Aviation insurance Essays

Aviation insurance Essays Aviation insurance Essay Aviation insurance Essay Words fall short to express my deep sense of gratitude towards them all, who have imparted their valuable time, energy and intellect towards the beautification of my project. I express my sincere gratitude to our principal our coordinator for their continuous support and encouragement. I extend my sincere gratitude to PROOF. PROHIBIT JITTERS my guide for guiding me throughout the project and for helping me whenever required. I also thank my collage library for also thank My God, My parents and My friends for their contribution towards the project. Objective of the project This project has been undertaken with following objectives in mind: To understand the Insurance Sector in India, its nature functioning. To understand the concept of Aviation Insurance. To comprehend the impacts of the new norms on the functioning of the Insurance sector in India. To understand how these norms are put to practice. This involves understanding of the coalition of input data, the process of data sorting, computing according to the norms, assessing different stress scenarios and the final output of such computations. It also involves close observation of the problems faced in implementation. To draw a parallel of this situation to the Insurance industry as whole. RESEARCH METHODOLOGY Research always starts with a question or a problem. Its purpose is to question through the application of the scientific method. It is a systematic and intensive study directed towards a more complete knowledge of the subject studied. There are two types of data collection method use in my project report. Primary data For my project, I decided on primary data collection method for observing Aviation Insurance Company. For this information I visited to the Reliance General Insurance. Asked the questions to sales manager about the aviation insurance. Secondary data I decided on Secondary data collection method was used by referring to various websites, books, magazines, Journals and daily newspapers for collecting information regarding project under study. Executive Summary Aviation Insurance was first introduced in the early years of the 20th Century. The first aviation insurance policy was written by Loads of London in 1911. The company at an air meet caused losses on many of those first policies. Insurance is one of the most popular in business today since they characterized the new economy acceptance of country boundaries. The purpose of these study the valuation process approaches in aviation by analyzing the insurance corporation case base upon the valuation this report will identify the why aviation insurance is needed. This report the Indian Insurance sector, History of insurance in India, History of Aviation Insurance, products features of Aviation Insurance, Effects Of 9/1 1 Attack On Aviation Insurance INDEX SIR. NO CHAPTER History Of Insurance 9_15 2. Origin Development Of Insurance 16-21 3. History Of Aviation Insurance 22-27 4. Products Of Aviation Insurance 28-37 5. Future of aviation insurance 38-49 6. Case Study 50-58 7. Conclusion Bibliography Aviation Insurance CHAPTER 1 HISTORY OF INSURANCE 1. 1 Introduction Humans have always sought security. This quest for security was an important motivating force in the earliest formations of families, tribes, and other groups. The groups have been the primary source of both emotional and physical security since the beginning of humankind. Humans today continue their quest o achieve security and reduce uncertainty. We still rely on groups for financial stability. With industrialization our physical and economic security has diminished. Mankind is exposed to many serious hazards, which cause stoppage of income. The biggest worry any human being has is the economic worry. He is always thinking of tomorrow and the days to come and he will be planning to meet the demands of his family, his business and that of his own needs. The economic worries may arise due to stoppage of income. Our income dependent, wealth- acquiring lifestyle renders us and our families more vulnerable to environmental and social changes over which we have no control. There may be accidents, sickness disability, or due to premature death of the readiness. It is impossible to prevent such calamities. But it is always possible to provide against the loss of income that may result out of such these perils. Risk is defined as uncertainty of financial loss. If the event were certain to happen, then there be no loss if the event were certain not to happen, then also there is no loss. It is the uncertainty about the time of loss that worries the mankind. Insurance in India The insurance sector in India has come a full circle from being an open competitive market to nationalization and back to a liberalized market again. Tracing the developments in the Indian insurance sector reveals the 360 degree turn witnessed over a period of almost two centuries. 1. 