Airport Insurance Requirements (2023)

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32 Airport Risk Management Practices This chapter highlights general airport risk management practices, including important lessons learned, insurance purchasing practices of U.S. airports, and contractual risk transfer practices. Content for this section was derived from a survey of U.S. airport risk managers and from interviews with insurance brokers and insurance companies specializing in insurance products for airports. Information was also obtained through literature research and follow up interviews with airport risk managers, insurance brokers, and insurance underwriters. Risk management best practices to improve an airport’s risk management program are offered throughout the chapter. 3.1 General Risk Management Practices 3.1.1 Risk Management Department Airports vary greatly when it comes to roles and staff dedicated to risk management. Most medium and large hub airports have dedicated risk managers and risk management staff supporting the function. The title identifying the function is commonly “risk manager,” with variations ranging from “associate general counsel,” “risk coordinator,” “risk analyst,” or “director (or chief) of risk management.” In sharp contrast, general aviation and small hub airports typically do not have a dedicated risk manager or risk management department within the organization. Instead, the risk management function is typically handled by an individual serving in a finance role, such as the airport’s chief financial officer or director of finance. Some nonhub airports have a dedicated risk management office and staff, while others do not. Titles range from “risk manager,” to “business manager,” to “deputy director.” 3.1.2 Supporting Risk Management Needs To support the risk management function, many airports, regardless of hub size, rely on their insurance broker to ensure that their insurance purchasing decisions are cost effective and that they address most of the airport’s risks. Some airports rely on internal resources such as senior leadership or risk management staff to vet the insurance program. Small hub airports tend to rely on their insurance broker more than medium, large, or nonhub airports. Very few airports obtain an independent insurance review to validate their insurance programs. Many airports, especially medium and large hubs, also rely on industry networking with the ACI Risk Management Committee and other industry and risk management networking groups. 3.1.3 Initiatives to Reduce Risk To reduce risks at airports, risk managers are embarking on a variety of initiatives. Many are engaging in studies that quantify specific risks through a probable maximum loss study. C H A P T E R 3

Airport Risk Management Practices 33 These studies will help an airport identify the most likely financial loss from identified property and casualty risks, including catastrophic risks such as wind, hail, and earthquake. These studies also assist an airport in purchasing the appropriate amount of insurance limits to finance losses. Other airports are adopting ERM programs to embrace and manage risk within the organization. Still others are investing in SMSs to manage risk proactively. Finally, airports are working with their insurance brokers to identify active shooter vulnerabilities within the airport that are supported by training, education, and the purchase of an active shooter liability policy. 3.1.4 Uninsured Claims The surveyed airport risk managers indicated that airports rely on their insurance broker to validate the airport’s insurance program. This practice appears to be effective, as many airports indicate they have not had an uninsured claim within the past 5 years, with some exceptions. Those airports that did report having an uninsured claim indicated it was related to COVID-19. Both medium and large hub airports submitted claims related to COVID-19 as property damage under their property insurance policies to trigger business interruption coverage. Regardless of the industry, very few of these claims were accepted by insurers, and airports were no exception. Small hub airports did not indicate having an uninsured claim within the past 5 years, as many of them did not submit claims related to COVID-19. On the other hand, nonhub airports indicated most of their claims are handled under their self-insured retention or deductible levels. In another interview for the guide, a leading aviation liability insurer stated there have been several instances in which a loss or components of a loss fell outside the coverage of an aviation liability policy. Specific examples include financial losses, certain pollution claims, and directors and officers claims. These types of claims can be treated through specialized insurance products. Commercial insurance brokers specializing in airport operations are experienced in these types of risks and the specialized insurance products that can treat those risks. 3.1.5 Frequency of Insurance Broker Selection Process Airports tend to engage in long-term contracts with their insurance brokers. The length of the insurance broker services contract does not vary with the hub size of the airport. Most airports contract with their broker for at least 4–5 years and then reengage in a broker selection process. Fewer airports tend to solicit proposals from commercial insurance brokers through broker requests for proposals every 2–3 years. Since many airports are public entities, the length of the insurance broker contract may depend on the municipality’s public procurement guidelines. 3.1.6 Effectiveness of Safety Programs Airports have varying degrees of investment in proactive safety programs such as the Support Anti-Terrorism by Fostering Effective Technologies (SAFETY) Act, SMS, or ERM. These safety programs can yield a wide range of savings and require organizational planning and investment. In the survey of airports, small hub airports indicated they had a significant amount of savings from their investment in proactive safety programs. On the other hand, the medium, large, and nonhub airports surveyed had not yielded a positive cost–benefit outcome from investment in these programs. Many nonhub airports surveyed mentioned that they did not have such formalized safety programs in place, while many medium and large hub airports noted that they did have formal safety programs in place. However, many medium and large hub airports indicated very minor or no savings from the adoption of the safety programs (Figure 3-1). Risk Management Best Practice Do not solicit proposals for broker service contracts every year. Developing a relationship with your commercial insurance broker will most likely save you money over time.

