Insurance is an important factor for ground service providers to consider. This is certainly true in the Middle East region where numerous ground handling companies are assisting national carriers, regional airlines and even smaller operators.
Insurance considerations are tightly related to the contractual arrangements between an airline and a ground service provider, these arrangements are commonly established in accordance with the IATA Standard Ground Handling Agreement (SGHA). Among the several aspects considered by the IATA SGHA are provisions made for specific tasks that must be accomplished, in addition to the ways safety risk aspects should be treated.
The risk considerations in the SGHA have to do mostly with physical damage.
“What this wording means in practice is that only direct repair cost is covered. But depending on the individual negotiations, the parties involved can decide on what is included or excluded in case of aircraft ground damage events,” says Ivar Busk, owner of Aviation Care Consulting. “Before 1998, the IATA SGHA did somehow indemnify the ground handler for all responsibility unless it could be proven that an incident had been caused by gross negligence. After 1998, the wording was changed and the ground handler was responsible only for being "negligent." At the same time, a cap was put on the amount to be paid, i.e. $750,000 (USD) for narrow body aircraft and $1 million for wide body aircraft. Any amount above these caps is under the airline’s hull insurance program.”
Ground Handling Risk
Insurers are very much focused on the physical risks in the airside environment.
“This is a high-risk environment with substantial assets in close proximity with each other surrounded by vehicle traffic focused on achieving efficient and quick turnarounds. Aircraft are getting more and more expensive to repair, especially the newer composite structures, not forgetting the downtime cost to the airline,” says Simon Abbott, underwriting executive at Global Aerospace. “A lot of the attritional losses incurred by the ground service providers come from these physical damage claims.”
Another area of concern for insurers, which can lead to substantial settlements, are bodily injury claims on the ramp.
What’s more, insurers of ground service providers (GSPs) are focused on security risks, especially in regard to passenger and baggage handling, according to Abbott.
“The terrorism threat is very much part of our lives and aviation has always been a target area,” he says. “Finally, contractual language can have a massive bearing on the exposure assumed by GSPs and, as insurers, we cannot highlight enough how important it is to utilize the SGHA Article 8 language on liability and indemnity.”
COVID-19’s Effect on Ground Handling Insurance
When it comes to risk in ground handling, it is very much dependent on the tasks to be performed. The riskiest and most expensive task is the towing operation followed by deicing.
“After the outbreak of COVID-19, the amount of ground operations has reduced significantly and consequently the cases involving insurance has been reduced by the same order of magnitude,” says Busk.
The effect of COVID-19 on GSP operations has indeed been unprecedented and devastating.
“Insurers are sympathetic to their clients’ predicament but must also weigh up their own issues. It may come as a surprise, but the aviation insurance business has been loss making for the last six years on the back of many years of premium reductions,” Busk adds. “Performance of the GSP book has been particularly poor by comparison to other sub classes of aviation. In the last two years, insurers have started a long-term process of rising prices to offset these losses. The pandemic in 2020 has not stopped this process.
“To be a viable market for the future, aviation insurers must be able to demonstrate to their capital providers that they can write this business without making a loss.”
Safety Management Improvement Measures
There are safety management improvement measures that the insurance companies regard positively.
“There are several areas where these measures can make a real difference. In a number of instances where a client is seeing a lot of claims in a particular area, such as ramp rash or baggage handling, we can send in consultants to observe and then educate our clients on what areas need improving,” says Abbott. “COVID-19 has seen more focus on the ramp with consultants looking at a much more congested airside and training issues as staff come back to work after a long period of furlough.
“Often GSPs are working with less staff, now putting more pressure on those that remain,” he continues. “Using consultants, it is possible to help with these particular issues. Use of front and back cameras and/or parking sensors on ground service equipment greatly aids the operator, but also helps in litigation or disputes in the event of an incident.”
Busk observes that during the last 10-15 years there have been several initiatives for safety management system (SMS), which have played a positive role and led to safer operations.
“IATA has also put more focus on safe ground operations. We have seen the introduction of the IATA Ground Operations Manual (IGOM) which is meant to ensure a more common standard for various operations instead of having all the airlines with their own individual procedures. But in the end, the insurance premium depends on the loss rate as observed over a number of years, normally a five-year period,” he says.
Another aspect that is important to measure safety is how the handling company is connected to the airline.
“It is often the case that a ground handling company which is a direct part of an airline has a better motivation to safety than a pure ground handling company, which has many ‘customers’ and it can be difficult to satisfy them all,” says Busk. “Also, the competition between several independent ground handling companies can influence the prices and the quality.”
The Future of Ground Handling Insurance
As to the future of ground handling insurance, a prediction can be difficult.
“My estimate is that considerations related to automation and training will have a major impact. In addition, better screening of new employees will probably raise the status of ramp handling personnel,” says Busk.
One particular area in which the industry, as a whole, has been grappling with is that of composite materials. Abbott observes that composites are much more expensive to repair, but also less obvious to the naked eye of any damage to the aircraft having occurred.
“Another important point is the increasing sophistication of terrorist groups infiltrating and targeting aviation. A third point is the rise of Nuclear Verdicts in the US. For example, in aviation we have seen one case settle at over $100 million for bodily injury to an individual at an airport,” he says. “Fourth point to highlight is the increasing automation on the ramp, autonomous tugs, electric taxiing systems on aircraft – to name a few. Aviation insurance will adapt as the demands and requirements of the GSP community changes.”
