Good morning. I'm here to talk about the aviation industry indemnity act. I'm going to read the presentation to you, and if you have any questions after the fact, we'll deal with them.
Air industry participants, including carriers, airports, and air navigation service providers, as well as other suppliers to the air industry, require sufficient insurance coverage to operate. Insurance is required by regulation, commercial contracts, and for fiduciary reasons. Air industry participants need two types of insurance coverage: general and war risk. General insurance coverage is required in case of accidents, the same as for anyone else, but war risk insurance is different.
War risks is the term the insurance industry uses to describe potential damages caused by acts of violence. These include acts of war, but also other actions, like civil unrest, and of particular concern in recent times, acts of terrorism.
War risk insurance covers a range of categories of losses, liabilities, or damages. For example, an airline purchases insurance to cover the plane and the equipment, otherwise known as first party insurance, and the plane's contents, including the passengers and cargo, otherwise known as second party insurance. Finally, it must also account for the people and the property on the ground who have no particular relationship to the flight. These people are called third parties. The same broad categories exist for other parts of the air industry, other than just the airlines.
Before the attacks of September 11, 2001, the insurance industry offered war risk insurance at low rates. Following the attacks, insurance providers invoked short-term cancellation clauses for war risk coverage, leaving the air industry in a predicament, as this insurance is necessary for them to operate. The absence of a workable legislative framework necessitated the government's use of the royal prerogative to provide the coverage the aviation industry required. Since that time, the government has continued to use the interim authorities to provide an aviation war risk liability program, as the commercial markets for war risk insurance have been unstable and third party coverage has been most affected.
This situation was compounded by the recent global financial and economic crisis. In the Canadian context, the broader instability was particularly exacerbated by the approach of our closest competitors in the United States, which implemented a government based and supported approach to aviation war risk insurance that created a competitive advantage for their air industry participants.
This bill, the aviation industry indemnity act, would allow the government to provide aviation war risk liability coverage in a dependable and transparent manner when it's necessary to do so. It would also allow the tailoring of such assistance, if circumstances warrant, to the specific needs of individual industry participants and to rapidly adjust to changes in circumstances.
The markets for general insurance have not been affected in the same way. For that reason, general insurance risks are not addressed in this bill.
The events of 2001 illustrate the importance of providing the Minister of Transport with the ability to issue an indemnity if and when needed. The aviation industry indemnity act would provide the minister with the ability to offer an indemnity. It would not guarantee one. The Minister of Transport would undertake regular assessment of the state of the aviation war risk insurance markets and decide whether to offer an indemnity in light of the findings. This also would give the minister the ability to act or respond on very short notice, especially in that kind of emergency situation when rapid action is most necessary.
For example, at times it's necessary for the government to contract with an aircraft operator to send an aircraft into dangerous situations to evacuate Canadian citizens or undertake other humanitarian activities. In cases where the necessary flights would be impossible because insurance was not available, this bill would ensure that the Minister of Transport had the flexibility to issue an undertaking on short notice that would give the aircraft operator the coverage necessary to complete such urgent missions on Canada's behalf in a timely manner.
Although third party coverage for people and property with no connection to the aviation industry participant has been the primary concern to date, the bill would also give the minister the ability to provide an indemnity to address coverage for first and second parties if needed. Such coverage might be necessary in the earlier example of chartering an aircraft for emergency evacuations.
It could also be necessary, more generally, in a worst case scenario that included a broad-based withdrawal of private insurers for the aviation war risks.
If considered necessary, an indemnity could be provided to any member or group of members in the Canadian aviation industry. Because these entities might have differing insurance needs, the bill provides for tailoring an indemnity to meet the needs of the various players most effectively. It is even possible to indemnify an individual participant in case of special need. This flexibility ensures that coverage remains available to Canada’s aviation industry when and if it is necessary.
The bill includes provisions that allow the Minister of Transport to attach appropriate terms and conditions to an undertaking. These include the amount of indemnity to be provided and whether the aviation industry will have to purchase some insurance on its own. This is particularly important when there is instability but not outright failure in the markets.
This approach provides the additional benefit of encouraging commercial insurance markets to optimize coverage, and divides the risk between the government and the air and insurance industries in a way that is most appropriate to the circumstances prevailing at the time.
In addition, the terms and conditions attached to an indemnity can reference standard insurance industry practices or documents to ensure that not only is coverage provided, but it's provided in such a way as to ensure compatibility with practices familiar to Canadian aviation industry participants, and in a way that foreign regulators and business partners understand.
Although the proposed aviation industry indemnity act specifically identifies who may receive an indemnity, the types of risks covered, and some procedural matters, it does not include many other prescriptive elements. This is done because such things are impossible to anticipate and the government may have to react very rapidly. Rigid requirements would remove much of the usefulness of this bill.
This bill is designed to ensure clarity and transparency to Parliament and the Canadian public. It includes provisions for the regular assessment of the state of the aviation industry as well as regular reports to Parliament on activities undertaken under the authority of the bill.
A report must be made within 90 days after a new or amended indemnity is provided, or if there have been no changes, at least every two years. In addition, all new or amended indemnities will be published in the Canada Gazette. This approach ensures that all who need or want to know what is happening with regard to the bill can do so.
In conclusion, this bill will allow the government to provide aviation war risk insurance coverage in a dependable and transparent manner, as and when needed due to limitations in the commercial insurance markets.
Thank you.