Airport Insurance Requirements (2023)

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7   This chapter presents the insurance-related risks most commonly faced by U.S. airports and discusses how airports address them. These risks were identified through a survey and inter- views conducted as part of the research and development of this ACRP guide. A synopsis of risks by airport hub size is also presented. The last part of this section presents an assessment of risks considered by FAA region and concludes with a discussion of risks faced within densely populated areas. Numerous and wide-ranging risks are faced by airports. Claim amounts and jury awards associated with many of these risks have increased in size and frequency over the past decade. The following risks faced by all aviation-related organizations, including airports, are identified in a recent publication by a major global aviation insurance carrier, Allianz Global (Hubman et al. 2018): 1. Cyber incidents, 2. Business interruption (supply chain disruption), 3. Changes in legislation and regulation, 4. Market developments (volatility, competition, stagnation), and 5. Natural disasters (storm, flood, earthquake). 2.1 Top Airport Risks While the risks identified above can affect the entire aviation industry, the risks faced by airports are the focus of this guide. In a survey of airport risk managers throughout the United States conducted for the development of this guide, risk management personnel were asked to identify the top three risks for their airports. The survey findings identified the top risks as economic risks, slips and falls, natural disasters, and cyber and privacy breaches. Of these, the risks that can be managed with insurance programs and contractual risk transfer are slips and falls, natural disasters, and cyber and privacy breaches. These and other insurable risks and how they can be managed with insurance are the topic of this guide. Other, noninsurable risks, including economic impacts and downturns, are briefly described, but are outside the ACRP-defined scope of this project’s research and findings. The top three insurable risks listed by the airport risk managers surveyed were slips and falls (62%), natural disasters (37%), and cyber or privacy breaches (33%). All the risks listed below were consistently listed as top risks by the industry personnel surveyed and interviewed: Top insurable risks: • Slip and fall accidents, • Natural disasters, Risks Faced by Airports C H A P T E R 2

8 Airport Insurance Requirements • Cyber or privacy breach, • Threat of shutting down operations, • Employee injuries, • COVID-19 and pandemic recovery, • Ramp traffic and congestion, • Vehicular risks, • Liability arising out of construction and third parties, and • Aging infrastructure and systems. Top uninsurable risks: • Economic risk, including changes in the economy or market conditions; • Regulatory and compliance risk; • Employee turnover; and • Loss of airline contracts. The following sections address each of the insurable risks and how airports are managing those risks. Section 2.2 briefly describes the top uninsurable risks. 2.1.1 Slips and Falls on Airport Premises The survey identified that the top risk faced by airports is slips and falls, with more than 62% of airports surveyed indicating this category as the biggest risk. Despite the significant improvements that have been made to many airports’ infrastructures in recent decades, airports continue to see a high volume and growing magnitude of claims in this risk category. Airports also continue to see a trend toward higher liability award amounts for claims involving a lawsuit. Many U.S. airports are updating aging infrastructure and expanding terminals due to increased passenger traffic over the past several years (ACI 2020b). When an airport increases its capacity through the addition of new terminals, it is common to see an increase in slip and fall accidents. Airports are some of the largest facilities open to the public in many cities, and upkeep and regular maintenance can be more challenging compared with that of smaller facilities routinely used by the public. Conditions such as low lighting, broken flooring, slippery areas, loose carpeting, and tripping hazards are some of the most common causes of airport slips and falls. Inadequate maintenance can also be a major contributing factor to these problematic conditions. A simple Internet search for “slips and falls at airports” provides a very informal confirmation of why this risk is a top concern among airports nationwide. A quick search found more than two dozen websites advertising law firms that specialize in the prosecution of airports over accidents related to slips and falls in the United States. Further, the level of airport staffing has not caught up with the postpandemic travel rush. Lower numbers of maintenance crews are translating to more trips and falls as airports fail to keep maintenance up with postpandemic high traffic volumes. While slips and falls seem to be the most prevalent risk at U.S. airports, the average claim cost associated with a slip and fall accident is just over $100,000 per event, according to a leading aviation insurance company. (Several leading national aviation insurance brokers and under- writers provided information through interviews for this guide but requested not to be cited.) This accounts for less than 10% of overall claim costs experienced by airports nationwide according to loss analysis provided by a leading aviation insurance company. The dollar amount can be insignificant relative to the actual cost of a cyberattack on an airport. In nearly all cases, airports tend to address this risk through insurance and loss control and prevention measures.

Risks Faced by Airports 9 2.1.2 Natural Disasters Risk managers from airports of all sizes indicated in the survey that a top risk was natural disasters such as hurricanes, tsunamis, tornados, floods, or earthquakes. Thirty-seven percent of the responding airports indicated that natural disasters or weather-related events are on their list of top risks facing the organization. Often, airports are a key, and sometimes the only, mode of transportation in and out of a region when a major disaster hits. It is important for airports to continue operations so first responders or urgently needed supplies can be delivered following the disaster. Fortunately, airports are known to be remarkably resilient (Schlumberge 2015). While other modes of transportation can experience shutdowns for days or weeks, airports are usually operational within a shorter period, since runways can be cleaned of debris quickly and suffer little to no damage, even after strong earthquakes. After a natural disaster, managing airport operations can be complex and challenging. The risks associated with continuing business operations can be far-reaching. It is critical that air- ports maintain a business continuity plan to prepare for such disasters. Planning financially for these types of events is a related, but different issue with its own complexities and challenges (what will go wrong, when, and how much it will cost). Over the past two decades, the United States has experienced more than 200 weather and climate disasters, each exceeding $1 billion in costs, with a total cost of more than $1.67 trillion (NCEI 2021b). Severe storms, major wildfires, flooding events, tropical cyclones, and major winter storms constitute the list of costly events. Tropical cyclones have caused the most damage, with costs totaling $885 billion, and have the highest average cost, at $19.9 billion per event. Estimates of the total amount or percentage of total costs incurred directly by airports due to natural disaster could not be found. The number and cost of natural disasters in the United States has been increasing over time due to a combination of factors. The National Oceanic and Atmospheric Administration (NOAA) National Centers for Environmental Information (NCEI) reports that there is more exposure or value at risk in the United States in general. In addition, assets are increasingly vulnerable due to higher-powered storms (e.g., storms with higher wind speeds or greater flood depths) and possibly increased frequency of powerful storms due to climate change. In 2020, the U.S. recorded 22 billion-dollar-plus natural disasters—the most for a single calendar year— which resulted in total costs of more than $98 billion (NCEI 2021b). Seven of those events were billion-dollar tropical cyclones that struck the United States throughout the year. Airports are at greater risk of being impacted by a natural disaster simply because of the growing frequency and strength of storms. With airports increasing their footprint around the United States and enhancing their infrastructure, it makes sense that a top concern is managing airport risk from natural disasters. It is typical for airports to address this risk financially through insurance and loss control and prevention measures. Damage by a natural disaster to first-party property owned and operated by the airport is typically insured under a property insurance policy or, if the property is under construction, through a builder’s risk insurance policy. This is discussed more in Chapter 3. 2.1.3 Cyber or Privacy Breach Cyber risks such as hacker attacks, system outages, and data breaches rank in the top three major concerns for airports. More than 33% of airports of all sizes surveyed indicated a cyber- attack is consistently on their list of top risks faced by the organization. Airports’ increased

