Underwriter Perspectives of Airport Liability Risks

Understanding the mind and process of an underwriter is key to develop a cost-effective and impactful risk transfer program for airport operations, especially in the world of liability. This article provides insight and awareness to the underwriting process in hopes we can help our public entity clients endure a continuing hardened state of the aviation liability market and strive for a change for the better.

Let us take a journey down history lane in 17th century London where it all began. At this time, London was a bustling trade center of the world, creating an increased demand for ship and cargo insurance. Edward Lloyd’s coffee house was where a lot of the ‘underwriting’ and insurance exchange took place. Each party would assume the risk of a sea voyage and write their name under the risk they were willing to assume. The person underwriting perhaps knew the quality of the vessel, experience of the captain and understood the perils of the destination.  This ‘underwriting’ process gave birth to what we consider Lloyd’s of London today.

As our world today has evolved with the existence of technology, automation and innovation, so has the ‘underwriting’ process, warranting further dissection. As such, we spoke with a leading Underwriter who specializes in aviation liability, to provide insight into the new underwriting process and focus on four key areas:

Overview of the underwriting process

The fundamental responsibilities of an underwriter include: 

• Evaluating information
• Using underwriting software to analyze the risk profile
• Deciding whether or not insurance coverage should be offered
• Calculating costs to provide coverage and establish pricing for the premium
• Developing solutions to reduce the risk of paying future claims
• Analyzing actuarial data

Airport liability underwriters value their partnerships with both the insureds as well their brokers. In fact, most Underwriters believe that having an effective and transparent partnership with the insured yields a more positive outcome for the insured, especially with respect to claims. One of an underwriter’s main objectives is to serve as a resource with respect to claims handling and loss engineering and safety, while also providing the insured with adequate coverage, including coverages that are considered more ancillary.

It may come as a surprise that underwriting is not always about price and premium. Within the last ten years, underwriters have put far more focus on claims data; exposure analysis; operations and plans for any new acquisitions or new aviation-related business plans.  Underwriters are looking for details that would help them forecast what the exposure could be.

What belongs in a submission (what works/what doesn’t)

Because underwriters must assess the insureds’ risk, one of the biggest hurdles underwriters have had to overcome is a lack of accurate information. The accuracy of information provided within the submission process influences how underwriters perceive risk and, ultimately, their decisions. In years past, underwriters have taken a “back-seat” approach, relying solely on what is included in the applications. This process has since changed with the market. While the renewal and new-submission applications ask the questions, the underwriter bears the responsibility to procure the information required to make an educated and accurate assessment of the risk.

As underwriters review submissions, in addition to the applications and information provided by the insured, they internally collaborate with their risk engineers and claims adjusters to discuss any large loss claims and any recommendations to ensure they are capturing the full picture. Hence, while many insureds are under the impression that it is best to provide the requested information and nothing more, it is actually to the insureds’ benefit to provide as much detail as possible in the application process. When insurers have to guesstimate or make a decision without a clear picture of the risk, they are more likely to perceive the risk as higher than it actually is. Hence, underwriters are dependent on both the insured and their broker to provide context and clarification where needed. For example: the underwriter cannot solely depend on the information provided on a loss run including reserves. Instead, they need to consider the types of claims, severity and frequency of claims, concentration of a particular type of claim, and what may be influencing that pattern.