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Life Assurance
Sunday, July 1, 2007
Pilot error

Speaking at a recent event held by the South African Society of Insurance Medical Underwriters (SASIMU), Colin van der Meulen, CEO of Flex-Air Aviation Assurance addressed a number of issues facing the life insurance market when understanding and rating aviation risk in South Africa.
Current information available from the South African Civil Aviation Authority (CAA) is being used by actuaries and underwriters to determine the current risk associated with being a pilot in this country. “These figures are prepared for use within the aviation industry and are collated into one database,” comments Mr van der Meulen. “This homogeneity of data is not allowing for the accurate assessment of individual pilot risk and is resulting in the varied structuring of risk and life cover at rates that are causing problems in the industry.”
According to Margaret van Zwieten, chief underwriter at RGA Reinsurance Company of SA, the relationship between actuaries and underwriters is integral to the successful interpretation of industry risks, as the nature of the risk is so varied. “RGA has built a long-term relationship with Flex-Air to try and determine the proper structuring of aviation risk in this country,” she says. “Reinsurers are often approached to share in the risk of these products and are unable to participate due to inaccurate assessments being made from the information provided.”
There are various factors that need to be taken into account when underwriting aviation risk, not least of which is that there is greater risk when flying within the general aviation sector of commercial, charter, private and business aviation. “Pilots that fly with registered airlines have less of a loading requirement, but because South African information on aviation accidents and the associated deaths is only published in one database, a proper assessment is difficult to make,” continues Mr van der Meulen. “Insuring aviation risk needs the underwriter to look at the individual and an assessment needs to be made on factors such as the risk profile of the aircraft being flown, the type of mission, number of hours flown and most importantly the experience of the pilot. The interaction between these factors is critical.”
Pilots that receive on-going training also tend to be lower risk as research has shown that skill attrition can be as much as 40% in the two years after pilots receive their licenses. Statistics also show that pilots who have flown between 50 and 500 career hours are the highest risk, and also make up a significant proportion of the industry in SA. However, relative risk places private pilots that have flown 300 hours at the peak of the risk curve. Mr Van der Meulen believes that, in the absence of positive attributes, 500 career hours is the threshold figure from where standard rates could be considered and not the current practice of 100 hours. Standard rates should only be available to those pilots who demonstrate that their aviation activities are commensurate with their level of training and experience.
Notes Van Zwieten, “In terms of underwriting aviation risk it is important to understand the level of complexity involved in making an assessment, which can only be done by having as much information as possible. The validity and credibility of that information is also very important when classifying risk factors. However, these risks are rateable provided an adequate assessment is completed.”

Copyright © Insurance Times and Investments® Vol:20.6 1st July, 2007
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