10 Airport Insurance Requirements concern about cyber incidents is not surprising, given some of the high-profile cyber incidents that have been reported over the past several years: • Cleveland Hopkins International Airport (CLE), April 2019: Airport flight and baggage information screens as well as email systems were disrupted following a malware attack on the city’s servers (Naymik 2019). • Hartsfield–Jackson Atlanta International Airport (ATL), March 2018: The airport shut down Wi-Fi and disabled parts of its website following a ransomware attack on the City of Atlanta’s network servers that resulted in roughly $17,000,000 in damages and costs to repair its systems (Modak 2018). • San Francisco International Airport (SFO), March 2020: Hackers inserted malicious computer code on two airport websites to expose user login data and credentials (Winder 2020). Airports are a critical part of our nation’s infrastructure and integral to each region’s economy. Airports directly and indirectly impact everyone’s life (Spaniel and Eftekhari 2019). Due to these factors, airports can be high-profile targets for cyberattacks that can disrupt and endanger airport operations and passengers, interrupt and inconvenience business, and damage an organization’s reputation. Virtually all operations of a modern airport depend on Internet connectivity and the airport network in some manner. Airport information technology (IT) systems as well as operational technology systems, including networks and equipment that support daily airport functions, can be legacy or aging systems that may have limited security. As a result, airport networks can be vulnerable to cyberattacks. An attack’s outcome can range from a troublesome delay to something significantly more serious and costly. The example cyberattack scenarios listed in Figure 2-1 are from a recent publication, Hacking Our Nation’s Airports: Cyber-Kinetic Threats to the Technologies Running Airport Operations, published by the Institute for Critical Infrastructure Technology, a cybersecurity think tank (Spaniel and Eftekhari, 2019). According to the Cost of a Data Breach Report 2021 (Ponemon Institute and IBM Security 2021), the average total cost of a data breach for an organization in the United States is $9.05 million. This makes this risk expensive as well as high-profile enough to damage an airport’s reputation. The average time to identify and contain a data breach was 287 days, according to the study. More and more airports are using insurance to address the risk of a cyberattack. While cyber liability insurance already has been widely embraced in some industries, airports have been slower to adapt to the purchase of cyber insurance. In one of the interviews conducted for the development of the guide, a leading commercial aviation insurance broker who specializes in airports estimated that less than 40% of airports purchase cyber liability coverage. Other industry insurance professionals indicated that this could be an area to improve in an airport’s risk management practices. This subject is discussed in more depth in Chapter 3. 2.1.4 Threat of Shutting Down Operations An operational shutdown at an airport can happen for several reasons. A shutdown may be related to other risks discussed in this section, such as a cyberattack or natural disaster. In general, a shutdown of an airport is defined as a temporary yet entire closure of the airport with respect to air traffic, implying that no air traffic would occur for a certain period of time (De Langhe et al. 2013). This may happen if airport management determines that operations cannot be performed safely. In the survey of the airport industry conducted for the development of this guide, 20% of large hub airports listed the risk of shutdown as one of their top risks. In addition to the cost of the damage from, for example, a natural disaster, a shutdown of airport operations could be

Risks Faced by Airports 11 costly in terms of loss of revenue, extra operating expenses, or atypical costs required to operate the airport until it restores normal operations. Because airports are fairly resilient, they are often able to restore operations within a matter of hours. In the case of some major events, however, restoring operations can take days or weeks. The costs associated with an airport shutdown have not recently been documented. Little information is available to quantify this risk. Interruption of business operations continues to be one of the hardest risks to quantify for any industry. One commercial aviation insurance broker interviewed suggested that because of airports’ resiliency and practice of emergency response planning, for most, lost profits resulting from a temporary shutdown are well under $10,000,000. A study performed by Allianz Global suggests that the average business interrup- tion insurance claim is more than $2,000,000 (Hubman et al. 2018). The threat of an operational shutdown resulting from certain catastrophic events may be treated through business inter- ruption insurance coverage, which may be purchased as part of an airport’s property or cyber insurance program as discussed further in Chapter 3. Examples of Events That May Trigger an Airport Shutdown • Wildfire • Active shooter • Cyberattack • Earthquake • Terrorist attack • Explosion • Flood • Major storm • Civil authority • Tornado • Volcanic activity • Tsunami/hurricane • Fire • Security issues • Aircraft accident Source: Adapted from Spaniel and Eftekhari (2019). Figure 2-1. Examples of airport cyberattacks.

12 Airport Insurance Requirements 2.1.5 Employee Injuries Airports, which employ thousands of people year-round, are usually one of the larger employers in any given region. A large employment base can be the cause for employment- related injuries. Sixteen percent of the airports surveyed indicated that injury to airport employees was a top risk for the organization. According to the National Safety Council, an organization that collects data on worker injuries throughout the United States, nonfatal injuries at work on average for all industries are declining due to organizational focus on increased safety (NSC 2021a). However, given an airport’s size and unique set of risks, one can understand the continued concern for the risk of employee injuries, especially given rising medical costs associated with treating an injured worker. The risk of an average employee injury can generally be resolved quickly and inexpensively in comparison with other losses. The risk is usually addressed through safety and loss control programs, along with a workers’ compensation insurance program, which is described in more detail in Chapter 3. Average workers’ compensation claims for airport workers around the country can vary depending on jurisdiction but generally run just under $50,000 (NCCI 2021; NSC 2021b). This average contemplates lost wages, medical expenses, and administrative expenses. Employee injuries are usually addressed through workers’ compensation insurance, which covers the cost of medical care and rehabilitation, if necessary. It also provides compensation for lost wages and a death benefit to dependents in the event of a work-related death. Workers’ compensation insurance coverage is designed to be an “exclusive remedy” for at-work injuries, as the employee gives up the right to sue the employer for injuries caused by the employer’s negligence. In return, the worker receives compensation benefits regardless of who or what caused the accident if it happened at work. Each state has its own set of regulations regarding workers’ compensation insurance and handles claims processing differently. At the time of this report, four states (North Dakota, Ohio, Washington, and Wyoming) are considered monopolistic and prohibit the use of commercial workers’ compensation insurance coverage. Instead, the states require participation in the state- sponsored workers’ compensation insurance fund. 2.1.6 COVID-19 and Pandemic Recovery Another major risk noted by airport risk managers and insurance industry professionals was COVID-19, a virus caused by SARS-CoV-2. In 2020, COVID-19 hit the aviation industry hard and halted traffic at major airports around the world. Prior to the pandemic, airports in the United States facilitated more than 2,600 average aircraft departures per day, according to data published by the International Civil Aviation Organization (ICAO 2021). After the pandemic was well underway and U.S. businesses were shutting down, average daily airport departures dropped significantly to a low point of 425 per day on April 13, 2020 (see Figure 2-2). Transpor- tation Security Administration (TSA) checkpoint numbers were down 96% in mid-April 2020 from prior years (ACRP 2020). In the survey conducted for this project, 72% of airport organizations indicated that COVID-19 changed their risk profile (Figure 2-3). Not surprisingly, 100% of the responding airports indicated a significant drop in revenue in the year the pandemic hit. In the survey and interviews conducted for this guide, airport risk managers identified different risks associated with the COVID-19 pandemic, ranging from the loss of revenue to employee Examples of Common Injuries to Airport Employees • Slips, trips, and falls • Lifting and carrying accidents • Machinery accidents • Transportation accidents • Chemical exposure • Noise exposure • Being struck by an object • Physical exposure

