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25 CHAPTER SEVEN CONCLUSIONS Based on a survey of 19 prequalified airport operators, the The survey responses from the smaller airport operators type of airport organizational structure (e.g., municipal, indicate a higher emphasis on price than coverage in insur- commission, authority) is less important than size as mea- ance purchasing, the inverse of what the survey found with sured in operating revenue in determining characteristics of larger airport operators. Smaller airport operators also tend risk management within the entity. All of the participating to have more "generic" insurance programs in place and do operators are public agencies of some sort. not have the competitive advantage of larger airport opera- tors in the insurance marketplace. Conversely, small airport As would be expected, larger airport operators handle operators are more dependent on the coverage they do buy more of the risk management responsibilities in house and are less able than the larger airport operators to use alter- and are less dependent on their outside services providers, native risk financing, including risk retention. including insurance brokers, for determining how to finance and manage risks. They are also more mutable in their rela- Research into the possibility of a risk pool or joint insur- tionships with such providers. ance purchasing pool may be beneficial for improving both the coverage and cost of insurance for the medium to smaller Larger airport operators retain more risk and are more airport operators. The survey finding that larger airport capable of approaching risk management the traditional operators, even though they have more internal risk man- way: identify, then measure, then treat, then monitor the agement resources, are more likely to have long-term rela- risk. Smaller airport operators are more likely to be advised tionships with insurers implies that a stable group program and guided by the parties that are also providing a service may have benefits for smaller airport operators that they are related to the advice. Thus, the smaller airport operator currently unable to enjoy because of the priority of price in approach also appears to be more product-oriented than their insurance-purchasing decisions. exposure-oriented. Because of the survey data showing that smaller airport These conclusions imply that additional research or operators are more dependent on insurance and the implica- efforts on the part of the airport risk management commu- tion that pricing may be a problem (because of the emphasis nity may be designed to best benefit medium to small airport on price as the most important decision factor), research into operators. noninsurance risk transfer practices (contractual risk trans- fer) among smaller airport operators may be warranted. Another finding leading to this conclusion is that some smaller airport operators appear to not address some of the Smaller airport operators are likely to benefit from con- more significant risks, such as pollution and war and ter- tractual risk transfer even more than large airport operators as rorism. Less than half purchase pollution liability cover- the smaller airport operators have fewer insurance resources. age. Although this may appear to have some validity as the More than larger airport operators, smaller airport operators smaller airport operators are seen as less significant terror- also are likely to deal with other parties, such as tenants, that ism targets or have fewer direct exposures to pollution loss have considerably more risk management resources than the because of their smaller scale, it is a risk management truism airport operator and are therefore more capable of assuming that the size of the exposure does not necessarily correlate risk than the airport operator. On the other hand, smaller air- with the size of the operation. For example, terrorists seek port operators are less likely to have the technical and legal targets of opportunity, not always the largest targets. Fur- resources readily available to construct and maintain an thermore, larger airport operators are likely to have more effective contractual risk transfer program. robust loss-prevention mechanisms in place for exposures such as pollution and terrorism. Smaller airport operators The study points to certain key factors for airport opera- may not have the resources for extensive prevention activity. tors to consider when making decisions on their own insur- Further research into the risks for smaller airport operators ance needs, some of which can be addressed by answering from these exposures may be warranted. the following questions:

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26 1. Have we identified and measured all of the risks that 8. Do we spend enough time keeping up with industry need to be covered? issues through conferences, research, participation in professional organizations, and peer consultation 2. Have we considered alternatives to insurance for to support our business decisions about insurance financing the risk of loss for each? purchasing? 3. Does the insurance coverage we have arranged, or are 9. Do we have the information and expertise to make considering, adequately address those risks? value comparisons between quotes rather than just relying on price as the final determinant? 4. What is the industry norm or benchmark for each of the processes involved with the treatment of each risk Specific issues that arose from information obtained (e.g., risk analysis methods, selection of deductibles from this report and that are areas for further investigation and limits, alternative risk-financing methods)? or study include the following: 5. Have we used all of the available sources of informa- Study the practical possibilities of providing a risk- tion within the industry, such as trade associations, sharing facility, possibly combined with joint purchase professional organizations, and peer consulting, for of excess insurance, to afford smaller airport operators guidance on use of insurance for risk treatment? better access to technical risk management expertise and to overcome the emphasis on price over coverage 6. Do we have sufficient information about the insurance and risk in their insurance-purchasing decisions. market and its trends to make an informed decision Determine whether many smaller airports do not pur- about obtaining the best results for our premium dollars? chase war risk and terrorism coverage and determine why and whether their practices point to potential 7. Have we considered our strategy with regards to use problems. of deductibles, self-insured retentions, limits, and Study airport operators' exposures to and sources of coverage enhancements or trade-offs in response to protection from catastrophic losses, such as earth- changing market conditions? quake, windstorm, and other natural disasters.