34 Airport Insurance Requirements Leading airport liability insurers interviewed for the development of this guide indicated they do not provide specific discounts for adoption of SMS or ERM programs. Rather, adoption of these programs will likely lead to a culture of safety and risk abatement. This will ultimately lead to fewer losses, which, in turn, will lead to lower renewal premiums. 3.1.7 Risk Management Lessons Learned The interviews conducted for the guide also yielded information on risk management lessons learned. Risk managers, underwriters, and brokers offered suggestions regarding insurance purchasing, structure of coverage, insurance broker services, and other risk mitigation actions. These suggestions are outlined below. 3.1.7.1 Purchasing Insurance and Structure of Coverage • Start very early on all insurance renewals, regardless of coverage line. • Purchase a 2- to 3-year policy to lock in rates if given the opportunity. • Utilize strategies to protect sublimits such as medical payments. • Offer more information to insurance underwriters than required. Internal presentations are a wealth of information to share. • Remind your underwriters about the premiums the airport has paid over time. • Buy cyber coverage at the highest limits possible. • Consider self-insuring for workers’ compensation if your airport is large enough. • Eliminate medical payments on your general liability policy so that is does not become an easy no-fault payout for any claim. • General aviation airports do not need to purchase excessive liability limits. • Be aware that insurers are now eliminating excess auto liability coverage on aviation liability insurance policies. • Purchase auto liability coverage for vehicle accidents occurring outside secured areas. • Do not ignore the importance of business interruption coverage under your property, cyber, and environmental liability policies. 3.1.7.2 Insurance Broker Services • If your airport is owned by a city, county, or other municipality, keep the broker for airport operations separate from the broker for municipality risks, as you need an airport specialist. • Lean on your broker to assist you with calculation of your business interruption exposure. Source: Data collected in the 2021 survey of U.S. airports conducted for development of this guide. Figure 3-1. Proportion of airports reporting savings from investment in safety programs.

Airport Risk Management Practices 35 • Do not conduct a broker selection process every year. Give the broker time to implement changes that reduce your airport’s cost of risk. • When a broker selection process is conducted, be sure to conduct oral interviews with the short list of brokers. It is important to meet your prospective broker before engaging him or her to represent you in the insurance marketplace. 3.1.7.3 Risk Mitigation • Develop an effective process for managing claims and educating staff on those procedures. • Do everything possible to ensure your airport has the highest level of security and document all processes and safeguards. • Liability risks for remodeling projects inside the terminal are greatly reduced during slower times of the year or during a pandemic. Accelerate projects during these times. • Eighty percent of losses are increased in size by human error when established procedures are not followed after a loss happens. This problem can be mitigated by training and educat- ing staff. • When the airport takes on activities previously contracted with a vendor, the risks should be assessed carefully and loss prevention programs should be developed for the new risks. Examples include an airport taking on baggage handling operations, fueling operations, sky capping, or wheelchair assistance activities. • Be mindful of special events at your airport. They are not part of standard operations and can present unusual risks that need attention. 3.2 Insurance Purchasing Practices Airports purchase a variety of property and casualty insurance policies to finance airport operations risk. Depending on its size, operating environment, and risk retention appetite, an airport will retain a certain degree of risk within each of these commercial insurance policies. The level of risk retention and limit purchased will also vary depending on the insurance market. In a hard insurance market characterized by rising premiums and decreased capacity, airports will often purchase lower insurance limits and accept higher self-insured retentions, whereas in a soft insurance market in which there is increased carrier competition or depressed premiums, airports will purchase higher insurance limits and accept lower self-insured retentions. Hard markets also force organizational risk management discussions on the viability of alternative financing options, such as captives and parametric insurance products. This section explores how airports establish their limits of liability for certain major coverages and provide bench- marking data by the size of airport for certain lines of insurance. 3.2.1 How Insurance Limits Are Established 3.2.1.1 Airport General Liability Insurance Airport general liability insurance covers an airport’s legal liability for claims that could result from injuries to members of the public or damage to their property. Coverages include premises liability, products/completed operations, contractual liability, personal and advertising injury, and medical payments. Airport liability policies usually contain a sublimit for garage keeper’s legal liability if parking facilities are being operated. Various limits of liability are purchased, depending on the size of the airport, the airport’s passenger traffic, relevant state and local statutes, and overall operating environment. The survey of airports of all hub sizes found that airports use a combination of techniques in establishing limits of liability for the airport. Considerations included, but were not limited to,

