Risk, Human Capital & Insurance2gether4safety.org/wp-content/uploads/2013/11/Knechtli-aviation... · Dependence on third-party suppliers 4. Inability to keep up with pace of change/technological

Risk, Human Capital & Insurance

Safety in African Aviation Conference

© 2016 Willis Towers Watson. All rights reserved.

Livingstone, November 2016

Independent │Innovative │Non-profit

Willis Towers Watson

Global advisory, broking and solutions

* Source: Willis Towers Watson Data

Airlines with AFV >US$100m


Transportation Risk Index

5 MegaTrends

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.


WTW Transportation Risk Index

Air Transport Companies’ Top 10 Risks within the 5 MegaTrends

1. Failure of critical IT systems

2. Competition/Anti-trust law scrutiny associated with

M&A activity

3. Dependence on third-party suppliers

4. Inability to keep up with pace of change/technological

advancement

5. Over-dependence on national infrastructure

6. Change in seasonal demand

7. Threat from new and emerging competitors

8. Extreme weather events/natural disasters

9. Increased security threat from cyber and data privacy

breaches

10. Social unrest, involuntary migration & terrorist threats


Geo-Political Instability &

Regulatory Uncertainty



Digital Vulnerability &

Rapid Technological

Advancement


Rapid Technological

Advancement

Changing market

Dynamics & Business

Uncertainty

Changing market

Dynamics & Business

Uncertainty

Talent Management &

Complexities of a Global

Workforce

Talent Management &


Workforce

Complex Operating

Models in an

interconnected world

Complex Operating

Models in an

interconnected world

Ease of risk management Harder

Se

ve

rity

of risk

Top 5 Airline Risks

5

All High Severity and Difficult to Manage

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.

Hig

he

r

Illustrative and not to scale

Extreme weather,

epidemics and armed

conflict

Social unrest,

involuntary migration

and terrorist threats

Dependence on 3rd

party suppliers

Threat from new and

emerging competitors

Inability to keep up

with pace of change

and technological

advancement

Upper quadrant of risk index


WTW Transportation Risk Index

Risks within the Megatrends: Middle East & Africa


45 45

50 50

53 53

59.4 59.4

59.4 59.4

MegaTrends




Rapid Technological

Advancement

Changing market

Dynamics & Business

Uncertainty

Talent Management &


Workforce

Complex Operating Models in

an interconnected world

Rank order determined by combined risk score

(severity of impact x ease of risk management

Top Risks

Social unrest, involuntary

migration & terrorism

Competition/Anti-trust

law scrutiny (M&A

activity)

Protectionist policies &

regulation restricting

open competition

Volatility of interest rates,

currencies, fuel &

commodities impacting

cost model

Epidemics, Armed

Conflict, Extreme weather

events/disasters


2016 Global Talent Management & Rewards Report

Global Workforce Studies: Key Attraction, Retention & Engagement Issues

Cheetah Generation !

ƒEmerging economies

44% of employers report difficulties

attracting employees

The challenges of attracting top talent

remain at levels similar to those reported in

2014

66% report difficulties attracting employees

with critical skills and over 3/4s are

experiencing challenges attracting high-

potential / top-performing employees

41% of organisations report difficulties

keeping employees in general

59% say it’s difficult to keep critical-skill

talent

Study measures the attitudes of a 31,000 global

employee sample capturing the perspective of 2,000+

organisations that collectively employ 21m people

worldwide



Financial Times

Special Report: Monday 21st November



“Making sure you have got the right person

leading the organisation and setting the

values. There’s no reason why you can’t train

people about what the culture entails and

what their role is and try to get everybody to

maintain a sense of vulnerability … to assume

that something might go wrong.”

Keith Blacker, co-author of People Risk Management

“Making sure you have got the right person

leading the organisation and setting the

values. There’s no reason why you can’t train

people about what the culture entails and

what their role is and try to get everybody to

maintain a sense of vulnerability … to assume

that something might go wrong.”