Risks Faced by Airports 13 and customer illnesses that could cost large hub airports millions of dollars per day. Like other organizations, airports across the United States are concerned about exposure to lawsuits, not only as a result of COVID-19 illness (which may have been contracted while on airport premises), but also stemming from potential employee discrimination during layoffs and investors who are dissatisfied with management’s handling of the pandemic. Lawsuits from employees who may have contracted the virus while on airport premises may be subject to workers’ compensation insurance regulations, which differ by state. Many states have enacted legislation and issued executive orders that expand workers’ compensation benefits for workers who have contracted COVID-19. At the time of this report, regulatory and legislative activity involving COVID-19 continued to change. The average cost of a COVID-19 workers’ compensation claim in the year 2020 was roughly $6,000. This figure is based on year-end 2020 for private workers’ compensation carriers and workers’ compensation insurance state funds throughout the United States (Rosen et al. 2021). Lawsuits from current and former customers who may have contracted the virus while on airport premises can be subject to limitations or influence over case law in the same jurisdiction. As of the writing of this report, case law has not been established for lawsuits against airports for wrongful death or injury resulting from COVID-19 exposure. In a worst-case-scenario, estimates could be in excess of $1,000,000 per lawsuit, given the current environment, in which nuclear verdicts are on the rise in the United States. As airport reopening plans were implemented and operational staff learned how to manage an airport in a pandemic environment, most airport organizations were quickly able to adapt to new guidelines and issued safety directives such as mask usage. Cleaning protocols, masking requirements, and constraints to maintain social distancing, both in airports and on planes, appear to be vital in maintaining safe and effective operations (ACRP 2020). Source: ICAO (2021). Figure 2-2. Daily number of departures and weekly new COVID-19 cases in the United States. Figure 2-3. U.S. airports: Has COVID-19 changed your risk profile?

14 Airport Insurance Requirements While the full financial impact of the COVID-19 pandemic on U.S. airports is still unknown, there are some estimates regarding how much the industry may lose as the pandemic and its effects linger. According to a press release by ACI-NA in January of 2021, airports in the United States could lose at least $17 billion between April 2021 and March 2022 because of continued downturn in commercial airline travel (Shepardson 2021). This is in addition to the $23 billion in losses already sustained by U.S. airports between March 2020 and March 2021. COVID-19 and uninsured property insurance claims are discussed in more detail in Section 3.1.4 of this guide. 2.1.7 Ramp Traffic and Congestion While airports continue to expand around the country to accommodate long-term trends in passenger growth, many have not staffed appropriately to keep pace with rapid travel growth. It is not uncommon for airports to experience flight delays related to ramp traffic and ground congestion. Ground congestion, which can result in ramp accidents of all sizes, can also be a safety concern. Large hub airports surveyed indicated ramp and traffic congestion as a top risk faced by their organization on a regular basis. A safe operating environment in the ramp area is the responsibility of the airport as well as the airlines operating within the area. The airport is also responsible for the development of directives and rules for using the ramp and ensuring that tenants and service providers adhere to the requirements. It has been suggested that, to alleviate ramp traffic and congestion, airports reconfigure or optimize their taxiway flow in a way that makes sense for the tenants, air traffic control, and the airport itself (AGCS 2019). Effective communications and ramp guidance can also contribute to reducing ramp incidents. Regardless of loss mitigation efforts, ramp accidents happen and have been on the rise during years of growth in airport traffic. The airport risk managers interviewed indicated that pedes- trian injuries caused by on-ramp vehicles continue to be a major concern. Recent claims data shared by a leading aviation insurance company indicated that pedestrian–vehicle incursions on the ramp were one of the top five most costly accidents, with an average claim cost of more than $80,000 per accident. Even more costly were cargo damage claims, at an average cost of $120,000 per accident. Aircraft damage claims are just under $180,000 average cost per accident. In most cases, airports tend to address this risk by ensuring ramp operators have insurance in place for such incidents. This subject is discussed in more detail in Chapter 4. 2.1.8 Vehicular Risks Airport risk managers’ survey responses and interview comments consistently referenced automobile accidents as one of the top risks faced by airports. Thirty percent of the medium hub airports surveyed considered vehicular accidents and resulting damage as one of their top risks. Vehicles that operate in and around airports face unique risks that may not be encountered outside of airport property. For example, operators of vehicles must get air traffic control’s permission to access certain portions of the airfield prior to movement onto a runway or taxiway. Inadvertent entry by vehicles into movement or nonmovement areas of an airport pose a danger to both the vehicle operator and aircraft that are attempting to land at, take off from, or taxi across the airport. One of the interviewees for the guide, Dr. Paul M. Foster, adjunct professor at Embry–Riddle Aeronautical University (ERAU) and current program manager of Examples of Ground Claims or Accidents Resulting from Ramp Traffic and Congestion • Vehicle on ramp hits pedestrian • Aircraft damage • Cargo damage on the ramp • Mobile equipment or vehicle damage • Injury by luggage on ramp

