Specialty Podcast: What Makes Aviation Risks Unique When It Comes To Workers' Compensation?
Mary Busch speaks with Chuck Couch, Global Aerospace, to go over the different nuances that can separate a standard Workers' Compensation policy from an Aviation Workers' Compensation Policy. They uncover the history of Workers' Compensation Policies in America and what makes Aviation related risks unique.
You're listening to the Alliant Specialty Podcast, dedicated to insurance and risk management solutions and trends shaping the market today.
Mary Busch (00:09):
Welcome to the Aviation Workers' Compensation and Employers Liability Insurance podcast. I'm Mary Busch of Alliant's Aviation Department in New York City. On this podcast, we will be reviewing the coverage provided by an aviation workers' compensation policy. I'm sure you all know that for the most part, all United States workers' Compensation coverage helps protect the business by covering employee illnesses and workplace injuries, protecting your business from lawsuits, and keeping your business compliant with state regulations. Workers' compensation coverages reflect state law requirements, including medical costs resulting from a covered injury, compensation for lost wages, medical and/or vocational rehabilitation and death benefits. Employers' Liability Coverage protects insureds against claims made by employees and situations that fall outside of the workers' compensation laws. In addition, Foreign Voluntary Compensation coverage is an important aspect of an aviation workers' compensation policy, as it provides coverage to employees for work-related injuries in territories outside of the United States, and that would include repatriation expenses for travel should an injured employee need to be brought back to the United States and not able to travel commercially. I'm joined today by Chuck Couch, the vice president and manager of the Global Aerospace Workers' Compensation Department. We're here to go over the different nuances that can separate a standard workers' compensation policy as opposed to an aviation workers' compensation policy. It should be noted that all carriers writing workers' compensation coverage do not provide coverage for aviation-related accounts, specifically flight operations. Chuck, can you give us a brief description of how workers' comp coverage is maintained throughout the US?
Chuck Couch (01:59):
Absolutely. Hi, Mary. I think it's important to start by letting our audience know that the first appearance of codes or laws providing monetary compensation to workers for specific injury of a body part dates back to the time of the ancient Sumerians in 2050 BC. Codes or laws related to the treatment of workers can be found throughout the texts of the ancient civilizations across the world. Mary, did you know that the first modern workers' compensation system was created in Prussia in the 1870s, and our workers' compensation systems were modeled loosely after those Prussian systems? It was slow to be developed though and early legislation was limited and often stifled by decentralized labor laws. Additionally, there were initially strong objections to oversight being granted to the individual states regarding regulations. It wasn't until about 1911 when we saw the first comprehensive workers' compensation laws passed in the US with all of the states adopting their own legislations by 1948.
It's important to note that although there are similarities, each individual state has their own workers' compensation laws, regulations, and legal precedents, and there is no federal oversight of the workers' compensation system in the US. A number of states such as California, Delaware, New Jersey, Pennsylvania, and others have their own independent bureaus that oversee compliance of the policies issued within those states. While others utilize vendors such as NCCI, which is the National Council on Compensation to provide those types of services. In respect to claims, each state has their own independent boards overseeing benefits. As you can see, Mary, workers' compensation is a very complex system within the US.
Mary Busch (04:07):
Certainly is. I have been exposed to some foreign compensation and this is totally different, and ours provides a much broader spectrum than outside of the US. Chuck, can you expand on why some insurance carriers cannot write aviation-related risks for workers' comp?
Chuck Couch (04:26):
Mary, you're correct. There's a very limited number of carriers that currently provide aviation workers' compensation in the US outside of any state fund or assigned risk pools. Currently, there are only six markets within the private sector that are offering coverage. I believe this reduced capacity has been impacted by the fact that workers' compensation in the US is generally a supported line of coverage. By that I mean it's offered as a secondary line of coverage when written along with a more preferred line of coverage. So, for example, if a company is running a preferred line of the general liability policy, they could also offer the workers' comp. Since aviation coverage is limited in the number of carriers that can provide the preferred line of coverage as well, so, the whole liability or the general liability, it further limits the capacity available for aviation workers' comp. Typically, this is also impacted by larger corporation's appetites. So just meaning that the appetite that that corporation has further tolerance of risk in the industry, as well as reinsurance restrictions which continue to be impacted by the catastrophic nature of losses that we see within aviation. Also, we see that those catastrophic claims are also impacted further by today's inflations of not only parts and labor, but social inflation as well. Accidents happen daily, but aviation accidents are front-page news.