Keith Blacker, co-author of People Risk Management

5 principles to achieve resilience:

• Ability to anticipate problems

• Adequate resources to respond to

changing conditions

• Free flow of information to board level

• Capacity to respond quickly to an incident

• Willingness to learn from experience

Cranfield SoM research for AIRMIC identifies

5 principles to achieve resilience:

• Ability to anticipate problems

• Adequate resources to respond to

changing conditions

• Free flow of information to board level

• Capacity to respond quickly to an incident

• Willingness to learn from experience

Cranfield SoM research for AIRMIC identifies

“When the Workforce is the Weakest Link”


Leaders must understand the psychological

factors that blind people to risks (eg. bias

towards optimism and overconfidence in their

own actions), and recognise that these apply

to themselves too.

Leaders must understand the psychological

factors that blind people to risks (eg. bias

towards optimism and overconfidence in their

own actions), and recognise that these apply

to themselves too.

“I don’t think leaders realise that there are things

they have to do and that only they can do in order

to get people risk properly tackled.”

Anthony Fitzsimmons, chairman of consultancy

Reputability.

“I don’t think leaders realise that there are things

they have to do and that only they can do in order

to get people risk properly tackled.”

Anthony Fitzsimmons, chairman of consultancy

Reputability.

The airline industry is often cited for good practice. Although accidents happen, the industry has

achieved an enviable safety record by encouraging employees to confess to mistakes and allowing

these to be publicised and studied worldwide.

The airline industry is often cited for good practice. Although accidents happen, the industry has

achieved an enviable safety record by encouraging employees to confess to mistakes and allowing

these to be publicised and studied worldwide.


For Sure You Need Insurance

Start with Identifying Risks to Your Business


Employees - Corporate Vision & Safety culture

- Duty of Care & Productivity

- Understanding their Qualities

Employees - Corporate Vision & Safety culture

- Duty of Care & Productivity

- Understanding their Qualities

Assets - Aircraft

- Equipment

- Property

Assets - Aircraft

- Equipment

- Property

Customers - Loyalty

- Revenue opportunities

- Analytics

Customers - Loyalty

- Revenue opportunities

- Analytics

Financials - Brand reputation

- Financial plan risks - Shareholders

- Influence of global events

Financials - Brand reputation

- Financial plan risks - Shareholders

- Influence of global events

Defining How you Enhance

your Business Performance

- Human Capital & Talent

- The ‘Up-side’ of Risk

- Assuring Business Destination

Defining How you Enhance

your Business Performance

- Human Capital & Talent

- The ‘Up-side’ of Risk

- Assuring Business Destination


Insurance Programmes

Partnership with Insurers: Covering your Risk Needs


“Here’s the cover I wish to purchase”

Proven Operational Excellence

Mutual understanding & Need

- Customer & Insurer(s)

Long-term outlook

Same approach:

Airlines

Regional Operators

General Aviation

Airports

Handlers

“We are Advanced in Safety Management, Here is Why?”

Documenting and promoting your operational excellence

Does your insurance claims record support your message?


Risk Management Bursaries

Insurers’ Investment in your Safety through your Insurance Policy

Consultancy

- Safety Management System Assessment

- Safety Culture Assessment

- Ground Operations Risk Control

Training

- Fatigue Risk Management Training

- Human Factors Training

- Just Culture Training

- Safety Leadership Coaching

If you do not have a bursary, ask your broker for one!

The fund size is relative to premium spend

“Can we have US$2,500 to attend the annual Aviassist Conference”



Financiers have no operational interest in the aircraft

Owners are looking are looking for protection of their asset

Lessor requires a full indemnity from the carrier from delivery, supported by

comprehensive insurance throughout the lease term, including:

• Hull and Spares All Risks / Hull War Risks / Comprehensive Liability / Excess

AVN52E / Hull Deductible

• Requires “on-going liability” for two years or until next major overhaul after

Lease termination (residual products liability)

Contractual Risk Management

Insurers have expectations of you


For Willis Towers Watson and Willis Towers Watson client use only.

13

$

Financiers

$

Financiers Airline Airline

Ground Handling (Including Refuelling)

Ground Handling

Burden of insurance responsibility lies with carrier

Standard IATA Ground Handling Agreement

Versions: 1993, 1998, 2003, 2004, 2008

Service provider expects to be indemnified and held harmless by Carrier

(except for their own employees and property or losses arising from their “intent”)

Airline Airline

Carrier

© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only. 14

Standard IATA Agreement AHM 810


Maintenance and Support Contracts

Transferring your Risk - Avoiding Contractors’ Risk


For Willis Towers Watson and Willis Towers Watson client use only.

