Insurance for fixed-wing air ambulance operators

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The price is right ... or is it?

Air ambulance operators around the world are under pressure from health insurance and assistance companies to keep prices down, while at the same time, many are dealing with increasing hull insurance premiums. Robin Gauldie spoke to operators about the challenge of finding the right policy at the right price 

The operating costs of medical evacuation and repatriation continue to increase – aircraft, equipment, staff, fuel, and flight permits all add up – and not all of these costs can be passed on to end users. Premiums for hull ‘all risks’ cover account for a relatively small segment of an air ambulance company’s costs, but with air ambulance average flight hour prices in Europe falling by between five and 12 per cent in recent years (www.itij.com/feature/cost-repatriation-all-things-considered), margins are being squeezed. 

A wide scope of operations
Underwriting insurance policies for the variety of air ambulance operations that exist around the world has its challenges – but appetite for insuring this risk appears adequate to provide a competitive market, and air ambulance operators have few complaints. Insurance is a relatively small element of an air ambulance operator’s fixed costs, compared with other factors such as maintenance, payroll, fuel, and investment in new aircraft and sophisticated on-board medical equipment. Many of these items are beyond any air ambulance operator’s control. The price of fuel, for example, can fluctuate wildly and there’s nothing anyone in the air ambulance sector can do about it. The price of insurance, however, is related to factors that are at least partly controllable by the aviation industry as a whole, and even by the individual operator. It’s not rocket science: fewer claims means lower premiums.   

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However, after several years in which aviation premiums overall experienced a downward trend in recent years, in line with a continuing decline in incidents leading to claims, some air ambulance operators say premiums are now on the increase.

According to one industry insider, there is little difference in insurance premiums for medical flights and mainstream commercial operations. For both sectors, key factors are aircraft age, flying hours, countries and regions covered and the operator’s historic safety record. Less tangible factors include the insurer’s level of trust of the air ambulance operator – and, of course, that operator’s skills in negotiating a deal.

Appetite for insuring this risk appears adequate to provide a competitive market

“In general premiums are going up, without any difference between an air ambulance and an executive aircraft,” asserted Volker Lemke, Director of the Sales and Marketing at FAI Group. “The cost of medical configuration is only a fragment of the cost of the airframe,” he points out, and the cost of fitting out a high-spec executive jet is likely to easily exceed the cost of equipping a medical aircraft.

FAI, with a large fleet of medical and non-medical aircraft, is in a strong negotiating position with insurance companies, Lemke says. “We are getting a fair deal owing to the large fleet to be covered, including some very expensive jets that are many times more expensive than our air ambulance aircraft,” he says. “The mix makes it perfect for us. That said, we are still facing the problem that rising overall costs, including insurance, can’t be passed on to our clients without there being a risk of a negative impact on our business.”

“We have insured many air ambulance operators over the years and built up a good understanding of their work,” said Tom Chamberlain, Underwriting Manager, Aerospace and General Aviation, London, at global insurance company Allianz. “The profile of a particular operator will of course differ dramatically based on its location and scope of operation. Air ambulance pilots and crew will face different challenges if they are, for example, operating at high altitude at low temperatures, compared, say, with inner city. Within Europe, air ambulance operations tend to be very well run, with experienced pilots suited to the type of work they are doing,” Chamberlain says. “Overall, we don’t see complexity increasing and we can cover all types of operations, including into high-risk areas.”

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For fixed-wing medevac aircraft, finding an affordable deal may be easier than it is for HEMS 
rotorcraft. In US, the world’s biggest market for fixed-wing air ambulance services, such operations 
only account for around 33 per cent of the market, compared with 66 per cent handled by helicopters.
From an underwriter’s point of view, the fixed-wing air ambulance business is less challenging than the HEMS sector, because there are significantly fewer accidents worldwide. Premiums for HEMS rotorcraft may be up to four-times more costly than for a fixed-wing air ambulance insured for the same value.

