Aerial Network

When John Lumley first planned a network for aviation brokers it was an ideal time to sell the idea to underwriters.

It was a buyer's market and any opportunity to find some profitable business on the far side of the world would be lapped up in London, the centre of international aviation insurance.

But that was in the world before the 11 September attacks. Within days, the world's passenger fleets faced the threat of being grounded as insurers pulled their cover. The market had done a backflip.

It was now a seller's market and the underwriters knew they could sit back and wait for business to come to them.

A year and a half later, the underwriters are still strong.

Tension over possible conflict in Iraq brings fears of terrorism and works against brokers' efforts to win good prices and terms.

But Lumley's network is growing fast. This is because, while the changes in the market may not make a network important to underwriters, they can be extremely valuable to brokers.

The Global Aviation Insurance Network (GAIN) got off the ground last summer and launched straight into the turbulence that rocked the aviation insurance industry.

Some quick thinking suggested that although the network would no longer be beating off underwriters keen for its business, it could certainly find a role helping brokers around the world.

They were desperate for cover and often found themselves receiving less than perfect service at the hands of the global brokers. This was especially the case if the brokers were too small or too far away to fit into the big brokers' plans.

GAIN caters specifically for brokers in general aviation - placing risks for the smaller operators, helicopters, regional airports and the like - and already has a strong following.

It takes on only one broker per country and has so far signed brokers representing Britain, Russia, Italy, Peru, Chile, Equador and Bolivia.

The network last year handled accounts with premiums totalling more than $50m (£31.7m).

Lumley, GAIN's founder and managing director, says the network is in advanced talks with brokers from a dozen other countries and hopes to trumpet more signings before a major conference, planned in London in the summer.

Members can get specialist legal and risk management advice and premium financing as well as services such as market updates, market research, technical advice and business development support.

A high-profile deal with Holman Fenwick & Willan gets members specialist legal advice, risk management and claims services.

GAIN members also receive market updates and business development support services to help them grow.

The result should be better service for the network's members, who also get more financial clout to bargain for better prices.

Lumley says: "The core proposition is to provide members with greater buying power through the placement of blocks of aggregated business, either directly into the market, or through selected brokers."

Aviation rates may have fallen in the final quarter of last year - one estimate from Marsh put the reduction in core premiums at 10% to 15% - but underwriters are still looking for payback against the losses incurred in disasters such as on 11 September 2001 and the attack by Tamil Tiger terrorists on Sri Lanka's national airport in July the same year, which destroyed 11 aircraft.

General aviation rates are still holding relatively firm and Lumley says that will continue at least for the short term.

He says general aviation rates will eventually follow airline rates downwards, but signs of that occurring will not be visible until the second half of this year.

In the meantime, it is another reason for brokers to seek strength in numbers as part of a network.

Tensions over Iraq have a similar effect.

Lumley says: "It compounds the problems everybody is having with war premiums. There is very little reason to argue that a tourist aircraft flying people to a game park in South Africa should be subject to the same additional war premiums as a flying school in the US, for example. Yet they are both subject to similar surcharges.

"The reaction of the underwriters is to focus on the hotspots again, when they could be focusing on the cool spots."

The tough mood among underwriters is unlikely to change if the UK and US attack Iraq. They will be trying to push rates up even if passenger numbers fall. The International Air Transport Association warned earlier this month that traffic could drop by 10% to 15% if war breaks out.

A conflict is likely to mean even harder work for GAIN in placing business, a task handled by UK general aviation specialist broker MP Bolshaw, a founding member of the network.

The deal more than doubles the business volumes handled by Bolshaw and, as the network grows, is expected to increase it five-fold or more.

Member brokers are rewarded with profit-based dividends calculated in such a way that the more a broker contributes to the network's turnover, the more it will receive.

The hub operation is funded by through membership fees and commissions earned by the UK office through premium volume placed into the international markets.

The network concept should help level the playing field for the domestic brokers who have been unable to rival London brokers because they have either been too distant or too small to develop the specialist skills necessary.

And all too often they have been disappointed with the service they receive from some of the London Market brokers for whom individual accounts, particularly the smaller general aviation accounts, have been considered too much work with not enough payback.

As Lumley says: "GAIN intends to cut through some of the mystique that has traditionally surrounded the London Market, using online communications and an experienced team to represents its members' best interests. We aim to bring our members closer to each other, and to the international hub market, creating attractive opportunities."