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Responding to the changing shape
of riskAirline Treasury & Risk Management Forum
© 2016 Willis Towers Watson. All rights reserved.
Dubai, October 4th 2016
Number of Fatalities and Fatal Accidents*
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100
200
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10
15
20
25
30
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Nu
mb
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Fa
tali
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Nu
mb
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Fa
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nts
Jet Fatal Accidents Turboprop Fatal Accidents
Turboprop Fatalities Jet Fatalities
*figures courtesy of IATA
Number of Passengers carried and Fatalities per Passenger carried*
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-
50
100
150
200
250
300
350
400
450
0
0.5
1
1.5
2
2.5
3
3.5
4
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fa
tali
tie
s p
er
Billi
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Pa
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en
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rs C
arr
ied
Nu
mb
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of
Pa
ss
en
ge
rs C
arr
ied
(B
illi
on
)
Passengers Carried Fatalities/ Billion Passengers Carried.
*figures courtesy of IATA
Middle East & North Africa*
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2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
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ts p
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Mil
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tors
All Accident Rate Hull Loss Rate Fatal Accident Rate
Middle East & North Africa (MENA)
MENA saw no hull losses or fatal accidents in
2015 and had an overall accident rate of 1.67
accidents per million sectors.
All three rates have shown significant &
consistent improvement since 2009.
*figures courtesy of IATA
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“The most powerful engine of progress is
to be found deep within the culture of the
(aviation) industry: instead of denying
failure, or spinning it, aviation learns
from failure” Matthew Syed: ‘Black Box Thinking – The
Surprising Truth About Success’
Insurance Industry Dynamics
10
Soft Market Conditions
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2016 Cumulative Monthly Claims
11
Hull & Liability
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0
250
500
750
1,000
1,250
1,500
US
$ (
Millio
ns)
Jan – Sep Jan – Sep Jan – Sep Jan – Sep
2012 2013 2014 2015
US$426m
HULL RESERVE
US$124m
LIAB RESERVE
US$349m
ATTRITION
US$899m
TOTAL CLAIMS
US$ 1,129m
4 YEAR AVERAGE
SEPT
SOURCE: WILLIS TOWERS WATSON DATA:
LOSS DATA SHOWN IS TO THE BEST OF OUR KNOWLEDGE AT THE TIME OF PUBLICATION.
Jan – Sep
2016
Market Premium & Claims
12
Hull & Liability
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25%
50%
75%
100%
125%
150%
175%
200%
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
CALENDAR YEAR
Premium Claims Loss Ratio
Focus on Risk Management : ‘Attrition Claims’
13
At Today’s Level of Premium, it is the Challenge
2010 2011 2012 2013 2014 2015
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Attrition Losses
Premium
Reducing volume of premium to pay
for major losses
Attrition losses eroding catastrophe
related premium
Many airlines are paying premiums far lower than the value of one engine
Responding to the changing shape of risk
© 2016 Willis Towers Watson. All rights reserved.
Where to next…?
Where to next….?
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“How can we think of risk transfer
solutions before we understand the
risk itself?”
“Ten to 15 years ago, three of the
top 10 risks would have been
covered by insurance. Now it may
be just one,” John Hurrell, AIRMIC CEO
The world is changing…
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The Risk Index: who participated?
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350companies
110
CEOs
80 CFOs
80 CHROs
80 CROs
Global coverage
Assessed
50 risks over
5 megatrends
117land companies
63sea companies
170air companies
60% of respondents have
revenues over $5 billion
90% have revenues over
$1.5 billion
Additional
qualitative
interviews
Megatrends
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“Some of the riskier environments are disproportionately complicated
for us as a business. We believe complexity is the enemy of cost; so
keep it simple”Peter Duffy, Group Commercial Director: Customer, Product &
Marketing, easyJet
“One of my first questions when I’m meeting an airline CEO is: “how’s
business?” Invariably, they quickly talk about the competitive
environment and how it’s constantly getting tougher with new carriers
coming in”Tony Tyler, outgoing Director General and CEO, IATA
“Talent management is the biggest opportunity because business is
done by people. Technology is not a replacement for people; it is a
complement for people”COO, Leading container operator
“There has been such a large amount of regulatory change in such a
short period of time… It has added very significantly to costs and
complexity and those two things together are always bad for business,
and for the consumer in the end”Peter Norris, Chairman, Virgin Group
“It’s not so much one problem, it’s a whole bunch of people who want to
do bad things to your organisation who are taking advantage of the
changing dynamics of global technology to be able to do those things
more easily” James Hatch, Director of Cyber Services, BAE Systems
Applied Intelligence
2
1
Geopolitical instability and
regulatory uncertainty
Digital vulnerability and
rapid technological
advancement
3
4
5
Changing market dynamics
and business model
insecurity
Complex operating models
in an interconnected world
Talent management and the
complexities of a global
workforce
Megatrends in practice
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“We want to double our service but
regulations aren’t allowing: Scoot’s
India head”
Business Standard 20 August 2016
“Cyberattack claims multiple airports