36 Airport Insurance Requirements limits of insurance purchased the previous year, the airport’s loss history, results of a cost–benefit analysis, recent court awards and judgements, what the market will bear, and industry bench- marks of similarly sized airports in the region. While some airports determine their insurance limits on the basis of what the market will bear, many airports are experiencing reduced limits simply because of the current hard insurance market. Within the current hard insurance market, liability insurance rates have experience major pressure from severe aviation insurance industry losses, including the continued financial fallout from the grounding of the Boeing 737 MAX, which is expected to be more costly than insured losses paid from the attacks of September 11, 2001 (Lampert and Barlyn 2019). In addition, in 2018, the industry experienced a historically high general liability insurance claim award for an accident that happened at the Chicago O’Hare Airport when a shelter collapsed and paralyzed a young dancer for life, resulting in a $115,000,000 settlement (Schmadeke 2018). These two large insurance losses have left aviation insurers with reduced profitability, and, in response, insurance companies are pressuring for severe rate increases. There are a variety of other factors that affect how an airport establishes its limits of liability. One airport interviewed noted that a major factor driving the establishment of its limits was relevant state and local statutes, which afford it certain immunities. If an airport’s liability is capped by statute at a certain dollar threshold, the airport has no incentive to carry any limits greater than what is prescribed by law. That said, there are other reasons to carry general liability insurance coverage limits in excess of state or local tort liability caps. Major airport accidents involving wide-bodied aircraft with hundreds of passengers onboard could produce claims and lawsuits infinitely larger than the state or local tort liability cap. Each jurisdiction handles tort law differently, and it is important to weigh all factors in determining appropriate general liability limits. Most airports interviewed agreed that many factors were considered, including state and local statutes in determining limits. In addition, airports do collaborate with other airports and share information on insurance limit benchmarking. Finally, most airports rely on their broker to recommend specific limits of liability at each renewal cycle. A benchmarking exercise was conducted by a few members of the ACI Risk Management Committee at the January 2020 ACI-NA conference to determine ranges carried in airport liability limits. In addition, interviews with insurance brokers and underwriters for this ACRP project revealed additional benchmarking data. The results of this quick benchmarking exercise revealed the following ranges of limits of liability carried, by airport hub size: • General aviation airport: Up to $50,000,000, with most carrying between $10,000,000 and $25,000,000; • Small hub airport: $25,000,000 to $50,000,000, with some carrying up to $100,000,000; • Medium hub airport: $100,000,000 to $350,000,000; and • Large hub airport: $500,000,000 to $1 billion or more. These benchmarking data do not represent a large percentage of U.S. airports and should not be used as a sole source in determining an airport’s liability limit; rather, the data can be used as a rough guide along with other considerations. 3.2.1.2 Workers’ Compensation and Employer’s Liability Workers’ compensation insurance covers an employer for its statutory obligations to its employees, who may be injured in the course and scope of employment. The policy pays for medical expenses and any loss of income if the injury requires them to miss work. Workers’ compensation is regulated by each state, with benefits and processes prescribed by the state. Some states do not require an employer to purchase workers’ compensation insurance. Even if a state does not require the purchase of this coverage, it is best practice to do so.

Airport Risk Management Practices 37 Employer’s liability is usually connected with a workers’ compensation insurance policy. It covers the employer’s liability that usually falls outside workers’ compensation statutory benefits. Examples include loss of consortium or consequential losses resulting from an employment- related injury. Most policies provide a limit of $1,000,000 for bodily injury or disease. Excess limits are usually available through an excess or umbrella liability policy. 3.2.1.3 Property Insurance Airport property insurance covers the real and business personal property of the airport from specific perils such as fire, lightening, theft, vandalism, and other perils outlined in the policy. It can also cover indirect losses arising from a covered property damage event, such as loss of business income and extra expenses incurred to get an airport operating back to normal operations. Coverage for specific catastrophic property perils, such as earthquake, tornadoes, flood, high-hazard wind, convective storms/hail, and terrorism, may be insured under the airport’s master property insurance policy or through separate insurance policies with limits usually established through software modeling tools such as those offered by RMS or AIR (now Verisk), which analyze catastrophe risk to insured properties. Catastrophic lines of insurance are very expensive to insure and are subject to market fluctuation from year to year, especially with recent severe weather events. These risks are described in greater detail in Chapter 2. Property limits are established in a variety of ways. A recent survey of airport risk managers found that most rely on their broker to establish appropriate limits for their property insurance and business interruption coverage. This is especially true in smaller airports, where resources are thin and there are no risk management staff. In addition to consulting with their insur- ance broker, airports also use local benchmarks or independent property appraisers to establish replacement cost per square foot. Except for insuring for catastrophic perils, such as hurricane and flood, airports are preferred risks to insure from a property insurance company’s stand- point because they have 24–7 security, people always on premises, and are of noncombustible construction and have sophisticated sprinkler and fire alarm systems. 3.2.1.4 Automobile Insurance Automobile insurance covers an airport’s legal liability for the operation, maintenance, and use of licensed and owned automobiles associated with airport operations. Liability coverage can be extended to airport employees’ use of their personal autos if that use is in the course and scope of the individual’s employment with the airport. Coverage can also be extended to any physical damage to owned vehicles resulting from automobile accidents or accidental damage from other circumstances, such as falling trees or damage from a hailstorm. Liability arising from the use of airport-owned mobile equipment in either airside or landside operations is insured through the airport’s aviation general liability or premises liability policy. Various considerations are taken into account in establishing limits of liability for automobile liability policies. The extent of the airport’s fleet is a contributing factor, as is the operating environment of the airport, including any local or state applicable immunities. The number of automobile accidents and average automobile liability lawsuits is rising across the United States, due to the prevalence of distracted driving. An airport should evaluate its automobile liability limits annually in light of industry benchmarking and its automobile loss history. 3.2.1.5 Cyber Liability Insurance Cyber liability insurance provides protection from data breaches and other cybercrimes that may compromise an airport’s sensitive information or operating systems that are necessary for airport operations. Coverage varies among cyber liability policies; however, most policies cover both first- and third-party liability. Some policies can be extended to cover monetary

