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Risk Defined
• Risk- Probability of an undesirable outcome during a period of uncertainty.
• Risk Management involves 2 areas:– Risk Reduction- The application of good
management techniques by leaving onlyunforeseeable occurrences to be insured.
– Risk Transfer- A business passing on someof the operational risk to another entity- insurance
• *The better the risk reduction the less expensive the risk transfer.
FBO Risk Management
• FBO risk mgmt. is unique because of the blurred lines of distinction between airport & FBO liab.
• 2 reasons for this:– 1. FBO’s often have airport operating duties– 2. Airports often provide same services as
FBO’s
Deep Pocket Theory
• A concept related to FBO liability is the “Deep Pocket theory”- litigants tend to pursue the entity with the most $ regardless of liability
2 Ways to Deal with Risk
• Risk Reduction- Steps taken to reduce the exposure to risk through good operational management.
• Risk Transfer- Absorbing the loss either through insurance or self-insurance.
Examples of Risk Reduction
• -Inclement weather plan- ice, hurricane etc.• -Theft/fire deterrents- use checklists- all ops• -bonding employees having access to cash• -Use of outside auditors• -Depositors don’t reconcile bank stmts.• -Require countersignatures on checks• -Ensure money handlers take vacations• -Positive I/D for check writers• -Ensure regs./A.C.’s are followed• -Standardize procedures/require documents
Types of Business Insurance Available- Risk Transfer
• Fire, vandalism, theft, hail, wind• Public Liability• Product Liability• Consequential loss- loss of earnings due to the above.• Employee Fidelity- employee bonds• Fraud• Workman’s compensation• Life Insurance• Plate Glass• Boiler insurance
4 General Categories of Loss
• Loss or damage to property
• Bodily Injury
• Business interruptions
• Death or disability of key executives
Major Insurance Coverages in Aviation
• Aircraft Hull
• Aircraft Liability
• Airport Liability
• Aviation Product Liability
• Underground Tank Coverage
• Hazardous waste
Largest Risk Areas for FBO’s/GA
• Old Aircraft- for our maintenance shop• Homebuilts• Ultralights and other experimentals• General Aviation After-Market Modifications• Primary Flight Instruction• Customer Re-fueling
Also for Manufacturer’s- Product Liability drives up the production cost
• -Product liability claims against Cessna,• Piper, and Beech at one time were twice their
combined net worth• -It is the aviation operation’s greatest Exposure
because awards are unlimited And are based on “failure to provide Due care” which is difficulty to define.
FBO’s Liability Exposure
• 1. Employers liability• 2. Workman’s compensation- Employer Liable
for:– -failure to provide safe working cond.– -failure to hire competent co-workers– -failure to warn employees of dangers
• 3. Automobile liability• 4. Professional liability- “catch all” • 5. Hangar Keeper’s Liability
Purchasing Insurance
• When it comes to property insurance and replacement a manager must try to reduce premiums by selecting the proper coverage:
• -Actual Cash Value• -Replacement value• -Co-insurance- way of predicting income• -Know type of coverage needed
An Example:
• For example: Aircraft Hull Coverage- premiums determined by:
• -Type of Coverage– all risks– all risks not in flight– all risks not in motion
• -Deductible size
Purchasing Insurance Ctn.
• *To select insurance- generally go through an insurance sales broker (many listed in Trade-a-plane or other ads) who will select the proper underwriter (actual coverage provider) and will negotiate the coverage contract
• *Be sure to get several quotes from at least two brokers to use as bargaining chips