Risks Faced by Airports 15 the FAA Safety Team, noted the following steps that can be taken to prevent or reduce vehicle accidents on the ramp (Foster 2006): • Enhanced training procedures and policies. In addition to establishing procedures and policies, airports should incorporate the procedures and policies in operator and lease agreements and enforce them regularly. • Vehicles marked for high visibility. Vehicles operating during daytime hours should be flagged or marked for the highest level of visibility while operating on the ramp and be fully lighted at night. • Specific training on airfield markings. Carriers or operators should invest in training and education for signage, lights, and markings specific to the airport. As a result of ramp accidents involving vehicles, FAA has also issued operating manuals on ground vehicle operations as well as best practices for driving vehicles on the airfield (FAA 2015). Landside and outside of the passenger terminal, vehicle risks are similarly heightened, with increased traffic around the airport by shuttles, buses, personal cars, and ride-sharing vehicles. Congested parking lots and distractions due to use of mobile phones and real-time navigational maps increase risks. Interviews with airport risk managers indicated a growing concern with the surge in ride-sharing services and increased automobile liability risks. A growing emphasis is being placed on transferring these risks to ride-share operators. According to claims data provided by a leading aviation insurance company, at least 38% of premises liability claims at airports are vehicle-related. While vehicular accidents on and off the ramp tend to be less expensive than accidents involving aircraft, they tend to be more frequent. In most cases, airports tend to address this risk by ensuring that operators (on and off the ramp) have insurance in place for such incidents. This subject is discussed in more detail in Chapter 4. 2.1.9 Liability Arising Out of Construction and Third Parties This guide specifically excludes risks associated with construction at airports. However, a brief overview here provides general information on airport construction-related risks. Some airports surveyed indicated construction as a current leading risk for their organization. There are more than 4,000 public airports in the United States, and most of them are owned and managed by local governments. At airports, similar construction risks and issues are faced, regardless of airport size or size of the construction project. There are some differences, though, depending on an airport’s risk profile. In addition to the general construction-related risks, construction at an airport can interfere with the following unique situations and put the airport, employees, and various other third parties at risk (FAA 2012): • Overlooked construction Notice to Airmen (NOTAM); • Changes to air traffic control communication; • Changes to airport signage that affect pilot visual cues; • Delayed airport diagrams, charts, or publications that lag behind construction; • Hazardous materials uncovered during construction [e.g., per- and polyfluoroalkyl substances (PFAS)]. As a large and visible public entity, an airport can also be at a higher risk for increased litigation (Liberty Mutual Insurance 2020). These combined factors require additional oversight and risk management regarding safety, loss control, and contractual risk transfer.

16 Airport Insurance Requirements For additional information on construction-related legal issues, readers are referred to ACRP Legal Research Digest 38: Legal Issues Related to Large-Scale Airport Construction Projects (Shrestha et al. 2020). 2.1.10 Aging Infrastructure and Systems Aging infrastructure and systems are an ongoing concern for airport risk managers around the United States. Some airports surveyed indicated that their airport’s aging infrastructure and systems were a constant, high-level risk facing their organization. The COVID-19 pandemic brought a sharp decrease in airport revenues and, in some cases, stalled planned updates and improvements. According to the 2021 ACI-NA report on airport infrastructure needs, the unexpected drop in revenue forced airports to prioritize short-term urgent maintenance issues rather than pursue long-term system upgrades that would benefit the airport and traveling public for decades to come (ACI-NA 2021). Even before the COVID-19 pandemic in 2020, when airport passenger traffic plummeted, airports nationwide had a backlog of $115 billion in planned infrastructure updates. In its report, ACI-NA comments on the average age of an airport terminal: Across the country, the average airport terminal is over 40 years old, meaning many of these facilities were built well before 9/11 and have needed to undergo multiple rounds of complex infrastructure changes. . . . Old Infrastructure isn’t just an aesthetic concern, but a functional, safety, and business concern. (ACI-NA 2021) When nonhub and small, medium, and large hub airports were surveyed and interviewed about top risks facing their organizations, aging systems and infrastructure was a consistent theme. It is not uncommon for a large hub airport serving a major metropolitan area to have been built 50–100 years ago. Common upgrades planned by airports include updated passenger check-in facilities, modernized baggage claim systems and facilities, upgrades to automated people movers, concourse and gate expansions, terminal modernization projects, parking and traffic circulation overhauls, air cargo facility expansions, and runway extensions. These upgrades provide essential space and technology for passengers and airline operations. When systems and infrastructures—for example, an aging building—are not upgraded, they can cause safety issues and bring increased frequency of losses and insurance claims. The recent ACI-NA report on airport infrastructure notes that many airports have not kept pace with the addition of larger aircraft to airline fleets and aircraft technology throughout the years, resulting in less-than-ideal operational conditions: With the introduction of newer larger jet aircraft, airports need greater runway capacity. In some cases, such as Hollywood Burbank Airport (BUR), the only viable option is to replace and relocate passenger terminal infrastructure—all of which is a costly investment. While the current terminal is within Federal Aviation Administration (FAA) standards, the project is vital to ensure that the airport operates as safely as possible. Other airports also have unique needs that need funding, such as increasing capacity to de-ice airplanes and clear runways in the winter. (ACI-NA 2021) The cost of a loss or accident involving an old, outdated airport system is difficult to deter- mine. Recent claims data shared by a leading aviation insurance company suggest that aircraft damage is the most frequent and costly accident occurring at U.S. airports and represents 32% of all claims submitted, with an average cost of $180,000 per accident. In general, airports manage this risk through enhanced maintenance and loss control measures in addition to regular review of their business continuity or emergency management plans, to ensure parallel operation is possible during a catastrophe. In addition, major infrastructure upgrades are planned and funded through federal grants, a passenger facility charge local user fee, and tenant rents and fees (ACI 2021).

Risks Faced by Airports 17 2.2 Other Risks Not Addressed Through Insurance or Contractual Risk Transfer The risks discussed above are usually managed through insurance or a contractual risk transfer process. There are, however, other risks that airports face that cannot generally be passed on or transferred to another entity. Even so, airports need to proactively manage these risks to maintain healthy business operations and maintain their standing in the business community. The risks below were identified in the survey of airport risk managers conducted for the development of this guide. 2.2.1 Economic Risk The risk of changing economic or financial factors in the marketplace, often referred to as “economic” or “market” risk, has presented itself most recently and most significantly through the current COVID-19 pandemic. In 2020, the COVID-19 pandemic severely constricted air travel at airports around the world, causing an 83% decline in passenger activity (ICAO 2021). As of writing of this report, it is estimated that airports in the United States will lose at least $17 billion from April 2021 to March 2022 because of the continued downturn in commercial airline travel, and this is in addition to the estimated $23 billion loss of revenue in 2020 due to the pandemic (Shepardson 2021). In the survey conducted for the development of this guide, 16% of the responding airports indicated changing economic conditions as a top risk facing their airport. The risk of a financial downturn or economic instability has always significantly affected airports. In 2008–2009, airlines reported severe revenue losses during the subprime mortgage crisis. This crisis contributed to and was part of the larger global financial crisis that triggered a significant decline in both personal and business travel budgets (Dwyer 2019). Prior to the COVID-19 pandemic, the 2008–2009 Great Recession triggered the biggest economic downturn in history for airports across the United States (International Airport Review 2018). An economic downturn or slowdown can initially cause a drop in passenger traffic and airport revenues. In addition, though, the downturn can result in the tightening of markets and volatility in the credit and equity markets that trickles down to all aviation industry organiza- tions, including airports and the surrounding businesses which they support. Unlike pure risk, a speculative risk (a chance of a loss or gain) such as economic risk cannot be controlled or managed through a simple insurance policy. Airports require capital-intensive investments and long-term planning to support financial goals (such as necessary rates of return) that sustain the operation under economic risks. Many airports manage this risk by engaging in long-term financial planning and adopt and execute a risk management process such as enterprise risk management (ERM). Managing economic risks through ERM ultimately results in development of a risk response plan, which is a tool that records the risk and any mitigation measures the organization has in place to ensure the risk is managed at an acceptable level (Marsh Risk Consulting et al. 2012). A risk response plan typically assigns responsibility to individuals or team of individuals to monitor certain identified risk by continued reporting to executive leadership. Many airports are implementing ERM platforms and are at various stages of the implementation of these programs. 2.2.2 Regulatory and Compliance Risk The aviation industry must address and comply with numerous and wide-ranging regulations. Airports are required to comply with federal regulations overseen by federal agencies such as