2 An Overview of Insurance Industry Insurance has a long history in India. Life Insurance in its current form was introduced in 1818 when Oriental Life Insurance Company began its operations in Triton Insurance company set up its base in Kola. History of Insurance in India can be broadly bifurcated into three areas: a) Pre Nationalization b) Nationalization and c) Post Nationalization. Life Insurance was the first to nationalize in 1956. Life Insurance Corporation of India was formed by consolidating the operations of various insurance companies. General Insurance followed suit and was nationalized in 1973. General Insurance Corporation of India was set up as the controlling body with New India, United India, National and Oriental as its subsidiaries. The process of opening up the insurance sector was initiated against the background of Economic Reform process which commenced from 1991. For this purpose Malory Committee was formed during this year who submitted their report in 1994 and Insurance Regulatory Development Act (ERDA) was passed in 1999. Resultantly Indian Insurance was opened for private impasses and Private Insurance Company effectively started operations from 2001. 1. 3 Global Standards While the world is eyeing India for growth and expansion, Indian companies are becoming increasingly world class. Take the case of LICK, which has set its sight on becoming a major global player following an Rests-core investment from the Indian government. The company now operates in Mauritius, Fiji, the I-J, Sir Lankan, and Nepal and will soon start operations in Saudi Arabia. It also plans to venture into the African and Asia-Pacific regions in 2006. The year 2005 was a testing phase for the mineral insurance industry with a series of catastrophes hitting the Indian sub- continent. However, with robust reinsurance programmers in place, insurers have successfully managed to tide over the crisis without any adverse impact on their balance sheets. With life insurance premiums being Just 2. 5% of GAP and general insurance premiums being 0. 65% of GAP, the opportunities in the Indian market place is immense. The next five years will be challenging but those that can build scale and market share will survive and prosper. 1. REGULATORY ACTS A number of acts govern the insurance sector The Insurance Act, 1938 The Insurance Act, 1938 was the first legislation governing all forms of insurance to provide strict state control over insurance business. General Insurance Business (Nationalization) Act, 1972 The General Insurance Business (Nationalization) Act 1972 was enacted to nationalize the 100 odd general insurance companies and subsequent ly merging them into four companies. All the companies were amalgamated into National Insurance, New India Assurance, Oriental Insurance, and United India Insurance. Insurance Regulatory and Development Authority Act, 1999 Till 1999, there were not any private insurance companies in Indian insurance sector. The Gobo. Of India then introduced the Insurance Regulatory and Development Authority Act in 1999, thereby De-regulating the insurance sector and allowing and capped at 26% holding in the Indian insurance companies. 1. 5 Regulations for Indian Insurers To protect the interests of holder of insurance policy and to regulate, promote and ensure orderly growth of the insurance industry Insurance Regulatory and Development Authority (ERDA) was established. Under the new dispensation Indian insurance companies in private sector were permitted to operate in India with he following conditions: Company is formed and registered under the Companies Act, 1956. The aggregate holdings of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees, do not exceed 26%, paid up equity capital of such Indian insurance company. The Companys sole purpose is to carry on life insurance business or general insurance business or reinsurance business. The minimum paid up equity capital for life or general insurance business is crossers. The minimum paid up equity capital for carrying on reinsurance business has been prescribed as crossers. . 6 Role Functions of ERDA: Section 14 of ERDA Act, 1999 lays down the duties, powers and functions of ERDA. Subject to the provisions of this Act and any other law for the time being in force, the Authority shall have the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business. Without prejudice to the generality of the provisions contained in sub-section (1), the powers and functions of the Authority shall include. Issue to the applicant a certificate of registration, renews, modify, withdraw, suspend or cancel such registration. Protection of the interests of the policy holders in matters concerning assigning of policy, nomination by policy holders, insurable interest, settlement of insurance claim, surrender value of policy and other terms and conditions of contracts of insurance. Specifying requisite qualifications, code of conduct and practical training for intermediary or insurance intermediaries and agents. Specifying the code of conduct for surveyors and loss assessors. Promoting efficiency in the conduct of insurance business. Promoting and regulating professional organizations connected with the insurance and re-insurance business. Levying fees and other charges for carrying out the purposes of this Act. 1. 7 Functions of Insurance The function of insurance is to safeguard against such misfortunes by having contributions of the many pay for the losses of the unfortunate few. This is the essence of insurance- the sharing of losses and, in the process, the substitution of certain, small loss called the premium for an uncertain, large loss. From an economic perspective, insurance is a financial intermediation function by which individuals exposed to a specified contingency each contribute to a pool from which overfed events suffered by participating individuals are paid. Insurance then is a is an agreement, the insurance policy or insurance contract, by which one party, the policy owner, pays a stipulated consideration called the premium to the other party called the insurer, in return for which the insurer agrees to pay a defined amount of provide