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In finding more reasons to pay claims than not, Santam Aviation is hand-holding its clients through changing times as the sector limps its way to recovery.
James Godden, Head of Santam Aviation, has a lot on his mind, and this on behalf of the 4 000 aircraft registered with the company, which comprise R130-million of SA’s annual R500-million premiums, making Santam the largest and most experienced specialist South African aviator insurer for the past four decades.
Godden, whose career in the sector spans almost three of those four decades, has concerns for operators who are fighting for financial survival in the wake of the pandemic. He is pondering the increase in aircraft maintenance claims over the past six months, and is spending time understanding the changing risks the market faces. He thinks about the insurer’s role in making aviation as safe as possible, and the shortage of experienced instructors as aging expertise leaves the market.
Overall Godden is looking for more ways for Santam to continue to pay claims in an environment that is heavily dictated to by legislation and compliance, and which can be restrictive for aviators.
“Obviously our primary role is to ensure protection of assets and pay out when something goes wrong but few realise that it is equally important that specialist insurers be depended on to make sense of the market and to bring value and certainty to our clients.”
And to have an influence on making aviation as safe and as risk-free as possible? “This is somewhat of a double-edged sword,” answers Godden. “We cannot write a policy outside of aviation law no matter how frustrating some of the processes may be. Our role is to ensure that the principles of those laws are upheld, the oversight of which falls to the Civil Aviation Authority (CAA), an agent of the Department of Transport.”
Santam Aviation works collaboratively with the Authority and is bound by the CAA’s issuance of certification that confirms an aircraft is airworthy. No insurance claim can therefore be processed unless the paperwork is in order, and which is only released by the CAA once it has concluded various inspections. This is to ensure that safety in the skies is at the highest levels of compliance with various Acts that guide the safety and security of the civil aviation industry, and for which Santam Aviation has great respect.
For those making a claim in contravention of law, or without the required certifications, there are consequences, which may be financially crippling to the policyholder. “Even a usually straight-forward claim like damage caused by taxi-ing into a runway hole or clipping a hangar door, will be rejected if the paperwork is not in order. Obviously the impacts are devastating if there is a loss of life, more so if the deceased are related to or known to the owner/pilot,” says Godden.
There is however another aspect to rejection of a claim under such circumstances; in not paying claims an insurer’s reputation is at risk, regardless of how genuinely sympathetic or motivated it is to settle. “No paperwork or no certification, immediately nullifies a claim.”
That said, Godden and his Santam team of nine, are always seeking ways to reduce financial stress for clients, which includes private/corporate, recreational, aerobatic, agriculture, charters, surveillance, tracking enterprises. Most recently for example, with the aviation industry severely impacted by lockdown restrictions that saw 80% of aircraft clients grounded between April and August (which realised an average 60% loss in income), Santam switched those clients over to ground insurance, which comes with another set of challenges. Grounded aircraft are vulnerable to rust damage from being inactive, and parts have a variable lifespans, which puts further pressure on maintenance obligations.
Likely the biggest issue this year is that half of the country’s total aviation premiums are already under claim, which has the potential to translate into rate increases to cover losses. “There have been around R250-million of claims already this year (end March 2021), and we have to ask why that is. Is it really down to Covid-19 impacts such as pilots not able to fly their mandated hours? Did the aircraft sit too long? Perhaps pilot training isn’t up to par? These are things that the entire industry has to consider and which could motivate for the introduction of conditional terms in the insurance cover.
“For example if a pilot hasn’t flown in six months, there could be a condition forcing the pilot to return to flying school and complete a certain number of takeoffs and landings with an instructor,” says Godden, who reveals that 90% of claims are related to pilot error and more particularly those are relative to takeoffs and landings.
The most basic of cover, and which is dictated by law, is third party/passenger insurance, but the greatest liability is when the aircraft is in motion, which requires comprehensive cover. “That premium is variable dependent on the risk exposure, such as: purpose of the flight; the level, age and experience of the pilot; the type of aircraft; technical issues and history of the model; economic factors driving the market; and area of operation.”
The Santam underwriters, Godden assures, are highly skilled at this. “They understand aircraft and flying law, which although is not a prerequisite to working in aviation insurance, elevates our expertise. It’s a differentiator for Santam Aviation.”
Similarly the organisation uses independent and highly knowledgeable claim assessors, who in tandem with the CAA, explore the reasons for an aviation incident or accident, even those that occur outside of the local claim environment.
“It’s a small industry really, so when there is an accident, everybody hears about it and we, more than most, feel an obligation to examine whether the cause should or could impact on how we underwrite. For example, if a particular component regularly fails resulting in too many claims, the entire industry has to consider introducing a higher excess, which in turn puts pressure on the manufacturer to correct the problem, and/or the policyholder is burdened with additional costs.”
South African aircraft owners are already burdened by most aircraft being dollar-denominated because of the Rand’s volatility. “A claim on a R1-million plane bought at 10:1, will pay out the R1-million, but if the currency at the time of claim is 14:1; the policy-holder is short on R400 000 to buy a new aircraft.”
Godden says similar applies in the rest of Africa, where exchange controls and securing premiums is trickier. However this does not prevent Santam Aviation from exploring what it considers a key growth market for the business, particularly the eastern regions and South Africa’s neighbouring territories.
Included among the 33 continental nations where Santam Aviation is active are the DRC, Uganda, Kenya, Tanzania, Botswana, Zimbabwe, Mozambique, and Zambia. These all come with their own peculiarities and challenges, and which requires the adaptability of not just pilots but also the insurer.
“There are dangerous environments in Africa for all industries, and flying is not exempt,” says Gooden. “Rural dirt strips with random cattle gatherings; lack or no aviation infrastructure; extreme weather; and dangerous and volatile conflict. Different environments can translate into not being able to fly in the same way, and, in certain circumstances, can impact on the value and type of cover, and related costs thereof.”
All clients worry about costs, says Godden, and it’s been an intense period with the introduction of Covid-19 negation measures that have introduced changes to normal operating procedures. “At Santam Aviation we’ve focused on doing everything possible to support them through the crisis in the industry while continuing to provide the right quality of security in their investment. Aviation has suffered, and will continue to struggle until the pandemic is under better control. However, you can blanket the whole economy in terms of this distress. It’s easy to be negative but aviation has always revealed opportunities,” says Godden.
For insurers those immediate opportunities lie in developing a sustainable long-term approach and nurturing beneficial relationships while the aviation sector limps through the crisis. “The biggest underscore currently is to listen and respond, to provide the right representation in a changing market, to influence as much as possible a low risk profile and continue to motivate for safety in aviation. And, as is the Santam way, to continue to find reasons to pay a claim,” concludes Godden.
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