18 Airport Insurance Requirements FAA, the Occupational Safety and Health Administration (OSHA), and the Environmental Protection Agency (EPA). Other regulations are administered by various state and local agencies. Planning for and complying with these regulations are critical for operational and public safety. State and local regulations vary from state to state and municipality to municipality. For example, in 2010, FAA published an initial Notice of Proposed Rulemaking that mandates the use of safety management systems (SMSs) at certificated airports (FAA 2016b). The goal of an SMS is for the airport to operate in an environment of increased safety designed to reduce injuries and losses. Many airports already had components of an SMS in place under existing safety procedures. However, an SMS does require a shift in some organizations regarding how safety is managed more proactively with an approach that anticipates safety risks (Ludwig et al. 2007). In addition, planning and complying with SMS requirements can involve more staff within the organization that are involved in the safety and risk management process. While there is no doubt this is beneficial in the long run, adopting SMS has short-term costs that can have a financial impact the organization. Airports often receive and operate with federal grants. When a grant is accepted, there are certain obligations that must be adhered to, including the operation of the airport facility in a safe and efficient manner (FAA 2014). When federal assistance is accepted, the obligations or conditions can be expansive and may change if, for example, more funding is later added to the grant. The Coronavirus Aid, Relief, and Economic Security (CARES) Act provided federal funds to airports of all sizes as economic relief to pay for expenses during the COVID-19 pandemic. The CARES Act came with a list of conditions airports must comply with, including ways in which the airport can and cannot spend the funds (FAA 2020). Any changes or amendments to the CARES grant agreement could financially affect an airport’s operating budget. Airport regula- tory and compliance risk cannot be managed through contractual risk transfer or an insurance policy. Instead, it is typically handled through the ERM process (as noted above). 2.2.3 Employee Turnover In addition to the complexity involved in ensuring smooth daily operations, maintaining airport security, and complying with regulations and compliance requirements, airports are facing new challenges that threaten to strain workforce capacity. These challenges include the impact of new technology, increasing financial pressures, and shifting workforce demographics as Baby Boomers retire and the labor pool becomes more diverse (Cronin et al. 2016). Many airports do not have workforce succession or training programs to help them prepare for replacing lost or retired employees. Or, in some cases, current workforce training may be better suited to train for historical rather than future industry needs. Additionally, airport employment needs compete with private-sector employment and jobs that can offer higher salaries, better benefit packages, and greater flexibility in terms of work schedules and environment. The aviation industry has seen workforce shortages and has had difficulty attracting special- ized employees throughout the past decade. The industry continues to see this as a challenge moving forward, and many airport risk managers surveyed indicated employee turnover or loss of talent to be a top risk for their organization. In the post-pandemic travel surge, airport concessionaires are facing severe shortages of workers to staff restaurants, bars, shops, ticket counters, and baggage-handling services. This worker shortage has had a negative impact on services at U.S. airports, as passengers wait in long lines at food establishments and airline ticket counters, to name just a few. An ACRP study on U.S. airport workforce challenges suggests that airports use the labor and workforce trends listed below as a basis for discussions and planning on how these trends

Risks Faced by Airports 19 could affect operational labor needs (Cronin et al. 2016). In addition, the report suggests that organizations periodically identify which positions or staff may be affected by these trends. The following industry trends affect airport labor and workforce shortages: • New technologies. Technological advancement can unroot current legacy employees, causing turnover, while lack of technology can hinder hiring new recruits. • Financial and commercial pressures. Skills required to quickly adjust to new economic conditions, such as the recent economic fluctuation caused by the COVID-19 pandemic, are often more common in private-sector talent pools. Airports that pursue these candidates are often priced out of the talent market. • Political pressures. Local or state government leaders may influence the success of or have a financial impact on an airport from a political or social perspective, such as wage/benefit structures dictated by local government. • Regulatory environment. As new regulations are added to an airport’s purview, airport employees are called on to do more, which may require investment in new technologies. • Changing demographics. Many airports have a seasoned workforce ready to retire within the decade, which could result in loss of institutional knowledge. With a new generation of employees replacing those who retire, airports are called on to meet the needs of a more diverse workforce. • Succession planning and leadership development needs. Training, skills, and experience needed for higher-level positions in the airport are unique to that organization, and so external hiring for a leadership role can be challenging. • Gaps in technical trades. Airports face a growing deficit of experienced trade workers across the country and limited ability to respond to salary competition. • Compensation competition. Valuable candidates and existing employees could be lost as a result of their lower-than-market compensation model. • Local job market factors. More time and effort could be required to attract talent in local job markets with a high concentration of other attractive employers. On the other hand, if a local market has limited job opportunities, the supply of talent could be minimal. 2.2.4 Loss of Airline Contracts The last major risk indicated by airport risk managers, and especially for smaller airports, was the loss of an airline contract because of financial pressures or competition between airports. In the survey done for this ACRP project, 25% of nonhub airports and small airports indicated losing a major airline’s service as a top risk in a recent survey. In the past decade, airlines have had more opportunity to choose which airports to operate out of, since some airports offer more attractive benefits than others (ACI 2020a). Certain smaller airports have only one carrier operating scheduled flights in and out of the airport. Some smaller airports may be more than 100 miles from another viable airport option or major city (Gao 2020). Loss of service not only means that travelers must drive farther out of their way to get to their destination, but it also cripples the local economy by eliminating revenue from visitors and depleting jobs supported by the airport. Following the onset of the COVID-19 pandemic, several smaller airports around the United States saw service cuts by major airlines because of the major downturn in air travel (Gao 2020). To curb lost earnings, airlines cut the frequency of routes and destinations to offset operating costs and better align with government shutdowns. According to Travel + Leisure, a travel magazine based in New York, the number of flights during the 2020 holiday season was cut in half (Thiruvengadam 2020). It is estimated that U.S. airlines will lose roughly $35 billion due to pandemic financial pressures (Gao 2020).

