National Academies Press: OpenBook

Airport Insurance Coverage and Risk Management Practices (2011)

Chapter: CHAPTER SEVEN Conclusions

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Suggested Citation:"CHAPTER SEVEN Conclusions." National Academies of Sciences, Engineering, and Medicine. 2011. Airport Insurance Coverage and Risk Management Practices. Washington, DC: The National Academies Press. doi: 10.17226/14611.
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Page 27
Page 28
Suggested Citation:"CHAPTER SEVEN Conclusions." National Academies of Sciences, Engineering, and Medicine. 2011. Airport Insurance Coverage and Risk Management Practices. Washington, DC: The National Academies Press. doi: 10.17226/14611.
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Page 28

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

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

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TRB’s Airport Cooperative Research Program (ACRP) Synthesis 30: Airport Insurance Coverage and Risk Management Practices identifies both the variables that affect insurance purchasing for airport operators and the range of risk management practices that exist among U.S. airports. The report is designed to help airport officials confronted with risk-financing and insurance-purchasing decisions.

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