EgyptAir Flight MS 804 Crash Confirmed, Killing 66

Egyptian authorities believe they have found debris from EgyptAir Flight MS 804, but the search remains on for the wreckage of the Airbus A320 traveling from Paris to Cairo that vanished from the radar and crashed into the Mediterranean early this morning.

According to the Greece’s defense minister, Greek controllers attempted to contact the aircraft when it crossed through the country’s airspace but could not get a response. The plane made “sudden swerves” before dropping from 37,000 to 15,000 feet and disappearing from radar. The small commercial jet was about half full, carrying 66 passengers from a range of nations, including 30 from Egypt, 15 from France, two Iraqis, and one person each from Britain, Belgium, Kuwait, Saudi Arabia, Sudan, Chad, Portugal, Algeria and Canada.

egyptair map reuters

No cause has been officially identified, but many security analysts and government officials believe that an act of terrorism may have downed the plane. There were no documented red flags before the plane disappeared: local weather was good, the plane was on its fifth flight of the day, the pilot and copilot had logged a significant amount of flying experience, and Greek aviation officials said the pilots did not mention any issues.

According to Reuters, Egyptian Prime Minister Sherif Ismail said it was too early to rule out any possible explanation, and French President Francois Hollande told reporters, “No hypothesis can be ruled out, nor can any be favored over another.” Egypt’s civil aviation minister said a terrorist attack was more likely than a technical failure, however. Two U.S. officials told CNN that the government is operating on an initial theory the flight was taken down by a bomb, but cautioned this is not yet supported by a “smoking gun.” No terrorist groups have yet claimed responsibility for the crash.

As Time noted:

Egypt has been the victim of terrorism in the skies relatively recently. Last October, a Metrojet charter plane filled with Russian tourists crashed into the Sinai Desert shortly after taking off from the Egyptian Red Sea resort of Sharm el-Sheikh, headed to St. Petersburg, Russia. All 224 passengers died in the crash. Investigators quickly speculated that a home-made bomb had been placed aboard the aircraft and in February the Islamic State, or ISIS, claimed responsibility, saying that it had indeed smuggled an explosive device aboard the aircraft.

In March, a passenger aboard an EgyptAir plane flying from Alexandria to Cairo hijacked the plane wearing a fake suicide belt, an incident that raised deep concerns among aviation authorities about the anti-terrorist measures in place on EgyptAir flights, and at Egyptian airports.

Beyond the region, a number of high-profile losses have hit the aviation industry as a whole over the past two years, including the disappearance of Malaysia Airlines flight MH370 and the crash of MH17, a Boeing 777 shot down over Ukraine. As we reported at the time, however, crashes actually continue to decrease. While the insured losses from a plane crash can be significant, the capacity in the aviation insurance market has continued to keep rates stable and relatively low.

In the terrorism insurance market, recent losses have also not yet borne out a concrete impact on rates or capacity. While some European markets have recently reduced their underwriting appetite, terrorism coverage has primarily broadened, with significant capacity and rates that remain relatively low.

As Business Insurance recently reported, the terror attacks in Paris and Brussels have prompted an increase in the take-up rate for event coverage to add to buyers’ terrorism insurance programs. Tim Davies, head of sabotage and terrorism at London specialty insurer Sompo Canopius, told the magazine that many buyers have been adding liability and event cancellation coverage, prompted by the continued relatively low rates. Despite the spike in attacks in Europe, Richard Sawyer, director and head of North American terrorism at Aon Risk Solutions, told AM Best last week that rates for terror coverage should remain relatively stable unless the frequency of attacks escalates.

Congress Overwhelmingly Passes TRIA Bill

After a last-minute failure by the Senate to pass the Terrorism Risk Insurance Act (TRIA) in December, the bill was overwhelmingly passed by the Senate on Jan. 8, with a vote of 93 to 4. The House of Representatives had voted 416 to 5 to pass TRIA in December. The bill now awaits President Obama’s signature.

H.R. 26, which is the same as last year’s amended S. 2244, reauthorizes TRIA through the end of 2020. Under the six-year extension, starting in 2016, there will be phased-in increases to the program’s trigger, raising it from $100 million to $200 million in annual aggregate insured losses, and the insurer co-share will be raised from 15% to 20%. The bill also phases in an increase in the aggregate amount of insured terrorism losses that must be borne by the private sector from the current $27.5 billion to $37.5 billion. Taxpayer dollars to fund those losses would be recouped post-event.

Several industries were quick to praise TRIA’s passage, as the Senate’s failure to reauthorize the Terrorism Risk Insurance Act in December left insurance buyers facing renewals on terrorism coverage with unanswered questions.