20 Airport Insurance Requirements Many small airports are called to diversify their offering of services to address this risk, for example, by offering general aviation services among other tactics to ensure revenue stability. ACRP Synthesis 19: Airport Revenue Diversification, notes several general sources of non- passenger revenue as important for contributing to airports’ business bottom line (Kramer 2010). Some of the revenue sources are cargo, maintenance, repair and overhaul facilities, general aviation services, and ancillary land use. 2.3 Risks by Airport Size Certain risks are shared by airports of all sizes. However, risks do vary slightly, depending on airport size. In an interview conducted as part of the development of this guide, a major aviation insurance carrier noted the following: While basic risks will be common across all airports, areas of focus can vary based on size, types of operations, and geography. Airports served by large air carriers obviously are concerned with safely managing large numbers of passengers on premises while smaller airports will likely be focused on general aviation operations. Smaller airports are also more frequently engaged in operations which can present primary aviation risk exposures such as hangaring or fueling. The survey conducted for the development of this guide identified some general risks according to airport size, which are discussed below. The discussion below covers insurable risk (although uninsurable risks, including economic risk, are included in the graphics of survey findings for completeness and for comparison). 2.3.1 Risks at Nonhub and Small Airports Both small hub and nonhub airports indicated that slips and falls were at the top of their lists of (insurable) risk concerns. Small hub airports identified natural disasters as equally high risk. Nonhub airports also noted COVID-19 and small hub airports noted cyber risks (Figure 2-4). Certain economic risks and the risk of losing an airline contract were mentioned by small hub and nonhub airports more frequently than by medium and large hub airports in the survey associated with this study. This may be because these airports are less able to respond to major economic trends than a larger airport in a metropolitan community (Spitz et al. 2015). Smaller communities may also have less influence on maintaining an airline’s service contract to and from their airport due to fewer potential passengers. Historic economic shocks and recessions, and, most recently, the COVID-19 pandemic in 2020 resulted in reduced overall demand for passenger air travel. Airlines responded by cutting Source: Data collected in the 2021 survey of U.S. airports conducted for the development of this guide. Figure 2-4. Risks at nonhub and small hub airports.

Risks Faced by Airports 21 passenger service and consolidating routes, which affects airline and airport revenue. In these circumstances, airports rely on different sources of revenue (Spitz et al. 2015). In terms of mitigating the risk of an economic downturn, there are minimal resources on industry best practices available to airports. Like any organization, financial planning and implementation of an ERM program are designed to address this risk. As mentioned above, some nonhub and small hub airports work to diversify their revenue stream to offset unforeseen economic losses or downturns by relying on other airport services such as cargo distribution (Kramer 2010). The survey and interviews conducted for the guide also indicated that natural disasters were viewed as a top risk for nonhub and small hub airports. Figure 2-4 provides details about the risk of a natural disaster, including how an airport might respond and estimated industry costs. Fortunately, an airport’s first-party damage or loss resulting from a natural disaster is a risk commonly addressed through insurance. With regard to transferring risk contractually through an insurance policy, the information available on industry standards and best practices for small nonhub and small hub airports is limited. One nonhub airport stated in an interview that it relies heavily on its insurance broker and insurance company for advice on what limits of insurance and insurance coverages to buy for disaster events such as a flood, hurricane, earthquake, or wildfire. To date, there has not been an independent source to provide general guidance on this subject to nonhub and small hub airports. Chapter 3 of this guide offers guidance in these areas. Another nonhub airport indicated that it was concerned with the risk associated with its third-party vendors, contractors, and tenants. While it contractually requires insurance coverage of these parties, there is no tracking system to ensure contract requirements are being met. Third-party contractual insurance compliance is fully addressed in Chapter 4 of this guide. 2.3.2 Risks at Medium Hub Airports Respondents at medium hub airports identified slips and falls as the top (insurable) risk (33%) (Figure 2-5), like their counterparts at airports of other sizes. One medium hub airport noted Source: Data collected in the 2021 survey of U.S. airports conducted for the development of this guide. Figure 2-5. Risks at medium hub airports.

22 Airport Insurance Requirements in an interview that it has recently seen a shift in its passenger profile from business travelers to leisure travelers and that, as a result, slip and fall accidents on moving walkways and stairs have increased substantially. Like the nonhub and small hub airports surveyed, the medium hub airports named natural disasters and weather-related catastrophes as a top risk. The one risk indicated by medium hub airports that was not a top concern for nonhub and small hub airports was vehicular risks (“auto”). Vehicular risks, their effect on airports, and potential ways to address these risks are discussed in more detail in Section 2.1.8. Other risks noted by staff at one medium hub airport included the following: • Transitioning to a more proactive risk management system, such as an SMS or ERM, • Conducting a major construction project onsite, and • Emerging risks such as autonomous vehicles. This airport also indicated that it was concerned with tracking third-party contractual insurance compliance for vendors and tenants and its ability to enforce contractual provisions. Guidance and best practices are provided for contractual risk transfer and third-party require- ments in Chapter 4 of this guide. 2.3.3 Risks at Large Hub Airports Unlike nonhub, small hub, and medium hub airports, the risk of cyber and privacy breach was the second highest (insurable) risk list for large hubs (Figure 2-6). Another difference between large hub airports and those in the other size categories was that large hub airports identified a larger array of risks (both insurable and uninsurable). The top (insurable) risks that large hub airports reported more frequently than nonhub, small hub, or medium hub airports were (1) the risk of a cyberattack, (2) employee injuries, (3) shutdown of operations, (4) vehicular risks (auto), and (5) ramp traffic. Source: Data collected in the 2021 survey of U.S. airports conducted for development of this guide. Figure 2-6. Risks at large hub airports.

Risks Faced by Airports 23 Regarding the risk of a cyberattack, it is possible that large hub airports are more concerned with this risk because this size of airport has been a more frequent target of cyberattacks than smaller airports. As indicated earlier, cyberattacks have taken place at three major U.S. airports in the past 3 years. In addition, large hub airports listed some risks that were not listed by nonhub, small hub, or medium hub airports: • Threat of shutting down operations, • Regulatory and compliance risk with change in federal or local regulations, and • Ramp traffic and congestion. Risks unique to large hub airports have to do with the resources and risk profile that comes along with being a large hub airport, including a higher community reliance on the airport for transportation in and out of a major metropolitan area, more political visibility, and more pas- senger traffic. The large hub airports surveyed were not concerned with aging infrastructure, which was a concern indicated by smaller airports. While aging infrastructure is a concern for any organization, larger airports are typically able to finance upgrades more readily, as they generate revenue through a more diverse set of sources. These sources include higher passenger facility charges, which contribute to total revenue, given the higher volume of passengers at a large hub airport (GAO 2020). The larger airports surveyed also expressed less concern than smaller airports about the risk of losing airline contracts, presumably because of the larger pas- senger traffic that attracts air carriers. Unlike smaller airports, it is common for large airports to have a formal risk manager or team of risk management professionals supporting the airport to help address risks on a regular basis. Formal risk management practices, including common contractual risk transfer practices and insurance purchasing decisions, are described in greater detail in Chapter 3. 2.4 Risks by Airport Region In addition to hub size, airport risks can be related to location and geography. FAA’s Flight Standards Service (known in the industry as “AFS”), part of the Aviation Safety Organization, promotes safety through regulations for pilots, air carriers, and air agencies across the United States. FAA divides its regulatory responsibilities into the nine regions shown in Figure 2-7. The agency implements aspects of policy by region because each region has unique characteris- tics, risks, and safety needs. This section discusses airport risks as categorized by the nine FAA regions. Before risks are outlined by FAA region, it is important to discuss airport risks around the country, starting with accidents or runway incursions by FAA region. FAA defines a runway incursion as an “occurrence . . . involving the incorrect presence of an aircraft, vehicle, or person on the protected area of the surface designated for the landing and takeoff of aircraft” (https:// www.faa.gov/airports/runway_safety/resources/runway_incursions). Figures 2-8 through 2-11 are based on runway incursion data by FAA region. Generally, incursions happen more fre- quently in regions with higher traffic and passenger activity. For example, the Western Pacific and Southern regions tend to have more frequent operational incidents and pilot deviations, which is consistent with both of those regions having two of the most populous states in the United States (California and Florida). Pilot deviations account for the highest number of incidents, deviations, and other events. The number of incidents, in general, dropped in 2020 due to the significant slow-down in air travel resulting from the COVID-19 pandemic.