38 Airport Insurance Requirements demands because of a ransomware attack. Some property policies include limited first-party coverage for cyberattacks. However, that extension of coverage is becoming more limited, given the deteriorating loss experience within this coverage line. Not all airports purchase cyber liability insurance. Information from recent surveys on this subject revealed that airports that choose not to purchase the coverage believe they do not have a cyber liability exposure or there would be no merit in submitting a claim. Other airports interviewed indicated the cost of the insurance far exceeded the benefit, and they chose to self-insure the risk. This mindset is quickly changing as airports recognize cyber liability exposures exist, in that they rely heavily on technology systems to operate. If any of those systems go down or are subject to a ransomware attack, the airport would be paralyzed and incur large costs. Airports are especially vulnerable to losses from business interruption arising from cyberattacks. Most recently, premium costs have escalated for cyber liability insurance because of the number of breaches and the costs associated with them. This has left the cyber insurance market with little or no profit for this line of coverage. Smaller airports are more vulnerable to cyber- attacks, as they have less resources and often host a website. Smaller airports are also usually part of a larger governmental organization, which further increases the risk of a cyberattack, as government entities are clear targets of cyberattacks. Recent issues with the onset of security breaches are changing the way risk managers view this insurance product. Many of the surveyed airport risk managers indicated the availability of cyber liability insurance limits was a great concern when it came to purchasing insurance. This survey also found that airports that chose to purchase cyber liability insurance purchased insurance with relatively low limits. For instance, smaller airports usually purchased limits of $3,000,000, while medium hub airports usually purchased between $5,000,000 and $10,000,000 in limits. Large hub airports usually purchased between $10,000,000 and $25,000,000 in limits. Additional interviews and research revealed that airports usually purchased the cyber insurance limits recommended by the airport’s insurance broker. If an airport is owned by a municipality, the airport is usually covered by its master municipal cyber liability policy, which includes the municipality’s cyber liability risks as well as its airport risks. Recent interviews with commercial aviation insurance brokers, insurance underwriters, and airport risk managers uncovered some specific advice to airports regarding cyber liability insurance: • All airports, regardless of size or internal cyber protections, should purchase cyber liability insurance. • The coverage agreement should be reviewed before this insurance is purchased. It does not cover all perils involving cyber risks. Sublimits can be restrictive and limiting. • The insurance hard market for cyber liability insurance is forcing some airports to self-insure all or part of this risk. • All airports should have very strong cyber-related practices, along with staff training to promote awareness of cyber risk. • Airports should rely on industry benchmarking data for guidance about limits and retentions. • Airports should review the exclusions in a cyber liability policy before binding the coverage. The exclusions will most likely change at each renewal. • More airport staff working from home elevates an airport’s cyber risk. The cyber liability market will continue to evolve. Premium costs will continue to escalate as more breaches occur throughout the world. Required retentions for this coverage line will also most likely increase until this coverage line is profitable for insurance companies. Risk Management Best Practice Tips for purchasing cyber liability insurance: • Airports of all sizes should continue to evaluate this coverage line. • The coverage options offered should be reviewed and the benefits of coverage weighed against the offered retention options and premium costs. • In addition to evaluating the cost–benefit of purchasing the coverage, airports should institute strong risk mitigation practices to prevent cyberattacks. • Purchasing an insurance product will not prevent attacks; rather, it will partially finance them.

Airport Risk Management Practices 39 3.2.1.6 Pollution Legal Liability Pollution legal liability covers an airport for most pollution-related incidents arising out of airport operations. Specifically, coverage can be tailored to cover liability arising from below- or above-grade fuel tank and hydrant systems, pollution on land owned by the airport, storage tanks on airport property, heating oil, pollution arising from deicers, and underground storage tanks. Most recently, pollution policies are excluding pollution conditions arising from the use of PFAS. This remains an uninsured exposure for many U.S. airports. During a discussion and informal survey among ACI Risk Management Committee members, benchmarking information was solicited regarding limits purchased for airports’ pollution legal liability exposure. There were two key takeaways. First, on the basis of the survey responses, it was clear that not all airports purchase pollution legal liability insurance coverage. This was true for airports of all sizes. Second, the limits of pollution legal liability insurance coverage purchased were low. Liability limits ranged from $3,000,000 per occurrence to $10,000,000 per occurrence. Only one airport surveyed indicated it had purchased $40,000,000 in limits. 3.2.1.7 Other Insurance Policies In addition to the main insurance policies purchased by airports, there are other important coverages worth noting. If the airport has an ownership structure that contains officers and directors who manage the operations, a directors and officers liability policy will be purchased to protect both the company and individual officers and directors from liability ensuing from their actions or inactions. Directors and officers liability policies often contain separate cover- age agreements for employment practices liability to cover the organization from employment- related actions. In addition, if an airport is a public entity, often a public officials liability policy is purchased to protect the organization and any elected officials from liability. Finally, crime insurance is often purchased to protect the airport’s assets from theft, dishonesty, disappear- ance, forgery, alteration, and destruction caused by an airport employee. 3.2.2 How Deductibles and Self-Insured Retentions Are Set Most of the airport risk managers at airports of all hub sizes who were interviewed for this guide reported that their deductible and self-insured retentions were chosen on the basis of a combination of factors. These factors included, but are not limited to, the following: • The deductibles and self-insured retentions chosen the previous year, • The airport’s loss history, • The airport’s history of tolerating specific retentions, and • A cost–benefit analysis identifying the right combination of limits and retentions available at the time of renewal. Large hub airports utilize a combination of these factors above. On the other hand, smaller and medium-size airports tend to rely on the deductible and self-insured retentions that were purchased the previous year. Although, as a rule, airports tend to use a variety of methods in setting deductible and self- insured retention levels, there are some driving factors that influence an airport’s decision- making process for establishing deductibles and self-insured retention levels. Where loss levels can reasonably be expected, an analysis of expected frequency and severity is normally conducted by internal or external risk management resources to find the right combination of risk acceptance between a deductible or self-insured retention and actual risk transfer through an insurance policy. Cash flow, access to capital, and risk appetite also factor into the decision. Risk Management Best Practice Airport operations involve the use of many toxic substances that could lead to pollution conditions that would require costly cleanup and removal activities. It is best practice to explore the purchase of pollution legal liability insurance coverage, as coverage is usually excluded under an airport premises liability policy.