The Commercial Real Estate Development Association (NAIOP) praised the bill’s passage, saying, “This is sound policy because it enables insurers and private sector capital to provide coverage for losses that otherwise would fall upon the taxpayer. This vital security blanket could help save billions of dollars that would otherwise be spent in the aftermath of a terrorist attack. Renewing TRIA for six years represents a major victory for the commercial real estate industry and the millions of jobs and economic growth it supports. Today’s vote gives developers the peace of mind to invest in an industry that contributed $376 billion to GDP last year, supported 2.8 million jobs, and produced $120 billion in personal earnings.”

The Coalition to Insure Against Terrorism (CIAT) said in a statement, “CIAT members are pleased the Senate has acted quickly to approve TRIA reauthorization as one of the first orders of business in the new Congress. We commend Majority Leader McConnell and Minority Leader Reid for their leadership in seeing this critical legislation through to completion, and are encouraged by the strong bipartisan support for reauthorization in both chambers.”

Marsh & McLennan said it “applauds the new Congress for its swift reauthorization of this critically important public-private partnership, which will help to ensure a reliable marketplace for terrorism coverage in the event of attack. We are pleased that TRIPRA directs the Treasury Department to review the protocols for certification which would help to protect the nation’s economic security in the event of a terrorist attack.”

Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA), said in a statement that the “terrorism risk insurance program will remain in place protecting our nation’s economy, policyholders and taxpayers. Congress’ timely reauthorization of TRIA will preserve a well-functioning private terrorism insurance marketplace.” She added, “As with previous TRIA reauthorizations, the primary responsibility for financial recovery is placed on the private sector in all but the most catastrophic of events.

“Congress’ bipartisan action on TRIA this week will help ensure the continued availability of terrorism risk insurance, providing stability for the broad range of businesses of all sizes that depend on this essential coverage,” noted the National Association of Real Estate Investment Trusts (NAREIT). “We strongly urge President Obama to sign this legislation into law at the earliest opportunity.”

ISO announced that it is filing revised terrorism forms in response to passage of the act. The revised forms will be for insurer use in most states shortly after President Obama signs the bill, known as the Terrorism Risk Insurance Program Reauthorization Act of 2015.

A Turbulent Year for the Aviation Industry, Despite Improving Safety

MH 17 Wreckage Denis Kornilov / Shutterstock.com

First, Malaysia Airlines flight MH370 mysteriously disappeared in March, dominating the news cycle and baffling aviation experts, government officials and civilian observers alike. This month, three tragedies in short succession have kept the industry in the hot seat. Malaysia Airlines made headlines once again on July 17 after Flight MH 17, a Boeing 777 flying from Amsterdam to Kuala Lumpur, was shot down over Ukraine. It is now the seventh most deadly aviation crash in history. Exactly who fired on the plane remains unclear, as do many questions of insurance, as war has not officially been declared, despite months of fighting in the region. An act of war would exclude losses from insurance coverage, but remaining uncertainty does as well. Plus, “Unless Russia has declared war on Malaysia, that would knock out the exclusion,” RIMS Vice President Rick Roberts told Mashable. But for it to fall under under terrorism coverage, “someone has to certify that the act that occurred wasn’t a mistake—that it was a malicious act.” The already struggling company may not be able to survive this second disaster, or the reputational devastation.

Ten Deadliest Plane Crashes

Tragedy has further plagued the industry this month. On July 23, a TransAsia flight from Taiwan crashed, killing 48. The next day, an Air Algérie flight from Burkina Faso to Algeria disappeared less than an hour after takeoff in the air space over Mali. Approximately 24 hours later, peasants found the plane’s wreckage near Gao, Mali, and French soldiers dispatched to the scene were able to recover a black box, but no survivors.

Despite the string of disasters, there is no evidence that air travel is in any way more dangerous on the whole. In fact, it is safer than ever before. Nearly three billion people fly safely each year on more than 37 million flights, the International Air Transport Association (IATA) reports, and the global plane accident rate fell to the lowest level in aviation history in 2012. Over the past 10 years, both the crash and fatality rates have trended downward, according to statistics from the Bureau of Aircraft Accidents Archives. But, little more than halfway into 2014, the number of people killed in plane crashes is more than double the total for 2013 (991 and 459, respectively).

Based on BAAA data:

Crashes per year

Deaths per year

Looking back even further, this chart from the Wall Street Journal leaves little doubt that the aviation industry has grown drastically safer:

Deadly flights

While 2014 has been more fatal thus far, the overall number of crashes continues to decrease. There have been 70 commercial-plane crashes globally so far, versus 81 for the comparable period a year earlier, according to Aviation Safety Network, part of the Flight Safety Foundation. Further, the four tragedies do not have any common root causes for their failures.