a defined service if a covered event occurs during the policy term. The person whose life, health or property is the object of the insurance policy is referred to as the insured. Insurance provides certainty of payment of sum assured at the happening of the event. Since no one can predict the happening of the event in advance, it is not possible to compensate against the loss There is an uncertainty about the time of the event happening. We will not be also sure about the quantum of loss. Provides Assistance to Business Large capital investments on buildings and machinery can be protected against loss by Insurance. The cost of Insurance will be very small compared to the total loss. Provides financial stability to commerce and industry When material damage takes place due to peril, there will be stoppage in production resulting in reduction in profit. Loss of profit Insurance can take care of the loss in net profits in addition to loss of machinery. Insurance serves as a basis of credit Industry and commerce approach banks and financial institutions for financial assistance to develop their business. A collateral security may be necessary to secure against the finance advanced. Insurance policies can provide against such advances. Insurance plays a role in reduction of losses. Insurance companies render advice as to how losses can be minimized by using various safety measures because of their experience. Insurance provides fund for investment The Insurer will have huge funds collected from Insured by way of premiums. These funds are not kept idle, but invested in nation building activities. Insurance earns foreign exchange Indian Insurance companies have branches in different countries, where large volume of business is transacted. This will fetch huge amount in foreign currency. 1. Nature of Insurance Sharing Of Risk Insurance is a social devise to share the financial loss, which may befall individuals due to many events. Whereas it is not possible to share deaths, accidents or sickness, it is always possible to share the economic losses, which come out of Hess events. All persons who are exposed to similar risks come together and share the loss. Co-operat ive Endeavourer In every type of Insurance, large number of persons are brought together to share the loss. They have a common goal biz. , to plan the economic future. Such people come together voluntarily or through publicity or through soliciting. It is the Insurer who compensates the loss of few from the contributions received from many. Value of risk The risk or financial loss is measured in terms of money before insuring. This is done by means of past experience of the Insurer. This will enable him to collect the cost of Insurance in adequate measure. Payment at contingency insured. It may be premature death or end of the term in Life Insurance. In non-life, it may be the happening of the event. Amount of payment In Life Insurance the amount is fixed at the beginning of the contract and full amount is paid at death or end of term. But in other types of Insurance the amount of loss only is paid. CHAPTER 2 Origin and Development of Insurance 2. 1 Introduction Insurance in the modern form originated in the Mediterranean during 14th century. The earliest references to insurance have been found in Babylonian, he Greeks and the Romans. The use of insurance appeared in the account of North Italian merchant banks who then dominated the international trade in Europe at that time. Marine insurance is the oldest form of insurance followed by life insurance and fire insurance. The patterns that have been used in England followed in other countries also in these kinds of insurance. The origin and growth of Marine Insurance, life Insurance, Fire Insurance and miscellaneous insurance are given below: 1. Marine Insurance The oldest and the earliest records of marine policy relates to a Mediterranean voyage in 1347. In the year 1400, a book written by a merchant of Florence, indicates premium rates charged for the shipments by sea from London to Pisa. Marine Insurance spread from Italy to trading routes in other countries of Europe. Marine Insurance in India There is evidence that marine insurance was practiced in India some three thousand years ago. In earlier days travelers by sea and land were exposed to risk of losing their vessels and merchandise because of piracy on the open seas. Moreland has maintained that the practice of insurance was quite common during the rule of Kafka to Rearrange, but the nature and coverage f insurance in this period is not well known. It was the British, insurers who introduced general insurance in India, in its modern form. The Bruisers opened general insurance in India around the year 1700. The first company, known as the Sun Insurance Office Ltd. Was set up in Calcutta in the year 1710. This followed by several insurance companies of different parts of the world, in the field of marine insurance. In 1972, the government of India nationalized the general insurance business by forming GIG. 2. Life Insurance The early developments of life insurance were closely linked with that of urine insurance. The first insurers of life were the marine insurance underwriters who started issuing life insurance policies on the life of master and crew of the ship, and the merchants. The early insurance contracts took the nature of policies for a short period only. The underwriters issued annuities and pension for a fixed period or for life to provide relief to widows on the death of life of William Gibbons for a period of 12 months. Life Insurance in India