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7 The objective of this synthesis is to examine the current risk management practices and to identify variables, including exposures that affect insurance-purchasing decisions for air- port operators. This synthesis identifies key factors for airport operators to consider when making decisions on their own insurance requirement needs and risk management practices. SCOPE OF STUDY The scope of this study, as determined by TRB staff and the topic panel, is limited to examining current airport risk management practice in insurance purchasing. The study includes commercial and general aviation airports. Although airport risk management includes many other facets, such as loss control, alternative risk financing, risk analysis, coverage analysis, enterprise risk management, and more, this report does not address those subjects. Although this report includes some discussion of the risk managerâs role in the insurance-procurement process, the report is not about developments in the risk management field. The intent of this synthesis is not to identify potential weaknesses or provide recommendations to correct any per- ceived deficiencies. STUDY METHODOLOGY Several techniques were used to capture this information, including a literature search on current airport risk manage- ment practices, a survey of airport operator personnel respon- sible for risk management, and interviews with selected airport operator system risk managers. As requested by the study sponsors and the panel, both the survey questionnaire and the interview question list were kept as short as possible to encourage participation and to minimize disruption for the participants. Interviews were to be held to 20 minutes. Literature Search A literature search was conducted to document current prac- tices in airport risk management and insurance purchasing. The search focused on (1) available documentation regarding CHAPTER ONE INTRODUCTION BACKGROUND Risk management is a broad, multidisciplinary field that involves elements of science, engineering, law, finance, insurance, and management. It has been referred to as the true ârenaissance professionâ (LeStrange 1993, p. 2) because of the multiple areas of knowledge and skill required. Airport risk management is a subspecialty of the field of risk management. Airport risk management is fur- ther characterized by the nature of the aviation industry, which includes life safety considerations, catastrophic loss potential, and high visibility. Although there are some unique elements to airport risk management, the underly- ing principles and the inherent breadth of the risk manage- ment discipline apply to airport risk management as they do to risk management in other fields. With such a broad discipline in such a dynamic field, a synthesis of practice must focus on a manageable subtopic to attain any measure of coherence. This introductory chapter describes the purpose of the report, presents the methodology used to develop the report, provides general background information, and outlines the organization of the report. OBJECTIVES OF STUDY This synthesis topic was scoped by a nine-member panel of industry experts whose discussions identified several issues in U.S. airport risk management: 1. A lack of consistency in insurance-purchasing practice, 2. A wide variation in technical knowledge among per- sons charged with buying insurance, 3. A lack of benchmarking information within the indus- try (for insurance purchasing), 4. Significant variation between airport operators in exposures to loss, and 5. A wide variation in coverage purchased.
8 Owing to the limited survey respondent pool, the sur- vey analysis was conducted on the basis of airport operating revenue size. This approach resulted in an equal number of respondents for each operating revenue size classification. Operating revenues ranged from $100 million to more than $600 million. A copy of the survey questionnaire can be found in Appendix A, and a list of respondent airport opera- tor systems is included as Appendix B of this report. For purposes of this synthesis, Large airport operators are those reporting last-year operating revenue of more than $600 million; Medium airport operators are those reporting operat- ing revenue between $251 million and $600 million; and Small airport operators are those reporting operating revenue less than $250 million. The 19 survey respondents are almost equally divided among the three size classifications, with six survey respondents each for large and medium airports and seven for small airports. The survey generally relied on the respondents to report their revenue size and did not attempt to validate the responses through review of public records. Because most of the financial information avail- able from the airport operators came from the 2009 fis- cal year, the results may be somewhat skewed downward regarding size. The year 2009 was a poor one for most airport operators, with enplanements and revenues below normal owing to the state of the economy. The survey assumed that the airport operator representatives would be knowledgeable about their current operating revenues, especially with regard to recent changes resulting from economic conditions. coverage purchased; (2) regulatory or statutory restrictions or requirements applicable to insurance purchasing at air- ports; and (3) current procurement practices used by airport operators, including use of insurance brokers. Because there is a dearth of published work specifically on airport insur- ance buying, the literature field was expanded to include more generic works addressing such topics as use of insur- ance brokers, coverage purchasing, and general insurance- related risk management practices. Survey A survey was developed to identify practices and correlate characteristics of airport operators that use them for the pro- cess of identifying and financing risks. The Internet-based survey was designed to be closed-ended. With very few exceptions, responders needed only to check a box on a form. Various sources were invoked to obtain a population of U.S. airport operators, including trade associations, insur- ance sources, and the contacts of the panel and the principal investigator. This effort yielded a relatively small population given the more than 10,000 U.S. airports. A difficulty in sur- veying smaller airport operators without risk managers or key persons responsible for risk management is identifying to whom to send the survey. A second difficulty is finding persons with sufficient time or interest to participate. Air- port operators were prequalified by a preliminary survey of a larger population to determine those willing to participate. Twenty-one prequalified airport operator systems were selected to participate in the survey. A total of 19 airport operator systems (42 airports), a 90% response rate, replied to the survey request. Their geographic distributions are shown in Figure 1. In some cases, additional airport map pins may be hidden underneath another pin. FIGURE 1 Geographic distribution of survey respondents.
9 All respondents to the survey are public entities. Eleven are state or local entities, and the remaining eight are either commission or authority. Eleven of the 19 of survey respondents employ a dedi- cated airport risk manager. For large and medium airport operators, this is the dominant practice. Five of the six respondents in each of these categories indicated employ- ment of a dedicated risk manager. Interviews Risk managers from eight airport operator systems rep- resenting 20 individual airports agreed to participate in a brief interview to describe their practices for procur- ing insurance coverage and to reveal information about their role within their organizations. Interview questions were developed with the assistance and contributions of the expert panel. Interviews were to be limited to 20 min- utes, although interviews were not halted at that point if the responder wanted to elaborate. Most were completed within 20 minutes. Figure 2 shows the geographic distribu- tion of the interviewees. ORGANIZATION OF THE REPORT This report is organized along the lines of the survey cat- egories, which were developed on the basis of the guidelines presented by the panel. Chapter one presents background information on the study, the reasons for it, and how it was conducted. Chapter two discusses insurance-buying practices of airport opera- tors. Chapter three presents information about the role of the risk manager in insurance buying. Chapter four identifies coverage purchasing by type and practices. Chapter five dis- cusses deductible and limit selection. Chapter six presents information on risk retention practices. Chapter seven pres- ents the study conclusions. FIGURE 2 Geographic distribution of interview participants.