Insurance Changes on the Horizon

International carriers are feeling most of the strain, and that is likely to have serious implications for insurance premiums. “Given the accumulation of losses, including the loss of Asiana Airlines’ Boeing 777 in San Francisco last year, an explosion causing damage to 20 aircraft in Tripoli recently, and this week’s losses in Africa and Taiwan, these will, altogether, put pressure on the global insurance market,” said Robert Hartwig, president of the Insurance Information Institute. “I expect most of the impact to be focused on international carriers, particularly those operating in or traversing parts of the world that I would characterize as ‘hotspots,’ currently experiencing military or political instability. That would certainly include Ukraine, parts of the Middle East, and parts of Africa.”

While the recent spate of tragedies may leave many travelers wary of getting on a plane, American airlines have less to worry about regarding premiums than their foreign counterparts. There have been are no notable losses this year among domestic carriers, or U.S.-based airlines that fly internationally. As Hartwig pointed out, however, “With a few exceptions, they do not tend to traverse many of those hotspots to begin with.”

In Africa and other developing regions, “you identify accidents in many places that would have happened 30 or 40 years ago in the West, because oversight is lagging,” Dominique Fouda, spokesman for the European Aviation Safety Agency, told the Wall Street Journal. “You also see different accidents linked to local conditions.”

TRIA’s Impact on Workers Comp

Because of the significant financial impact of the Sept. 11, 2001 terrorist attacks, Congress created the Federal Terrorism Risk Insurance Act (TRIA). Its purpose is to provide a financial backstop to the insurance industry that would cap losses in the event of another large-scale terrorist event. TRIA was initially set to expire at the end of 2005, but it has been extended twice and is now set to expire Dec. 31, 2014.

When most people think of TRIA, they think of property insurance. Without TRIA, many high-profile properties would be difficult to insure in the commercial marketplace. However, TRIA also plays an important role in workers’ compensation coverage, and its pending expiration is already impacting some renewals.

Workers’ compensation insurers are particularly concerned about large accumulations of employees in small areas, also known as employee concentrations. When carriers model employee accumulations, they not only look at a single employer’s concentrations, but also their aggregate accumulation exposure for all their policyholders in a particular zip code or city and in some cases across multiple correlated lines of business. Because workers’ compensation underwriters are required to provide terrorism coverage by law, the only way to limit their exposure is to reduce the amount of capacity they offer.

If TRIA is allowed to expire or is modified significantly, employers in certain cities and industries with large employee concentrations will likely experience capacity shortages. In fact, the uncertainty around TRIA’s reauthorization is already leading some workers’ compensation carriers to decline or non-renew risks in certain geographical areas, or ask for large rate increases. The healthcare, public entity, higher education, and financial sectors are particularly affected by employee concentration issues at the moment.

To mitigate the impact of TRIA’s uncertainty, employers should differentiate their risk. Since both insurers and reinsurers use catastrophic models to estimate their loss potentials, it is critical that employers provide the highest quality of exposure data to help distinguish their risk profiles from their peers.

Additionally, companies with multiple shifts or those that operate in a campus setting should make sure to report both the total number of employees and the number of employees working during peak shifts—as well as the actual buildings where the employees are located. The number of employees working during peak shifts is the actual exposure to a terrorist event, not the total number of employees. Also, companies with a large percentage of their workforce in the field or telecommuting, rather than in the office where their payroll is assigned, should give this information to insurers. Providing very detailed information can help overcome some potential pitfalls of the catastrophic models and better reflect an employer’s exposure to catastrophic losses.

Employers with a large concentration of workers, especially those in major metropolitan areas, should be prepared to provide the following information to underwriters:

  • Employee marital or dependency status, including dates of birth for dependents.
  • Employee telecommuting/hospitality practices and impact on concentration.
  • Physical security of the building, including information about guards, surveillance cameras, parking areas, and HVAC protections.
  • How access to the building is controlled.
  • Construction of the building and location of the offices.
  • Management policies around workplace violence, weapons, and employment screening.
  • Employee security procedures.
  • Emergency response/crisis management plans and procedures.
  • Fire/life safety program.
  • A list of security staff.

As we move into 2014 without Congressional action on TRIA, the reaction of the marketplace is expected to become more pronounced. It is imperative that employers prepare to address the concentration issues with their carriers. This will help lessen the impact of these concerns and position employers to receive optimal terms on their risk management programs.