15

Carrier Maintenance Co

Airline Airline

Warranty Indemnity Hold harmless

Attempt to limit liability to an amount (Price of Contract)

Exception: Gross Negligence or Wilful Misconduct

Variations in indemnity requirements possible depending upon strength of Service

Provider involved

Maintain sufficient products and hangarkeepers liability insurance

providing evidence of coverage and limit only

Insurance

Hull - Waiver of subrogation Liability - Additional insured -Severability of interest - Primary & non contributory - Breach of warranty All: - Notice of cancellation

In Exchange for

2015 IATA Industry Safety Statistics

16

Jet Hull Losses

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Africa CIS Latin America NorthAmerica

Asia Pacific Europe M. East North Asia


Source: IATA, ‘2015 Safety:

Number of accidents per million sectors

There were no Jet Hull Losses with Fatalities for

any region in 2015 (excluding Hull War)

510 fatalities (Germanwings & Metrojet)

Major African Airline Claims 2010-2016

Claims over US$10 million

AIRLINE YEAR AIRCRAFT TYPE FATALITIES

Afriqiyah Airways 2010 A330-202 103

Ethiopian Airlines 2010 B737-800 90

Mauritania Airways 2010 B737-700 0

Egyptair 2011 B777 0

Dana Air 2012 MD-83 163


Linhas Aereas Mocambique 2013 Embraer 190 33

Air Algerie 2014 MD83 116

ASKY Airlines 2015 B737-400 0


Ethiopian Airlines 2016 Bombardier Q400 0

Source: Willis Towers Watson Aerospace

2016 Major Airline Losses

18

Hull & Liability and Hull War


* HULL WAR CLAIM

** CLAIM HAS BEEN PAID 50% FROM THE HULL WAR MARKET AND 50% FROM THE ALL RISKS MARKET, AS PER THE 50/50 CLAUSE

SOURCE: WILLIS TOWERS WATSON DATA: TOTAL COMBINED HULL & LIABILITY LOSSES OVER US$10M.

LOSS DATE OPERATOR TYPE LOCATIONHULL VALUE

US$MFATALITIES

02 February Daallo Airlines* A321-111 Mogadishu, Somalia 14.42 1

04 March Ethiopian Airlines B787 Addis Ababa, Ethiopia 11.36 0

19 March FlyDubai B737-800 Rostov-On-Don Airport, Russia 43.68 62

27 March United Airlines B777 In flight, landed in Alaska 14.02 0

04 April Batik Air (Lion Air) B737-800 Jakarta Halim Airport, Indonesia 15.00 0

04 April TransNusa Airlines ATR42-600 Jakarta Halim Airport, Indonesia 18.25 0

28 April TAME EMB-190 Cuenca, Ecuador 18.50 0

19 May EgyptAir** A320 Over the Mediterranean Sea, near Egypt 21.00 66

06 June UPS MD-11F Seoul-Incheon Airport, South Korea 61.36 0

27 June Singapore Airlines B777 Andaman Sea, Indian Sub-Continent 21.00 0

03 August Emirates B777-300 Dubai International Airport, Dubai, UAE 121.35 0

05 August ASL Hungary B737 Milan-Bergamo Airport, Italy 10.50 0

28 August Asiana Airlines A330 Incheon Airport, South Korea 26.00 0

24 October Ethiopian Airlines Bombardier Q400 Addis Ababa, Ethiopia 17.40 0

28 October American Airlines B 767-300 Chicago O'Hare Airport, USA 41.00 0

28 October Federal Express MD10F Fort Lauderdale international Airport Florida USA 10.50 0

2016 Cumulative Monthly Claims

19

Hull & Liability


0

250

500

750

1,000

1,250

1,500

1,750

US

$ (

Millio

ns)

Jan – Nov Jan – Nov Jan – Nov Jan – Nov

2012 2013 2014 2015

US$521m

HULL RESERVE

US$133m

LIAB RESERVE

US$426m

ATTRITION

US$1080m

TOTAL CLAIMS

US$ 1,330m

4 YEAR AVERAGE

NOV

SOURCE: WILLIS TOWERS WATSON DATA:

LOSS DATA SHOWN IS TO THE BEST OF OUR KNOWLEDGE AT THE TIME OF PUBLICATION.