Mary Busch (06:06):
So, when you say they're going to be impacted by front page news, basically that means every single form of social media, Twitter, Facebook, anything, somebody's cell phone putting it online, that can bring the accident to the forefront, which can, let's face it, cause more payouts not only for workers compensation but for liability as well.
Chuck Couch (06:26):
That's correct, Mary. Just the notoriety that aviation claims receive in today's world from social media, it impacts a company's risk tolerance and their desire to stay in that line of coverage.
Mary Busch (06:40):
Chuck, can you also describe the various classes of business within the aviation workers' compensation coverage with a description of the various classes of business within workers' compensation, and I do believe there's also some additional endorsement they may require in addition to that classification to provide proper coverage.
Chuck Couch (07:01):
Yeah, I'd be happy to talk about a few. So, we kind of generally classify businesses and group them together. So, we first start off with commercial aviation, so, that's going to include your various airlines. That's going to be both passenger and cargo-related airlines. So those are the big accounts that you think of. So, your domestic airlines that you see every day on the news or advertisements. And also from a workers' compensation standpoint, we classify the businesses that support those operations as well. So maybe the ground operations, so something that would be familiar to us all are wheelchairs at the airport or baggage handlers at the airports, things that service those type of accounts. So, we kind of consider that the first. The next classification we consider is general aviation. That's a really wide range of types of businesses, includes industrial aid operations, corporate aircraft, aircraft that are used for charter or aircraft management to EMS (emergency response), other types of cargo operations, flight instruction, operations, and lots of specialty operations such as fire support, forestry, wildlife management, utility, aerial mapping, just to name a few.
Another line for classifications is military support operations. So, where we don't insure the actual military, there are organizations and businesses out there that do support the military with various contracts. So, we can offer workers' compensation coverage for those type of risk as well. It even expands out further to aviation-related manufacturers that include products, components, or actual airframes of aircraft. Then even today, if you're watching the news on a regular basis, there's always something new coming out with drones or electric vehicles such as the electric vertical takeoff vehicles, which are highly funded by companies like Amazon and emerging tech and with lots of various grants. And even today there's an emergence of the need for workers' compensation in the space realm as well. These specialty operations might require coverages that aren't standard on a workers' compensation policy and naturally excluded without the addition of various endorsements to provide the coverage. One of those coverages is USL&H, so that's longshore and harbor workers. This is a federal coverage that isn't standard, must be endorsed on the policy. Basically, in a nutshell, it provides coverage for employees that work on dock bridges or overwater when there's an associated risk exposure with an aviation policy. There are several other federal endorsements available out there. These provide higher benefits for very specific working conditions that are normally excluded.
Mary Busch (10:12):
So, let's say you're a helicopter operator and you have to deliver to a ship, cargo ship that's out in the water. They would need USL&H for coverage because they're actually flying and landing and or doing a slung load onto the actual helicopter.
Chuck Couch (10:30):
That could be a possibility along with some other coverages such as maritime.
Mary Busch (10:36):
What about the foreign voluntary as far as coverage on the workers' compensation policies?
Chuck Couch (10:43):
Mary, I'm glad you brought that up. This is a very important endorsement for aviation. Aviation, unlike other businesses, isn't limited to brick-and-mortar locations. At any given time, an aviation risk can be in an aircraft and be anywhere in the world. Most state laws provide coverage for employees that travel temporarily out of the territory. But what coverage is provided, it can vary from state to state. There may be limitations on the number of consecutive days that an employee is covered while abroad or what endemic diseases may or may not be covered. Or as you mentioned earlier, repatriation expenses typically wouldn't be covered above the normal cost of transportation. The foreign voluntary compensation endorsement expands the coverage territory and can be negotiated for the number of days covered while abroad and has a defined repatriation benefit to it.