40 Airport Insurance Requirements Large airports may have the capability to accept significant risk through higher deductibles or administratively managing a large, self-insured retention. Smaller airports, though, may lack these resources and gravitate toward a model in which dealing with risk transfer costs through insurance premiums and lower deductibles best fits their needs. There are other factors driving an airport’s chosen deductible or self-insured retention level. The most notable is the insurance market at the time of renewal. In a hard insurance market, the underwriter often will dictate the deductible and self-insured retention levels, while in a soft insurance market, the airport can drive the desired risk retention level on the basis of its risk appetite. The availability and affordability of insurance swings greatly from a hard market to a soft market, often driving the airport’s deductible or self-insured retention level, which may or may not align with the airport’s risk appetite. Following are additional factors that affect an airport’s chosen deductible or self-insured retention levels: • The airport’s jurisdictional environment or governmental immunities, which drive not only the level of liability limits purchased but also the level of preferred retention. • The operating environment of the airport. If an airport is operating under the ownership of a municipality or lacks risk management staff and support, a lower deductible is chosen, and the insurer often controls the claim. Airports operating in different environments with large staff—especially staffing for claims—take on higher deductibles and self-insured retentions, as they prefer to control the claims within their larger retention. • The risk appetite of the organization influences the level of retention. • Benchmarking with similar-sized airports and similar operating environments can also influence airport insurance retention levels. The process of establishing the right retention level can involve several steps. Many airports start with conducting studies of probable maximum loss (PML), maximum foreseeable loss (MFL), and normal loss expectancy (NLE) to determine the most likely outcome of loss for particular property and casualty risks. The next step involves analyzing the options presented by the broker for various retention levels. Those options are then matched up with the airport’s risk appetite and the airport’s budget and overall financial resources. In the end, the airport should choose the best combination of limit and retention that pairs well with its risk appetite and budgetary needs. 3.2.3 Significant Changes in Purchasing of Insurance The leading airport aviation underwriters and insurance brokers interviewed for develop- ment of this guide noted that significant changes have been occurring in the way insurance is purchased at airports. Specifically, airports are being forced to accept higher deductibles or self-insured retentions because of the hard insurance market. They are also being forced to pay higher insurance premiums as a result of pressure on rates. This comes at a time when airport revenues are down owing to lower passenger traffic resulting from the onset of the COVID-19 pandemic. The insurance hard market, along with declining revenues, has been challenging for U.S. airports in 2020 and 2021. In addition to higher premiums and retentions, there have been reductions in insurance coverage due to decreased insurer capacity and declining sublimits for ancillary coverages. These reductions are occurring on both property and liability lines of insurance. During the soft insurance market, airports purchased higher limits of liability and were offered lower retentions for all lines of insurance. The onset of the hard insurance market forced pressure on airport budgets, which resulted in reductions in liability limits and sublimits. In addition, Risk Management Best Practice Periodically challenge your airport’s insurance retention levels, especially if that analysis has not been conducted for a while. Review the airport’s claim experience at various loss levels. Consider soliciting the services of a trained actuary to conduct an in-depth analysis to recommend appropriate retention levels.

Airport Risk Management Practices 41 quota share insurance arrangements are commonplace within liability and property placements. These arrangements were nonexistent during previous soft insurance markets. [A quota share insurance placement involves several insurances companies that each agree to take a percentage of an overall risk. Limits, premiums, and claim payments (losses) are all shared on the basis of an agreed-to fixed percentage of risk.] In summary, airports changed the types and amounts of insurance purchased and their retention level due to the rising cost of litigation, the number of excessive jury and court awards, and the rising cost of repairing and replacing property and equipment. 3.2.4 Concerns During the Marketing Process In recent interviews with leading commercial insurance brokers specializing in airport property and casualty risks, the brokers cited common concerns expressed by airport staff during the renewal process. Specifically, cyber liability is the leading concern among airports during the marketing process. Efforts to complete the applications required to market the coverage coupled with limited availability of limits and escalating costs make this coverage line particularly stressful during the renewal process. The recent hard insurance market has reduced coverage, reduced the availability of limits of liability, and escalated premiums and deductibles. Even if an airport has not experienced a cyber liability loss, underwriters are scrutinizing IT operations and safeguards and either declining to offer coverage or proposing renewal premiums that are higher along with higher deductibles, lower limits, and coverage restrictions, thus leaving airports with no choice but to renew the coverage with less-than- desirable terms. In addition to cyber liability, airports also have other concerns during the marketing process. Insurance brokers stated that many airports are concerned with obtaining coverage for difficult risks such as losses from pandemic conditions and coverage for terrorism, active shooter inci- dents, and riot and civil commotion. Airports reported reduced coverage or the elimination of coverage for their excess automobile liability exposure at their annual renewals. Excess auto- mobile liability coverage was always previously provided at no charge on an airport’s general liability insurance policy. Other airports are concerned about their experience with slip and fall loss and how their claims will affect the airport’s upcoming liability insurance renewal. In summary, airports are striving for long-term coverage and premium stability in the insurance marketplace. Unfortunately, in a hard insurance market, this is not possible. 3.2.5 Top Concerns About the Insurance Portfolio Airport risk managers expressed concerns about their insurance portfolio. The key concerns were as follows: • Airports were concerned about whether their insurance coverage was adequate for the premiums paid. • Airports raised questions about the amount of insurance carried, given the reduction in passenger traffic and airport revenues. • Airports questioned whether their organization was engaging the right services to manage risks. Airports were concerned about business interruption (loss of income) losses and liability claims stemming from COVID-19. • Many airports indicated that a cyberattack could impair operations to a level greater than the cyber liability limits carried by the airport. • Airports expressed concern over lack of coverage for law enforcement claims and PFAS- related pollution claims.

