AIRLINES USE CREATIVITY TO REDUCE SMALLER CLAIMS

TAMPA, Fla.-U.S. airlines are keeping a close eye on their small passenger claims to improve their service and reduce losses.

American Airlines is taking this approach one step further, however.

The airline is now self-insuring its "attritional" passenger claims, which American defines as any single claim less than $1 million. This covers more than 98% of the airline's passenger claims, said Christa Meyer Hinckley, managing director of insurance and risk manager for American in Dallas. American Airlines is owned by AMR Corp.

"We carry approximately 94 million people per year, and unfortunately, a few of them will not come through their travels unscathed," said Ms. Hinckley. "These day-to-day losses, which the business calls attritional, should be dealt with by the airline like any other cost of doing business."

These claims might hurt the airline's cash flow, but that will inspire personnel to find out why these losses are happening, she said. American has 14 licensed claims adjusters to deal with problems and notifies its insurers of major claims even though it is self-insured.

The airline deals with all these claims directly and contacts passengers within 24 hours of being notified of a reasonable claim, rather than waiting for loss adjusters to make the call, said Ms. Hinckley.

"We want that passenger back on our airline. Therefore, we work very closely with our human relations department so that we can do things like send ticket vouchers or upgrades for passengers who have had an unfortunate event on our airline."

By self-insuring most passenger claims, American's risk management department can analyze these losses and learn to reduce them, she said. American also can save as much as 30% of each claim on unnecessary administrative costs needed to insure such losses, she said. These saved costs include broker, legal and claims-handling fees.

By dealing with the claims directly, the customer also is more satisfied, she added. "Since we took the initiative (to self-insure), our claims situation has improved," added Ms. Hinckley during an airline risk management panel discussion at the 21st Aviation Insurance Assn. conference earlier this month in Tampa, Fla.

The average per passenger liability claim has decreased 10%, she said. The number of passenger claims litigated has dropped to 7.5% of all claims from 15%, she said. The average passenger settlement to end litigation also has been more than halved, to $16,000 from $35,000.

American will fight all bogus claims, Ms. Hinckley added.

The airline's new approach may help increase insurance capacity for catastrophic risks, stabilize insurance prices and allow for more efficient insurance claims handling when a disaster strikes, she said.

Meanwhile, Continental Airlines Inc. decided three years ago to handle its attritional passenger claims in-house and merge its risk management and ground safety departments.

Continental's risk management department also has visited many of the company's departments, from catering to flight attendants, to make them aware of how to reduce losses.

"Airlines can handle their claims more effectively in-house than any insurance company because of who we are and what people expect," said Adam W. Potter, managing director of risk management and ground safety at Continental in Houston. "These passengers are the best advertising for the airline if the claims are handled well" and the worst advertising if claims are handled badly.

Each of Continental's departments now is allowed to settle small claims for up to $500 in travel vouchers or free tickets, Mr. Potter told AIA delegates.

Larger losses, up to $25,000, are referred to Continental's claims department.

As a result of this new approach, "our results have been astonishing," said Mr. Potter. The number of passengers has increased; claims costs have reduced by 30%, and on average Continental's passenger compensation is three times less than what an insurance company would pay for the same claim.

Within two years, Continental hopes to reduce its annual attritional claims by half, to $2 million. Seven years ago, those claims were at a high of $12 million, said Mr. Potter.

USAirways also has a hands-on approach when it comes to passenger claims, even though the airline has first-dollar coverage, said Rita M. Evans, manager of claims and loss prevention administration for the airline in Arlington, Va.

A person in the airline's customer relations department is in charge of dealing solely with this type of claims. USAirways calls passengers "sometimes even before they arrive home" after an incident, she said. The airline will express its concerns, pay medical bills if possible and/or relevant and offer travel vouchers where appropriate.

"I think the airlines are all pretty responsive now rather than just sending off the claim to the insurance company and letting them handle it. We step in first," said Ms. Evans.

Turbulence and luggage falling out of the overhead compartments are just some of the major causes of passenger injury not related to a disaster, AIA members heard during a question-and-answer session.

American set up a turbulence task force a few years ago to find out how to alleviate these injuries and, as a result, has seen the number of claims from turbulence go down, said Ms. Hinckley, though she couldn't say by how much. The airline continues to track turbulence claims.

All of the panel's risk managers said the best way to reduce turbulence-related losses is to make sure passengers put on their seat belts. "The seat belt sign goes on at the first bump," said Ms. Hinckley.

"We don't get any pilots affected by turbulence, because they are in their seats with their seat belts on," said Mr. Potter.

As for overhead bins, American is considering netting in the bins on new aircraft to stop injury, but the airline doesn't think it's cost-effective to install it in old aircraft, said Ms. Hinckley.

Mr. Potter said the netting can make things worse if buttons from coats get stuck in the netting and cause damage.

USAirways' Ms. Evans said she would like to remove overhead bins from aircraft to avoid the problems altogether.

Lisa Savitt, a lawyer at Schnader, Harrison, Segal & Lewis in Philadelphia, moderated the session