24 Airport Insurance Requirements Source: Adapted from map at FAA website https://www.faa.gov/about/office_org/headquarters_offices/arc/. Figure 2-7. FAA regions in the United States. Source: FAA (2021d). Note: FAA defines an operational incident as a surface event (on an airport runway or taxiway) attributed to an air traffic control action or inaction. Figure 2-8. Operational incidents by FAA region, 2016–2020.

Risks Faced by Airports 25 Source: FAA (2021d). Note: FAA defines a pilot deviation as a surface event caused by a pilot or other person operating an aircraft under its own power. Source: FAA (2021d). Note: FAA defines a vehicle or pedestrian deviation as a surface event caused by a vehicle driver or pedestrian on the ramp or taxiway. Figure 2-9. Pilot deviations by FAA region, 2016–2020. Figure 2-10. Vehicle or pedestrian deviations by FAA region, 2016–2020.

26 Airport Insurance Requirements 2.4.1 First-Party Property Risks by Airport Region Most risks discussed in this section pertain to risks associated with first-party property damage that can be addressed through an insurance policy. In contrast to traditional property risks, most would agree that general liability risks at airports tend to be very similar, and so there is not a need to differentiate general liability risks by region. (Insurance for general liability covers claims that could result from injuries to members of the public or damage to their property. See Section 3.2.1.1 for details.) For example, a slip and fall risk could happen at any airport around the country, regardless of where it is located. In fact, a leading commercial aviation insurance company confirmed this in a recent interview, stating that it does not charge airports located in one state differently than it would airports in any other state. There may be some jurisdictional considerations and attention to heavier passenger traffic and populations but, for the most part, the pricing model is the same. General liability underwriting factors such as regional weather (heavy snow or rain, for example) are examined only from the standpoint that they may increase the chance of a slip and fall accident. For the sake of efficiency, regional first-party property risks are grouped into the following four categories: 1. Alaskan region; 2. Northwest Mountain and Western Pacific regions; 3. Great Lakes, Central, Eastern, and New England regions; and 4. Southwest and Southern regions. After risks are discussed for each of these categories, the section will conclude with a discussion about airport risks in densely populated areas. 2.4.1.1 Alaskan Region Airports in the Alaskan region are presented with a unique set of risks since aircraft are used as primary mode of transportation throughout the state. Approximately 82% of communities in the State of Alaska are not connected via roads (FAA 2021b). The state has 396 public airports consisting of land-based airports, heliports, and seaplane bases (FAA 2021a). Source: FAA (2021d). Note: FAA defines “other” surface events as events that cannot clearly be attributed to a mistake or incorrect action by an air traffic controller, pilot, driver, or pedestrian. These events would include incursions caused by equipment failure and other factors. Figure 2-11. All other surface events by FAA region, 2016–2020.

Risks Faced by Airports 27 Interviews with commercial aviation insurance brokers and insurance underwriters provided context for the unique set of risks faced by the aviation community in Alaska as well as their airports. One insurance carrier mentioned that airport runway incursions involving wildlife are often a common daily occurrence. Following are other risks faced by airports in the state of Alaska: • Challenging, mountainous geography; • Unique challenges with rural runways, such as inadequate lighting or unpaved runways; • Unique weather conditions; • Higher number of regularly operating small aircraft [i.e., aircraft weighing 12,500 lb or less in maximum takeoff weight, according to FAA (https://www.faa.gov/aircraft/air_cert/design_ approvals/small_airplanes/faq)]; • Limited airport infrastructure and navigation; and • Wildlife on the runway or airport premises. These additional risks found in Alaska add complexity to a risk manager’s ability to protect the organization. Insurance is a common way of contractually transferring unforeseen cata- strophic risks by airports. Most insurance companies consider these unique risks in Alaska in determining insurability. 2.4.1.2 Northwest Mountain and Western Pacific Regions The Northwest Mountain region includes the states of Washington, Oregon, Montana, Idaho, Wyoming, Utah, and Colorado, while the Western Pacific region includes the states of California, Nevada, Arizona, and Hawaii (FAA 2021c, 2021e). Like Alaska, these states contain mountainous geography and unique weather patterns. Airport infrastructure, however, appears to have been built out to accommodate higher population numbers through the years. Due to an increase in the population of California, the most populous state in the United States, a higher frequency of claims or accidents in general is expected. Unlike the eastern and southern parts of the United States, the Northwest Mountain and Western Pacific regions have managed to avoid catastrophic disasters such as hurricanes, major storm surges, and tornados in recent years. There is a much higher risk of an earthquake, how- ever, especially in the state of California. The costliest earthquake on record is the Northridge earthquake, which happened in 1994 and caused $15.3 billion in insured damages according to Munich Re (Insurance Information Institute, 2021a). Also of great concern in recent history are the wildfires in states in both the Northwest Mountain and Western Pacific Regions. Figure 2-12 shows wildfire counts for the Northwest Mountain and Western Pacific regions for 2016 through 2020. Both regions have been affected, but California has experienced considerably more wildland fires than any other state in the country, which have put airports and airport traffic there at very high risk. 2.4.1.3 Great Lakes, Central, Eastern, and New England Regions The Great Lakes region consists of North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, Michigan, Indiana, and Ohio. The Central region consists of Nebraska, Kansas, Iowa, and Missouri. These inland regions are protected from coastal extremes but are marked by weather risks that can include extreme winters, hailstorms, and tornados. In an interview, a major commercial aviation insurance underwriter stated that airports located in cold climates have major challenges presented by the weather, including managing snow and snow removal during the winter months.

