Return to the Skies: 4 Aviation Risk Areas to Review as We Return to Pre-Pandemic Flight Levels

By: Ernest DeSpain | January 23, 2022

Ernest DeSpain is the Senior Vice President for U.S. Insurance Aviation at Sompo International. He can be reached at [email protected].

The pandemic may not yet be fully behind us, but the aviation industry is getting closer to pre-pandemic rates with every month that passes.

General aviation was back to operating at 80-90% capacity as of June of 2021, with personal and charter flights at or over 90%. The airline and tourism segments remain a bit further behind, with tourism still struggling below a 50-60% rate of return, but even these segments have been on an upswing.

Flight activity was increasing on a weekly basis prior to the arrival of the Omicron variant. Though the industry may temporarily see challenges as new or additional restrictions may be mandated in the short term, it is safe to assume that flight activity will only continue to rise as the current spike subsides.

This is clearly positive news.

But as consumer confidence grows and people begin traveling more, there are several unique risk management challenges that may arise. Here’s a list of factors our aviation underwriters are watching closely as their clients return to the skies.

1) A Question of Pilot Proficiency

The biggest risk currently facing the aviation industry is a lack of pilot proficiency.

In the last several months alone, there have been 128 self-reported incidents recorded. Fortunately, none of these resulted in accident or violation, but in all cases, the pilots reporting errors indicated that they did not feel proficient.

Major incidents reported by the FAA include a Boeing 737 attempting to take off with one engine after the pilot failed to start the second engine, a flight that took off and went the wrong direction, and a pilot that failed to put down landing gear when bringing a Boeing 737 in for landing.

To address this gap in pilot proficiency, it is essential to go back and do recurrent training.

Simulators are excellent tools, but nothing replaces real life experience; pilots simply must log the miles in the air to re-develop the muscle memory to respond appropriately when issues occur during flight.

From a risk management point of view, airlines are advised to be thoughtful about placing crews, pairing a pilot who is current with recurrent training with one just coming back. It’s instant reactions that matter the most in aviation, and it will take time to build back muscle memory for pilots who have been furloughed for 7-18 months.

Because pilot training is done in close quarters (less than 6 feet apart in a cockpit/simulator), we are seeing an increase in requests to extend the insurance-imposed training requirement intervals.

Individual pilots who are concerned with COVID are looking to avoid those environments that could potentially expose them. These requests should be carefully weighed; while the seriousness of the effects of COVID are real, so are the dangers of the lack of proficiency in aviation.

2) Increased Aircraft Maintenance Concerns

Just as pilots need to get back up to speed, so do the aircraft they operate.

During the pandemic, many airlines put a portion of their fleets into long-term storage. As they now look to bring these aircraft back into service, it’s important to consider whether these planes are ready and capable of operating as frequently as they had previously done.

There’s no precedence for issues that could arise without the constant maintenance that was a part of normal processing pre-pandemic.

Given these unknowns, it is essential to drive home to both pilots and maintenance crews a need for constant vigilance.

When following the protocol for bringing aircraft back from long term storage, employees must not be complacent in their jobs. Bearing the unusual circumstances of this transition in mind, the entire industry needs to be alert to issues, both anticipated and unanticipated.

3) Fixed-Base Operators Face Staffing and Training Challenges

The airfields where aircraft are parked, fueled and maintained, known as Fixed-Base Operators (FBOs), are also challenged by current circumstances.

Increased travel has led to the presence of more aircraft on these airfields, which may not be prepared to meet the needs. Staffing issues, including difficulties with hiring and training challenges, have also led to an uptick in damages.

A recent fueling incident, in which a newer employee placed fuel into the wrong aircraft and this improper fueling led to a crash, is just one such example.

FBOs can go from five aircraft on ramp to 25 during the busy travel season, and with the value of these crafts ranging from $1 million to $75 million, mistakes can be costly.

Again, vigilance is key. Best practices for these facilities include using multiple wing walkers when moving aircraft to avoid ground collision and implementing a recurring training program for new and returning employees alike. There are training videos and other resources available to facilitate employee education and reinforce a culture of safety.

4) Considerations for Aviation Customers

Many corporations pulled back employee travel coverage during the pandemic, and as employees return to travel, travel policies may need to be updated.

From coverage for non-owned aircraft to policies for the use of personal aircraft, canceled policies may need to be reinstated and coverage needs reassessed.

This is a good time for HR to update your company’s risk management view of aviation exposure, looking to see what was dropped, what has changed, and what may be necessary going forward.

As passengers, employees resuming business travel should be reminded they also have a role to play. Pilots and other airline workers are already in a stressful situation for reasons detailed above, and passengers should be reducing, rather than contributing to, that stress.

Have vaccinations completed and documentation available, wear masks and distance as mandated, and practice patience. There have been too many incidents at airports with unruly passengers of late, and this distracts pilots and creates undue stress for all involved.

Proactively Mitigating the Risks Is Key

Even as things start to look a bit more normal, the aviation industry realistically faces several years of challenges before we completely cycle out of this pandemic period.

A continuing increase in travel until we reach pre-COVID capacity will bring an ongoing need for frequent recurrent training and revisiting of policies. As new employees take time to get up to speed, things will get better, but full proficiency will take a while to catch up and cycle through.

From an underwriting perspective, carriers will be looking at pilot proficiency and requiring training as needed to make sure they are in a safer spot, but more may be requested, both in terms of general proficiency and to address newer concerns such as de-escalation training.

In terms of the aircraft themselves, demonstrated airworthiness and a record of maintenance will be essential. And on airfields, training and safety best practices are more important now than ever.

Ultimately, when it comes to aviation risk management, the human factor is the key. From pilots to workers to passengers, we all have a role to play in ensuring a safe passage back to normal for the aviation industry. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.