42 Airport Insurance Requirements 3.2.6 Claim Trends Affecting Purchasing Behaviors In recent interviews conducted with leading airport aviation underwriters, insurance brokers, and airport risk managers, trends in airport claims were discussed along with whether these trends were affecting insurance purchasing behavior. The overwhelming response was that trends in the number and magnitude of claim payouts due to social inflation as well as higher jury awards is affecting the way insurance is purchased at airports. This is occurring in all lines of insurance, whether the coverage extends to personal injury, employment practices, or general liability. The combination of higher legal costs and higher jury awards paid out from the insur- ance industry has driven up premiums and forced airports to retain a higher level of risk within its deductibles or self-insured retentions. In addition, the perception that an airport is a deep pocket for claim payouts has driven up the number of nuisance claims. Rising claim costs are driven by other factors. For instance, the number of weather-related claims has risen over the past 5–10 years as an uptick in severe weather events has had an impact on the insurance industry. The number of wind, hail, and tornado claims has escalated over the past several years with the onset of climate change. In addition, fire-related losses on the West Coast have started to affect property rates and property sublimits for risks on the East Coast, that are not subject to the same type of fire risks. Other factors contributing to increased claim costs includes rising employment-related claims involving malicious and intentional acts. During the peak of the COVID-19 pandemic in 2020, airports experienced a reduction in passenger traffic. Less passenger traffic in the airport provided plenty of opportunity for employees to conduct malicious acts. Finally, liability rates have escalated for airports due to a rise in the number of slip and fall incidents, incidents with transporting passengers in wheelchairs, and incidents involving people movers. Some airports are seeing a rise in auto accidents on airport property as well as a rise in liability claims involving passenger autos on airport property parking lots. Others are seeing a rise in law enforcement claims that is affecting the way airports purchase liability insurance coverage, as law enforcement activities are now excluded. 3.2.7 Emerging Risks Affecting Purchasing Decisions Recent interviews conducted with airport risk management staff and aviation insurance underwriters and brokers identified many emerging risks that need high attention. The most widely cited emerging risk among all interviewees was the exposure of airport cyber liability. Airports are dependent on computer systems to direct thousands of people per day around the airport. A cyberattack could substantially affect airport operations and even jeopardize passenger safety. As previously mentioned, a recent survey of airport risk managers indicated some still do not believe their airport has a cyber liability risk. Other emerging risks were mentioned during these interviews. Several airport risk managers and insurance brokers named the threat of an active shooter as a top concern and noted that there is more focus on addressing this risk within the industry. However, 24–7 operations make it difficult to conduct active shooter training drills at an airport. Other emerging risks surrounding a pandemic were also top of mind for many airport risk managers as well as underwriters and insurance brokers. Effects from the COVID-19 pandemic will continue to be felt widely throughout the country for years to come. For example, decreased staffing at airports leaves overwhelmed employees who, if they have not been laid off already due to lessened activity or the government shutdown, are now required to do more. Risks involving employee training and retraining when airport operations become busier again present an increased exposure for employee-related injuries. These risks will need to be addressed as the airport environment changes and passenger traffic increases in the future. Risk Management Best Practice Purchase cyber liability coverage, especially if your airport is owned by a city, county, state, or other public municipality, as they are subject to frequent attacks. Purchase the highest liability limits reasonably available in the marketplace. In addition, deploy risk mitigation efforts, such as multifactor authentication, and arrange for backup systems.