That said, both fixed-wing and HEMS operators are under pressure from their travel and health insurer clients to provide higher levels of coverage for aircraft liability and for medical malpractice, as reported previously in ITIJ (www.itij.com/feature/cost-repatriation-all-things-considered).

Non-standard risk
Underwriting cover for air ambulance operators carrying out missions in high-risk conflict zones is more complex and, as a result, more costly to insure. In addition to standard hull and all-risks insurance, such operations also require ‘war and political risks’ cover that protects against physical damage or loss of the aircraft from ‘war or associated perils’, which are typically excluded from a standard hull all-risks policy.
However, air ambulance operators seem resigned to paying higher prices for such cover and agree that – although insurers are arguably in a seller’s market – such policies are not exorbitantly priced.

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Dr Bettina Vadera, Chief Executive and Medical Director of Nairobi-based AMREF Flying Doctors, commented that such policies come with added hoops through which providers must jump to ensure compliance and coverage: “Flights into higher/high-risk areas must be declared to insurers before the flight, so it is a requirement, not a trend. Performing a flight without prior notification could jeopardise or invalidate any claim, both on the aircraft as well as the crew and passengers. In that case, the operator and its officers would likely be sued by the affected parties.” And not all flights are going to be considered insurable by the underwriters. “Insurers will refuse to quote where they believe the risk is unacceptably high and exclude the region or airport from the insurance policy coverage,” said Dr Vadera. “The additional premium charged will depend on the risk and the insurer’s appetite for that risk, and could include increased deductible amounts on the aircraft insurance in the case of a claim and/or reduced passenger liability amounts.”

Some air ambulance operators say premiums are now on the increase

“High-risk areas are always reactive to current conditions,” agrees Utku Tekçeer of Redstar Aviation. Based in Istanbul, Redstar operates a fleet of four Bombardier LearJet 45 aircraft on missions that include high-risk regions such as Iraq, Libya and Afghanistan. “In the nature of air ambulance operations, we do fly to war-torn areas and the most distinct difference is liability including war risk for passenger, cargo and aircraft. Premiums may rise depending on the situations of the countries involved – for example, right now premiums for Libya are increasing due to rising tension there.

Tekçeer seems resigned to paying substantially more for insurance cover when operating in high-risk zones. Insurers with an appetite for insuring such higher risks inevitably charge more, he concedes. “Mostly leading insurers offers this type of cover due the quantity of costs. It is definitely not fairly priced, especially in war-torn areas, but insurance companies are taking risks, so it is understandable.” Operators cannot simply absorb all these additional insurance costs, he adds, and a proportion is passed on to the client. “We do our best not to reflect this in our own prices to our customers, but we have limits to how much we can compensate.”

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Dr Vadera concurred. “Insurers price their premiums based on the risk involved and their required financial returns, so what may seem fair to the insurer may not look the same to the insured,” she says. “Premiums are also affected by the quantum of aviation claims in general in a particular year or period. Operators price the normal/annual insurance premiums into their aircraft operating costs and hence the rate per mile charged to the customer. Additional premiums charged are passed onto the customer on whose behalf the flight is done.”

Seeking the cheapest possible deal may not be the smartest choice for operators, Dr Vadera noted.
“Aviation insurance is a specialist area that is adequately served at the moment. It is important to find insurers that are reputable and not necessarily the cheapest to ensure any genuine claims are paid out fully and quickly.,” she added.

The high cost of insuring operations into high-risk zones may be discouraging some air ambulance companies from such operations, said FAI’s Volker Lemke: “Quite a few operators are tending to cease operations into high-risk areas as the safety and security situation is getting more and more unpredictable and the effort required to mitigate the risk is getting bigger and bigger.” This is in part due, he added, to ‘a decreased capital capacity in the market, where only a few insurers are able to cover the aviation risks’.

Supply and demand
For now, however, while demand for fixed-wing air ambulance operations continues to rise, there appears to be enough appetite for risk from underwriters to allow air ambulance operators to shop around for the right deal, although the high-risk end of the market remains challenging – and expensive.