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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
Independent │Innovative │Non-profit
Transportation Risk Index
5 MegaTrends
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
Independent │Innovative │Non-profit
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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
Geo-Political Instability &
Regulatory Uncertainty
Geo-Political Instability &
Regulatory Uncertainty
Digital Vulnerability &
Rapid Technological
Advancement
Digital Vulnerability &
Rapid Technological
Advancement
Changing market
Dynamics & Business
Uncertainty
Changing market
Dynamics & Business
Uncertainty
Talent Management &
Complexities of a Global
Workforce
Talent Management &
Complexities of a Global
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
Independent │Innovative │Non-profit
WTW Transportation Risk Index
Risks within the Megatrends: Middle East & Africa
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
45 45
50 50
53 53
59.4 59.4
59.4 59.4
MegaTrends
Geo-Political Instability &
Regulatory Uncertainty
Digital Vulnerability &
Rapid Technological
Advancement
Changing market
Dynamics & Business
Uncertainty
Talent Management &
Complexities of a Global
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
Independent │Innovative │Non-profit
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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
Independent │Innovative │Non-profit
Financial Times
Special Report: Monday 21st November
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
Independent │Innovative │Non-profit
“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”
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
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.
Independent │Innovative │Non-profit
For Sure You Need Insurance
Start with Identifying Risks to Your Business
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
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
Independent │Innovative │Non-profit
Insurance Programmes
Partnership with Insurers: Covering your Risk Needs
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
“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?
Independent │Innovative │Non-profit
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”
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
Independent │Innovative │Non-profit
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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
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
Independent │Innovative │Non-profit
Maintenance and Support Contracts
Transferring your Risk - Avoiding Contractors’ Risk
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential.
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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
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
Ethiopian Airlines 2013 B787-800 0
Linhas Aereas Mocambique 2013 Embraer 190 33
Air Algerie 2014 MD83 116
ASKY Airlines 2015 B737-400 0
Ethiopian Airlines 2016 B787-800 0
Ethiopian Airlines 2016 Bombardier Q400 0
Source: Willis Towers Watson Aerospace
2016 Major Airline Losses
18
Hull & Liability and Hull War
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
* 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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
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
© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
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%
)