Airport Risk Management Practices 43 Finally, several airports viewed the ride-sharing industry as an emerging risk that has forced airports to reroute traffic patterns to minimize third-party bodily injury risks. In addition to common emerging risks, several uncommon but important emerging risks were noted during recent interviews: • Pollution from the application of PFAS continues to be an emerging risk. Obtaining pollution coverage for clean-up and removal remains a challenge at airports. • The threat of severe weather events due to climate change continues to be a challenge for airports in preparing for a loss. • Business interruption losses are hard for airports to quantify, and obtaining full coverage is difficult. • Rising sea levels at low-lying airfields continue to be a challenge in obtaining insurance and instituting risk mitigation measures. • Maintaining fueling operations at small and general aviation airports continues to be a high-risk operation. • The shift from business to leisure travel has changed an airports’ risk profile, giving rise to more slip and fall accidents as the average passenger profile has changed. When identifying and managing emerging risks at airports, most airports in the United States rely on their insurance broker. This is especially true for general aviation and small hub airports. These airports generally do not employ full-time risk management personnel and exclusively seek the advice and counsel of their trusted insurance broker. Medium and large hub airports also rely on their insurance broker to stay abreast of emerging risks but also employ other resources. These resources include, but are not limited to, networking within the insurance industry, networking with similar-sized airports, and being actively involved in industry associations such as the ACI Risk Management Committee, the Risk and Insurance Management Society (RIMS), and the International Risk Management Institute, Inc. (IRMI). 3.3 Contractual Risk Transfer Practices 3.3.1 Establishing Insurance Requirements for Third-Party Contracts Most airports have a systematic approach for establishing insurance requirements for third- party contracts. Many have an established system to assess risks and utilize a risk and limits matrix to formulate appropriate contractually required limits of insurance for each required coverage. An example matrix is discussed and shown in Chapter 4, Table 4-3. Larger and nonhub airports tend to have more sophisticated approaches to assessing contract risks and tailoring requirements to those risks. This is most likely due to differences in risk management staffing levels at large and nonhub airports as compared with small and medium- sized airports. To streamline the process of selecting appropriate insurance requirements for third-party contracts, many airports use established templates. The templates are customized for specific risks that are identified during the risk assessment process. Emphasis should be placed on understanding what the vendors are doing, especially within a hangar setting. Following are other key elements when an airport’s contractual insurance requirements for third parties are being customized: • Airports require higher limits of insurance for those third parties that have access to airside operations.

44 Airport Insurance Requirements • Different insurance coverages and limits may apply to vendors that are conducting operations in prescreening areas or landside. • Careful attention should be given to identifying any pollution-related exposure from vendor operations, which may necessitate a requirement for environmental liability insurance. Some airports rely on their insurance broker to customize the insurance requirements for certain types of airport contracts. As noted earlier, use of a risk matrix is also common, especially among larger-sized airports. Although many airports use a standard template when establishing insurance requirements for third-party contracts, they also update these templates to reflect industry changes and changes in airport risks. The frequency of these updates varies by airport. Some airports update their contractual insurance requirement templates every year, while others update their templates every four or more years. A recent survey of airport risk managers indicated there is no cor- relation between airport hub size and frequency of updates to contractual insurance require- ment templates. In addition, many airports network with other airports and public entities to discuss types of contracts, insurance limits, and insurance coverage required. Risk managers also said average liability awards and claim payouts were an influence in setting their contractual coverage and limit requirements for vendor contracts. For most airports surveyed, a risk management professional within the airport reviews contractual insurance requirements prior to contract execution. An exception is small hub airports, which usually rely on their insurance broker to review insurance requirements, as these airports typically do not have risk management staff to conduct that work. Many airports only review and revise the insurance requirements for contracts that exhibit unusual or high risks. In addition, the size of the contract can trigger a review from an airport risk manager or the insurance broker prior to contract execution. When reviewing insurance templates, pay careful attention to emerging risks that may have not been addressed in current insurance templates. Examples of these include, but are not lim- ited to, cyber risks, risks involving autonomous vehicles, pollution risks, and robotic machines utilized by concessionaires. These emerging risks may not be properly addressed in current insurance templates. Without proper risk transfer language in the contract, airports can be left without necessary protections. 3.3.2 Providing Proof of Third-Party Insurance Coverage According to the airports surveyed, evidence of insurance is required from third-party vendors at various stages of the contracting process. Many airports require evidence of a third party’s insurance prior to contract execution. This is the process for medium, large, and nonhub airports. Small airports tend to require insurance either following contract execution or at the time of notice to proceed. The stage in the contracting process can also vary by the situation. Depending on the size and nature of the contract, some airports require evidence of insurance during the procurement process, prior to contract execution, and again to obtain notice to proceed or tenant move-in. Airports surveyed indicated that an organization’s procurement process may expedite or delay this requirement for evidence of insurance. However, industry best practice is to always require evidence of insurance prior to contract execution. When a third party’s insurance expires, most airports, regardless of hub size, monitor the expiration dates of the insurance and obtain renewed documents. These documents can include certificates of insurance, updated endorsements, or, in some cases, full copies of the vendors’ insurance policies. Both large and nonhub airports monitor their vendors’ insurance expiration dates and obtain updated documents. This practice varies slightly among small and Risk Management Best Practice As third-party contracts come up for renewal, perform a risk assessment to identify any new risks and the appropriate contractual insurance requirements and limits for those risks. Risk Management Best Practice Tips for establishing insurance requirements: • Review your insurance language at least once every 1–2 years. • Identify emerging risks at your airport that may require additional insurance requirements or higher limits of liability. • Engage your insurance broker to conduct a thorough review as part of its scope of work. Alternatively, solicit the services of a risk management consultant to independently review your language, processes, and procedures to make sure that best practices are followed that will ensure the maximum amount of risk is transferred. Risk Management Best Practice Require evidence of insurance from third parties prior to contract execution and fully review documentation whenever possible.

