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Recession: Airline operators jettison annual insurance

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By Rosemary Onuoha
AS the economic recession continues to bite harder on businesses in the country, airline operators have been forced to insure their airplanes on monthly basis in contrast to the previous practice where they insure on annual basis.

Also, the ‘no premium, no cover’ policy of the National Insurance Commission, NAICOM, have also forced operators in the aviation sector to take up monthly insurance for their fleet.

NAICOM decided to enforce the ‘no premium, no cover’ policy in 2013 due to the huge outstanding premium on the books of insurers.

Aviation insurance took up a huge chunk of the outstanding premium before 2013 due to the fact that aviation companies buy insurance cover on annual basis but don’t pay premium until later into the year while some don’t pay at all if any of their airplanes is not involved in a crash.

Such developments not only increased the credit risk of insurers, but also introduced uncertainty in the market as to the capacity of many insurers to meet their obligations to insurance policyholders and other stakeholders.

As a result, NAICOM with effect from 1st January, 2013, commenced the enforcement of sanctions against insurance operators who issue policies or grant covers in violation of Section 50 (1) of the Insurance Act 2003; which stipulates that “the receipt of an insurance premium shall be a condition precedent to a valid contract of insurance and there shall be no cover in respect of an insurance risk, unless the premium is paid in advance.”

Consequently, only insurance covers for which full premium have been received in advance, either directly by the insurer or through a duly licensed insurance broker, are recognised as insurance contracts in the eyes of the law.

Accordingly, no insurer can grant insurance cover without having received full premium or premium receipt notification from the relevant insurance broker as any insurance contract issued contrary to the policy is null, void and of no effect and NAICOM will sanction any operator that issues a policy or grants a cover relating to such a contract.

Also, airlines are guided by the provisions of the Montreal Convention 1999, which specified mandatory adequate insurance covering of liability of any airline while in international flight operations.

The Airline still stand the risk of being grounded in less than a month’s time if it fails to meet full compliance to the insurance requirements.

The Montreal Convention is a multilateral treaty adopted by a diplomatic meeting of International Civil Aviation Organisation (ICAO) member states in 1999. It emphasises safety precautions including insurance in aviation industry.

According to Article 50 of the Montreal Convention 1999 which deals with insurance, “State Parties shall require their carriers to maintain adequate insurance covering their liability under this convention. A carrier may be required by the State Party into which it operates to furnish evidence that it maintains adequate insurance covering its liability under the Convention.”

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