-month period, ISAT measures the effectiveness and performance of an operator's Safety Management System and is designed to aid in presenting an unbiased view of operational and safety performance during the insurance renewal process. A key assumption of the ISAT tool is that aviation operators follow the guiding principles of the International Civil Aviation Organisation (ICAO) on safety standards and recommended practices for the implementation and functioning of SMS to improve safety outcomes and continuously monitor risks in aviation businesses. It is expected that SMS regulations will eventually be mandated for other certificate holders such as Air taxi and Flying Training Schools.
What is ISAT?
The ISAT model is based on reviewing what an operator ‘says’ it does; the ‘governance processes’ they have in place, what safety and operational information is gathered from different sources, and how the operator measures safety performance to support risk informed governance.
ISAT is a 6-tier structured framework of Key Performance Questions (KPQs), Targets (KPTs) and Key Performance Indicators (KPIs) (proactive and reactive indicators) to provide a holistic overview of the effectiveness - and performance - of an organisation’s Safety Management System and its function in supporting management risk based decision-making. Within the organisational governance architecture, safety KPQs, KPIs and KPTs are used to ensure goals and objectives are met, monitor and track continuous improvement, monitor safety performance and identify areas of inadequate performance.
In the environment today, operators will report via presentations which will present the best possible overview of their operations and safety programme. This tool is designed to allow a more holistic assessment of the ‘state of operations’ and risk profile at the time of renewal/placing.
ISAT Process – How does it work?
The process consists of a business risk profile and safety governance/performance review using existing organisational operational documentation, scheduled operations and examples of safety performance. All information can typically be obtained from existing data already held by the operator with minimal work/ input required from safety/operational managers. The ISAT score will be validated against the size, nature and complexity of the operator's business model.
The ISAT Safety Performance Assessment evaluates an operator’s approach to safety, calibrated against the size, nature, and complexity of the operator’s business model:
- Risk Control Strategies
- Safety Objectives and Targets
- Safety Action Plans and the Effectiveness
- Resilience of the SMS as a Management System.
ISAT will generate a comprehensive report, showing the overall assessment scoring and confidence banding and highlighting areas of good performance and of recommended focus within six defined tiers. The data allows for a holistic overview of operator safety capability and performance against operating model risk.
ISAT Client Benefits
ISAT functions as an advisory tool during the renewal process to represent and demonstrate the client’s overall risk management capability and safety performance to the underwriters.
- ISAT facilitates clients in linking their developing safety program to their initial and renewal premiums and benefits from their safety capability - not just their safety performance.
- The ISAT process facilitates an open and long term relationship between underwriters and operators based on risk performance, and transparency and safety initiatives.
- ISAT allows operators to differentiate themselves from their competitors based on risk governance and performance.
- ISAT facilitates a transparent data-driven approach to support clarity of risk exposure to be underwritten and allow evidence-based differentiation between clients for underwriters and brokers.
For more information contact Sirius Aviation.
Conditions & Limitations
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note we have relied on information sourced from third parties and we make no claims as to the completeness or accuracy of the information contained herein. It reflects our understanding as at 29 September 2022, but you will recognise that matters concerning COVID-19 are fast changing across the world. You should not act upon information in this bulletin nor determine not to act, without first seeking specific legal and/or specialist advice. Our advice to our clients is as an insurance broker and is provided subject to specific terms and conditions, the terms of which take precedence over any representations in this document. No third party to whom this is passed can rely on it. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to fullest extent permitted by law. Should you require advice about your specific insurance arrangements or specific claim circumstances, please get in touch with your usual contact at Gallagher Aerospace.