28 Airport Insurance Requirements Hail is a more prominent risk in the Great Lakes and Central regions and puts airports in those regions at a higher risk of property damage. According to the 2021 hail hazard report published by Verisk, of the top 10 states that had the largest losses related to hail from 2018 to 2020, six (in boldface below) are in the Great Lakes and Central regions of the United States (Samanta 2021); in rank order (ranking based on the number of properties damaged) these 10 states are as follows: 1. Texas, 2. Illinois, 3. Indiana, 4. Minnesota, 5. Missouri, 6. Oklahoma, 7. Iowa, 8. Louisiana, 9. New York, and 10. Kansas. Source: National Interagency Fire Center (2021). 0 500 1,000 1,500 2,000 2,500 0 2,500 5,000 7,500 10,000 12,500 Figure 2-12. Annual wildfire count by state in two FAA regions, 2016–2020.

Risks Faced by Airports 29 Airport risk managers can transfer this risk through property insurance, which is discussed in Chapter 3. According to NOAA, the United States experiences an average of 1,000 tornados per year. All the states located in the Central region (Nebraska, Kansas, Iowa, and Missouri) and one from the Great Lakes region (Illinois) are among the top 10 states with the highest average annual number of tornadoes over a 25-year period (Table 2-1). Some of the nation’s costliest tornadoes have occurred in midwestern states that are part of the Great Lakes or Central regions. One of the costliest (and deadliest) catastrophic tornado events in the past 10 years was the Joplin, MO, tornado of 2011, which caused nearly $3 billion in losses and 158 deaths (NIST 2021; NCEI 2021a). Texas leads the list of the highest average annual number of tornadoes (in part, because of its size). The FAA Eastern region consists of Delaware; Maryland; New Jersey; New York; Pennsylvania; Virginia; Washington, DC; and West Virginia. The New England region consists of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont. In addition to weather exposure, the Eastern and New England regions have a heightened risk for major storm surges, according to a report by the Insurance Information Institute, Inc., with information provided by CoreLogic, a property data and analytics company (Insurance Information Institute 2021a). New York City is at the top of the list of major metropolitan areas at risk for a major storm surge or hurricane winds followed by several states in the Southwest and Southern regions (Insurance Information Institute 2021b); in rank order: 1. New York, NY; 2. Miami, FL; 3. Tampa, FL; 4. New Orleans, LA; 5. Virginia Beach, VA; 6. Fort Myers, FL; 7. Bradenton, FL; 8. Houston, TX; 9. Jacksonville, FL; and 10. Naples, FL. Airports in and around New York City are at a greater risk of a major storm surge and resulting property damage that could have an impact on normal operation. While airports in all regions are at risk of traditional flood exposure, many coastal airports have an increased risk of coastal flooding. According to a recent paper in Climate Risk Management, rising sea levels put coastal airports at a greater risk of flooding in the coming decades as a result of climate change (Yesudian and Dawson, 2021). LaGuardia Airport in New York City is one of the top U.S. airports most at risk for coastal flooding, given its location. Rank State Annual Average Number of Tornadoesa Rank State Annual Average Number of Tornadoesa 1 Texas 139 6 Mississippi 51 2 Kansas 89 7 Florida 52 3 Oklahoma 68 8 Iowa 50 4 Illinois 56 9 Nebraska 49 5 Alabama 53 10 Missouri 48 Source: United States Tornadoes (2021). aAnnual average based on data from 1995 through 2019. Table 2-1. Top 10 states with highest annual average number of tornadoes.

30 Airport Insurance Requirements 2.4.1.4 Southwest and Southern Regions Like the Great Lakes, Central, Eastern, and New England regions, the Southwest and Southern regions experience extreme weather events that have posed risks to airports over the past several years. The Southwest region consists of New Mexico, Texas, Oklahoma, Arkansas, and Louisiana. The Southern region includes the states of Mississippi, Tennessee, Kentucky, Alabama, Georgia, North Carolina, South Carolina, and Florida. States in these regions are at high risk of extreme weather events such as tornadoes and of catastrophic coastal risks such as hurricanes. In an interview conducted for this guide, a major commercial aviation insurance broker indicated weather events in the Southwest and Southern regions are becoming extreme. In particular, the underwriter noted, “The industry is seeing a lot more weather-related claims from perils such as hail and wind in general. In the year 2020, we saw four tornados impact airport property.” Recent research shows that, in 2020, tornadoes hit airport property in the states of Louisiana, South Carolina, Tennessee, and Texas, all of which are in the Southwest and Southern regions (Epstein, 2020; Namowitz, 2020). Hurricanes are also a significant concern for coastal airports in the Southwest and Southern regions. According to information published by the Insurance Information Institute (2021d), eight of the top 10 costliest natural disasters in U.S. history were hurricanes, and all eight hit states or U.S. territories within the Southwest or Southern regions. The costliest natural disaster in the United States was Hurricane Katrina, which occurred in 2005 and was responsible for an estimated insured loss of $65 billion. Figure 2-13 shows the 10-year history of hurricanes that made landfall in the United States (Insurance Information Institute 2021c). The time frame of the data is relatively short, but an upward trend since 2013 is apparent. An increase in hurricanes would be consistent with other measured factors related to hurricane occurrence, such as increasing average ocean temperatures. The risk remains and may be increasing, and, as a result, airports located in the Southwest and Southern regions are at a greater risk for property damage resulting from hurricanes. 2.4.2 Airport Risks in Densely Populated Areas Most of the FAA regions contain cities that are densely populated and have major U.S. airports serving their populations. Risks at airports in densely populated cities are different Source: Insurance Information Institute (2021c); data supplied by the U.S. Department of Commerce, NOAA, and the National Hurricane Center. Figure 2-13. Number of hurricanes making landfall in the United States, 2010–2020.

Risks Faced by Airports 31 from those in rural areas, and airports need to take that into consideration in managing their portfolio of risks. For example, an interview with a leading commercial aviation insurance company underscored the unique risk of operating an airport in a large, densely populated metropolitan area: “Airport location can certainly play a significant role in the risk focus of an operator. Maintaining Part 77 surface compliance can be challenging in urban locations.” Federal Aviation Regulation Part 77 states that airports are responsible for preventing the growth or establishment of obstructions in navigable airspace (https://www.acgov.org/ cda/planning/generalplans/documents/HWD_Appendix_C_FAA_Airspace_Protection_ Guidance.pdf). The personal use of drones has made this regulatory compliance standard more difficult in recent years, as those using drones recreationally (or commercially) could enter Class B airspace, unknowingly putting airport operations at risk. [Class B airspace is generally airspace from the surface to 10,000  feet mean sea level surrounding an airport. Aircraft operating within Class B airspace must receive clearance from the airport’s air traffic control tower to operate within the airspace (FAA 2016a).] In the past 2 years, there have also been sightings of persons flying personal jet packs in and around major metropolitan airports, potentially endangering takeoff and landing procedures administered by air traffic control (Abovian 2021). At the time of this report, the last siting of such an incident was in July 2020 outside of Los Angeles International Airport. These and other emerging risks are discussed in Chapter 3.