The British companies started life insurance business in India, by issuing policies exclusively on the lives of European soldiers and civilians. They sometimes issued policies on the lives of Indians by charging extra. Different insurance companies like Bombay Insurance Company LTD. 1793) and Oriental Life Assurance Company (1818) was formed to issue life assurance policies in India. Gradually, the first Indian Company named as Bombay Mutual Life Insurance Society Ltd. Was formed in DCE. 1870. By 1971, the total numbers of companies working in India were 15, out of which 7 were Indian and the remaining were British companies. After several changes have been made for the period from 1930 to 1938, the Government of India passed Insurance Act, 1938. The act still applies to all kinds of insurance business by instituting necessary amendments from time to time. . Fire Insurance Fire insurance has its origin in Germany where it was introduced in municipalities for providing compensation to owners of the property, in return for an annual contribution, based on the rent of those premises. The fire insurance in its present form started after the most disastrous fire in human history known as the Great Fire in London, which had destroyed several buildings. It drew the attention of the public and the first fire insurance commercially transacted in 1667. The Industrial Revolution (1720-1850) gave much impetus to fire insurance. The Nineteenth century marked the development of fire insurance. Fire Insurance in India In India, fire insurance was started during the British regime. The oldest of these companies include the Sun Insurance Office, Calcutta (1710), London Assurance and Royal Exchange Assurance (1720), Phoenix Assurance Company (1782), etc. 4. Miscellaneous Insurance Due to the increasing demands of the time, different forms of insurance have been developed. Industrial Revolution of 19th century had facilitated the placement of accidental insurance, theft and didactic, fidelity insurance, etc. In 20th century, many types of social insurance started operating, biz. , unemployment insurance, crop insurance, cattle insurance, etc. This way the business of insurance developed simultaneously with human and social development. Today, the use of computers in the field of insurance is frequently increasing. Insurance becomes an inseparable part of human development. Miscellaneous insurance are of many types like: Health Insurance All-risks Insurance Consequential Loss Insurance General Public Liability Insurance Burglary Insurance Golf Insurance Money Insurance Fidelity Guarantee Insurance Workmen Compensation Insurance Aviation Insurance which is again a type of miscellaneous insurance, concentrating on each and every aspect of aviation insurance and how it has affected the service sector in recent times. Aviation is the most expensive industry means of transport today. This sector gained importance and created awareness after the 9/1 1 attack on the twin towers of America. After this attack lot of changes took place in the aviation sector and also lot of amendments were made by the law to regulate the aviation insurance contracts. So let us see what these changes are and how aviation insurance forms one of the important part of any countrys insurance sector. 2. 2 Effects of 9/1 1 Attack on Aviation Insurance Following the September 1 1 the attack in the United States, the subject of aviation insurance attracted much attention in the media and elsewhere after aviation insurers worldwide withdrew cover for the specific acts of war and terrorism. As a result, many national governments stepped in to provide temporary insurance cover to ensure that airlines continued flying. Short to medium term solutions At the request of the airline industry the International Civil Aviation Organization established a special group on war risk insurance (SWIG) which, as a short and medium term measure recommended the setting up of an international mechanism funded by insurance premiums to provide no concealable third-party aviation war risk coverage through a non-profit special purpose insurance entity (GLOBAL TIME) with multilateral government backing for the initial years. As a long-term solution the SWIG recommended that an international convention be developed which would limit the third-party liability of he aviation industry for losses arising from war, hijacking and allied perils. Uncertainty ahead? Some four years on from 9/11, most governments have withdrawn guarantees for hull and over to airlines and airport service providers. Notable exceptions include the United States, China and Singapore. The market has now responded with certain insurers offering major airlines limited no concealable third party coverage. Enthusiasm for GLOBAL TIME has waned and a new convention on damage caused to third parties on the ground has yet to be agreed. In Asia at least, the airline industry has experienced a dramatic turnaround in retunes with renewed prosperity. However, as with other classes of catastrophe business, there remain underlying uncertainties in the aviation insurance market that could dramatically change the environment. Convention and statutory limits The Montreal Convention 1999, which governs the liability of airlines in relation to passengers and cargo interests, requires airlines to obtain adequate insurance to cover their liabilities under the Convention. In addition, airlines are required by many states to have minimum insurance limits to cover such liabilities including third party surface damage. After the September 1 1, 2001,