in Vietnam”
Washington Times 29 July 2016
“$54m cyber fraud hits
aircraft supplier share
price”Computer Weekly 22
January 2016
“Airline stocks lose
altitude after terror
attacks”
The Times 20 September
2016
“India poised to become one
of world’s largest aviation
markets”
Business Today 25 August
2016
“Airlines knocked due to fare
pressure fears”
Financial Times 21 July 2016
“U.S intelligence to help
companies avert supply-chain
hacking”
Bloomberg 10 August 2016
“Robots may solve the global
air traffic controller shortage”
Skift 15 August 2016
“Hundreds of flights cancelled
as typhoon hits Tokyo”
BBC News 22 August 2016
“Shrinking pool of future pilots
keeps major airlines on edge”
Bloomberg 29 June 2016
2
1
Geopolitical instability and
regulatory uncertainty
Digital vulnerability and
rapid technological
advancement
3
4
5
Changing market dynamics
and business model
insecurity
Complex operating models
in an interconnected world
Talent management and the
complexities of a global
workforce
Top 10 air sector risks
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1
3
5
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2
4
6
1
0
8
Failure of critical IT systems
Dependence on 3rd party suppliers
Extreme weather events/ natural
disasters, epidemics and armed
conflicts
Competition/anti-trust law scrutiny
associated with M&A activity
Change in seasonal demand
leading to shortfall or oversupply
Inability to keep up with pace of
change and technological
advancement
Threat from new and emerging
competitors
Over-dependence on national
infrastructure
Increased security threat from cyber
and data privacy breachesSocial unrest, involuntary migration
and terrorist threats
Top 10 Risks to Middle East & African Air-related companies
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• Over-reliance on tech.,
increasing risk of
human error
• Failure of critical IT
systems
• Increased security
threat from cyber & data
privacy breaches
• Staff retention
• Inflexible asset
agreements in a rapidly
changing economic
environment
• Threat from new &
emerging competitors
• Volatility of interest
rates, currencies, fuel &
commodities impacting
cost model
• Social unrest; involuntary
migration & terrorism threats
• Competition law scrutiny
associated with M&A activity
• Protectionist policies and
regulation restricting open
competition
23
Our Transportation Risk Index gives you
perspectives from your industry which allow you
to…
Understand how your approach to risk
compares to that of your peers…
…identify future challenges
and unlock opportunities to gain a
competitive advantage© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
25© 2016 Willis Towers Watson. All rights reserved. Proprietary and Confidential. For Willis Towers Watson and Willis Towers Watson client use only.
Focus Offerings
Core Products
People protection
Political violence/
risk/ terrorism/ war
on land
Kidnap & ransom
Insurance
Duty of care
Location/ site
protection
VAPOR
Corporate all risks
evacuation
Impairment of
access cover
Alert 24
Intelligence systems
& generation
consultancy
Country conflict
threat baseline
surveys
Excess AV52E (Third Party
War Liability)
Personal Accident, Loss of
Licence
Hull, Liability and Spares
Hull War
Hull Deductible
Airport Owners / Operators
Liability including Air Traffic
Control
Refueling liability
Premises, Products and
Hangar keepers Liability
Manufacturers products liability
DIGITAL VULNERABILITY
Cyber risk
analysis and
protection
CrimeStar
Darktrace
Affinity
Solutions
Loyalty
Adviser
Business
continuity
planning
Credit & mortgage
default protection
Trade credit
TCR reduction
Operational risk
optimisation
Risk finance
planning
Captive advice,
management &
optimisation
Global peril
diagnostic
Environmental
liability protection
Global programme
analysis
Business continuity
planning
24/7 intelligence
alerts
COMPLEX OPERATING
MODELS
M&A (people
and assets)
Due
Diligence
Warranties
&
Indemnities
Reputational
Risk
Protection
Nat Cat
Review
Weather
Index
Solutions
Impairment of
access cover
Enterprise
risk
management
TALENT MANAGEMENT
Benefits marketplace/
global access
Talent risk consulting
Change enabled
programme
management
Career and capabilities
framework
Employee
assessments and
insights
Compensation
software
Pension change
communications
Executive risk
insurance
Falck and Alert 24
Alternative
risk transfer
(ART)
Dual-trigger
solutions
Business
continuity
planning
Captive
advice,
manageme
nt and
optimisatio
n
CHANGING MARKET
DYNAMICS
GEPOLITICAL INSTABILITY & REGULATORY UNCERTAINTY
Security staff intelligence analysis training
Top 10 Risks to Middle East & African Airlines
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• Inability to keep pace of
change in technological
advancement
• Increased security
threat from cyber & data
privacy breaches
• Staff retention
• Change in demand due to
macroeconomic conditions
• Extreme weather events,
epidemics & conflicts
• Disruption to operations
due to security issues
• Volatility of interest
rates, currencies, fuel &
commodities impacting
cost model
• Threat from new &
emerging competitors
• Social unrest;
involuntary migration &
terrorism threats
• Competition law
scrutiny associated with
M&A activity
Impressing the Insurance Community
Promoting your Advanced Practices in Safety & Security
Safety Culture
- Continuous improvement of safety
culture
Flight Deck Automation
- Crew readiness to intervene/override
systems to mitigate flight path related
risks
- Training enhancement via evidence
base training (EBT).
Flight Path Monitoring & Control
- Effective monitoring
- Stabilised Approach especially for
regional operators (FDM)
Pilot Psychology & Awareness
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Runway Safety
- Bird strike, ground collision, ground
handling and runway incursion
- Operations in newly develop air fields
and with construction work
Aviation Security
- Enhancement of intelligence activity
- Security information sharing with other
carriers
- Developed, strong safety & security
culture
Fatigue Risk Management
Lithium Battery Carriage
Insurers offer Risk Management Bursaries that fund safety improvements