Mary Busch (11:43):
So, I've seen that both ways. I've seen it insured on the workers' compensation policy for the foreign voluntary with the repatriation. But also on a foreign package policy, which would cover the same, if not more for the client, for workers' compensation and give them options too for hiring not only employees within the United States, but also you know, nationals of that country they're working in, or foreign nationals that are third-country nationals that were not hired in the US they were hired outside of the country where they're working. So, they would be a third-country national and could provide the same coverage and more. I know most foreign packages do also provide extended coverage, kidnapping, ransom, also foreign auto use when you rent auto overseas. So that is another consideration if there's a limitation on all local's compensation policy.
Chuck Couch (12:37):
That's correct. We really recommend, you know, if you've got regular trips overseas, those are easily covered under our workers' compensation policy with this endorsement. But if you've got employees that are deployed overseas for long periods of time, really you want to see the coverage put on one of those foreign package policies just because of the additional benefits that are provided through those policies that aren't available under the endorsement.
Mary Busch (13:07):
So, going back in time, can you let us know how the events of September 11th impacted the compensation system?
Chuck Couch (13:15):
Yeah, definitely Mary, there were a lot of impacts of 9/11. It really brought into focus how the potential of a large event can impact the workers' compensation system and it required states to revisit how to fund for these large event losses going forward. You know, the goal is to provide long-term adequacy of lost costs and rates while being able to provide rate stability within each individual state. This resulted in the cap loadings that you see on many policies today for exposures such as terrorism, earthquake, or catastrophic industrial accidents. Interestingly, there are exposures to large impac events within some aviation operations as well. That same similar methodology is applied to certain class codes such as 7431, which is for charter and has a cap loading of 7453 associated with it. Further information about funding for large events can be found through a very interesting paper written by Tom Daley for the Casualty Actuarial Society Forum.
Mary Busch (14:31):
So going back a little bit too, we were talking about clients that may need policies or separate policies such as a defense-based act policy, which you had indicated. It's not written through global currently, but you have an endorsement that you might be able to, to put on the policy to cover a small contract overseas for the government. So, the DBA policy basically provides coverage for insureds who are operating under US government contract. That's why they call it “defense-based act” specifically. Any contractor that is awarded a US government contract, which requires them to perform employment activities outside the continental US, must secure defense-based act insurance. So, this is for any operation under US government contract and not just aviation. These government US funded contracts require employees to purchase defense-based act insurance for all US citizens and civilian contractors, third-country nationals and local nationals, whether they're considered primary contractors or subcontractors for the US government. So, your endorsement that's available for the DBA on the domestic policy might be good for a short-term contract, correct, but not something that's a little more involved?
Chuck Couch (15:55):
Yeah, that's correct. You can use a DBA endorsement on some very temporary type exposures, but similar to the foreign voluntary compensation endorsement we talked about earlier, there are better specialty options available through the market, which provide additional coverages that you wouldn't normally receive on a domestic workers' compensation policy. So, we tend to refer business that has that true long-term DBA exposure to those specialty markets.
Mary Busch (16:28):
So, Chuck, do you have any other comments on how aviation workers' comp differs from the standard workers' compensation policy?
Chuck Couch (16:35):
Yeah, Mary, our policies work in the same ways as other industries. We use the same available policies, endorsements, claim services. Our policies are just different because of the nature of the aviation business and the work that's performed.
Mary Busch (16:51):
So, I know we don't have a lot of time today, and I know maybe we can go over another topic, COVID, at a different podcast and see how that actually impacted the workers' compensation industry. But if you would like more information on Global Aerospace Aviation workers' compensation capabilities, you can visit their website at www.global-arrow.com. And also, for information on this or any of our other insurance brokerage services, please visit www.alliant.com. Again, thanks to Chuck Couch for joining us today, and please check back soon for another Aviation Insurance podcast.
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