Airport Risk Management Practices 45 medium-sized airports. Eighty-seven percent of the small and medium hub airports surveyed obtain updated insurance documentation upon expiration of their vendors’ insurance policies, while the balance of the airports surveyed only obtain insurance documentation at contract execution and do not monitor their vendors’ expired insurance policies. The extent of insurance documentation contractually required of third parties varies by air- port. Sixty-seven percent of the surveyed airports require a formal certificate of insurance along with key insurance policy endorsements, such as additional insured and waivers of subrogation in favor of the airport. The smaller airports surveyed, however, require a certificate of insurance without any attached insurance policy endorsements. Ten percent of the large hub airports surveyed require full copies of their vendors’ insurance policies. 3.3.3 Third-Party Insurance Compliance Practices Insurance compliance procedures varied among the airports surveyed, regardless of hub size. One commonality, however, was that most airports had an established system for tracking insurance compliance for their third-party contracts. Certificate of insurance tracking and compliance systems can be manual, automated, or completely outsourced from the organization to a third party. Some airports surveyed noted they were in the middle of assessing various outsourced certificate of insurance tracking and compliance options, while others were design- ing in-house tracking systems. Unfortunately, the onset of the COVID-19 pandemic interrupted progress on many organizations’ efforts at tracking system automation. In interviews, larger airports mentioned that they rely on the procurement department to track and verify contractual insurance compliance. Of the airport risk managers surveyed for this guide, 83% reported that the individuals who reviewed insurance certificates for compliance were either very or some- what knowledgeable in determining whether the insurance provided complied with the airport’s contractual requirements. Airport contracts with third parties can be the cause of insurance compliance issues— some contracts more than others. The types of agreements that cause the most persistent contractual insurance compliance issues, regardless of hub size, include ground transporta- tion and software/IT vendor agreements; 25% of the airports surveyed reported compliance issues with these types of agreements. Regarding ground transportation contracts, insurance compliance issues could be a product of the highly competitive nature of the business, especially in the presence of the ride-share industry. Contractual insurance requirements may easily be overlooked. Industry experience provides that software/IT vendor agreements are the cause of persistent insurance compliance issues for airports, owing to a lack of understanding of the contractual requirements, especially regarding cyber liability insurance coverage. Maintenance, repair, and overhaul (MRO) contracts appear to cause small and medium- sized airports the most compliance issues, as 40% of the small and medium-sized airports surveyed indicated issues in addressing insurance compliance with MROs. For airports of all sizes, airline agreements and tenant agreements had the least insurance compliance issues, with less than 13% of airports surveyed reporting concern. Airports from across the United States reported in interviews that they receive frequent requests from professional service providers to amend contract terms. Specifically, professional service providers ask to limit (or cap) their liability in their contract with the airport to their fee amount under the contract. Airports should push back on these requests, as there is no correlation between the fee a professional service provider receives and the risks within its contracted scope of work. It is also common for professional service providers to request a deletion of the waiver of subrogation clause in favor of the airport and an amendment to the indemnity language. Risk Management Best Practice Require complete copies of all additional insured and waiver of subrogation endorsements in favor of the airport when requesting a certificate of insurance. Additional insured language can vary greatly from one policy to another. Requesting full copies of these endorsements will provide an opportunity to review the coverage terms before a loss to ensure adequate protection for the airport. Risk Management Best Practice Do not accept a limitation of liability request from a professional service provider, as there is no correlation between the professional service provider’s fee and the risk assumed under the contract scope of work.

46 Airport Insurance Requirements Seventy-five percent of the airports interviewed reported difficulty obtaining contractual compliance with requirements for pollution liability coverage in hangar agreements. The requirement for contractual pollution liability coverage is designed to protect the airport in the event the tenant’s aircraft (or other operations) result in a leak of fuel or another hazardous substance that may require environmental remediation. The need for this insurance coverage requirement is discussed in more detail in Chapter 4. Despite requests from third parties to change contractual insurance requirements, many of the airport risk managers interviewed for this guide indicated that they rarely grant exceptions to contractual insurance requirements. Some airports noted that granting exceptions would only encourage other vendors to request exceptions and thereby set a precedent for lessened requirements in the future, which, in turn, would result in less protection for the airport. One airport reported that it often receives requests from foreign-based vendors for exceptions to its contractual insurance requirements and that these are considered on a one-off basis, as foreign vendors typically have no property stored at the U.S. airport and few workers onsite. Some airports reported, however, that they do grant exceptions to minority and disadvan- taged business vendors if the contract is small and the risk is low. Others grant exceptions to limitations of liability clauses in professional service contracts if the airport determines that the provider is essential. Finally, airports do accept certificates of self-insurance from third parties in lieu of formal certificates of insurance that evidence commercially purchased insurance coverage. The next chapter offers a simple five-step process for developing solid insurance requirements for each of the major categories of airport contracts. Risk Management Best Practice To increase an airport’s insurance compliance rate, airport operators should • Train, educate, and communicate with vendors about insurance requirements and why they are needed. • Require complete insurance documentation from all vendors prior to authorizing a notice to proceed. • Distribute the brochure “Minimum Airport Insurance Requirements and Standards” provided as Appendix B of this guide to educate third-party vendors about basic airport insurance requirements and standards.