Jan – Nov

2016

Underwriting ‘the

Index’ gave spread

and profits

To do so today gives

a near certain loss

Focus on Risk Management : ‘Attrition Claims’

20

At Today’s Level of Premium, it is the Challenge

2010 2011 2012 2013 2014 2015


Attrition Losses

Premium

Reducing volume of premium to pay

for major losses

Attrition losses eroding catastrophe

related premium

Many airlines are paying premiums far lower than the value of one engine

Airline Premium/Claims Performance: 2012-2016

21

Calendar Year


Global Africa

* TO DATE

SOURCE: WILLIS TOWERS WATSON DATA: AIRLINES AFV + TLO >US$100M

NET LEAD TERMS US$M

CLAIMS INCLUDE ESTIMATED ATTRITIONALS AND ARE SUBJECT TO CHANGE

PRODUCTS/AIRPORT AND ATC CONTRIBUTIONS ARE EXCLUDED

30%

50%

70%

90%

110%

130%

150%

0

20

40

60

80

100

120

140

160

Premium Claims Loss Ratio

25%

50%

75%

100%

125%

150%

175%

200%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Premium Claims Loss Ratio

Africa

Airline 5 Year Declared Premium & Claims

2015 Stats

Source: Willis Towers Watson Aerospace. *Excluding Government/Military/VIP

Worldwide Airlines with AFV >US$100m, including only those with 5 years declared Premium & Claims figures

GLOBAL 5 YEAR

PREMIUMS

5 YEAR

CLAIMS

LOSS

RATIO

CREDIT

BALANCE

Asia/Pacific 1,938,041,526 2,102,678,615 109% -164,637,089

Africa 512,662,411 484,732,332 95% 27,930,079

Europe 2,450,431,845 1,543,124,626 63% 907,307,219

South America 498,071,523 296,434,710 60% 201,636,813

Indian Sub Continent 379,736,362 208,977,800 55% 170,758,562

North America 1,941,301,081 1,039,610,263 54% 901,690,819

Middle East 550,329,097 205,273,954 37% 345,055,143

AFRICA* 5 YEAR

PREMIUMS

5 YEAR

CLAIMS

LOSS

RATIO

CREDIT

BALANCE

Flag Carrier 362,251,028 464,652,882 128% -102,401,854

International 117,324,224 15,430,684 13% 101,893,540

Regional/Low Cost 33,087,159 28,438,393 14% 30,574,768

Africa makes up just

over 8% of the claims

over the last 5 years.

It also represents 8%

of the Global airline

premium

Global & African Airline Performance

Premium/Rate & Exposures

40

60

80

100

120

140

160

180

0.0

5.0

10.0

15.0

20.0

25.0

30.0

2010 2011 2012 2013 2014 2015

Net P

rem

ium

US

$ / P

assen

gers

(Millio

ns)

AF

V U

S$ (

Billio

ns)

AFV PAX Premium

Data Influences:

Data influenced by premium corrections since

2010/11 claims

Data pool is small

Global grown faster than Africa:

Receiving significant cost reduction

Absorbing growth at nil cost

1,000

1,500

2,000

2,500

3,000

3,500

700

750

800

850

900

950

1,000

2010 2011 2012 2013 2014

Ne

t Pre

miu

m U

S$

/ Pa

ss

en

ge

rs (M

illion

s)

AF

V U

S$

(B

illi

on

s)

AFV PAX Premium

Global Africa

Ra

tes (-

53%

) R

ate

s (-

53%

)

Rate

s

(-51%

) R

ate

s

(-51%

)

Documents

Risk, Human Capital & Insurance2gether4safety.org/wp-content/uploads/2013/11/Knechtli-aviation... · Dependence on third-party suppliers 4. Inability to keep up with pace of change/technological