I recently attended the Aviation Insurance Association’s annual conference in Colorado Springs. Working in the insurance segment of the aviation industry, this is an excellent event to attend and stay abreast of changes in the marketplace. The senior management team of every aviation insurance carrier doing business in the United States is in attendance, as well as some of the industry’s finest aviation attorneys. The three-day conference allows brokers, like myself, to meet with many of the underwriters, claims adjusters, and aviation defense attorneys to ensure we are up-to-date with the current market, trends, and legal liabilities the insurance buyer needs to be aware of.
Not surprisingly, the attendance for this year’s conference hit an all-time high. In the last 10 years, consumer options have grown significantly, which has been good for the buyer – the increased supply has forced pricing down, while increasing the broker’s negotiating power for enhanced ancillary coverages (i.e., broader policy content). At the same time, the demand for insurance has decreased. This does not refer to the number of aircraft needing insurance, but to the value of insurance necessary on each policy. For example, before the financial crisis in 2008, it was difficult to find a King Air B200 for less than $1,000,000, or a quality C90 for less than $500,000. Now, if you have $300,000 and can afford the operating cost, you can purchase a King Air 90, and find a variety of B200s for less than one million dollars.
The value of the King Air fleet impacts your insurance purchase. The reduced fleet value opens the doors to more carriers being able to offer coverage for your risk. Not all insurance carriers have the same “capacity” (the amount of coverage they can, or are willing, to provide). Although there are more than 20 aviation insurance carriers in the market today, only a handful can provide you with $1,000,000 of hull coverage, and even fewer can provide liability coverage above $100,000,000. So, when the values of aircraft fall, more options are available for the insurance buyer, especially if you require $50,000,000 of liability coverage or less.
There are now 10 more insurance carriers available to you today than a decade ago. You have over twice as many options! With so many selections, how do you choose? Understandably, many consumers default to the cheapest option. If you are only buying coverage to check a box, with no intention of incurring physical damage or getting sued, then that can be a good option. But, if you’re confident you’ll never have a loss, why purchase coverage at all?
Three Factors to Consider
Obviously, foregoing insurance would be foolish, so consider the following three areas to help you make an informed decision at your next renewal.
First, most likely you didn’t buy the cheapest King Air. You considered many factors, such as damage history, equipment, and engine time. Then you chose the aircraft that provided you with the best value. That’s precisely how you should buy your insurance policy. In addition to looking at the price, look at the “equipment list,” also known as the ancillary coverages. Review each coverage, line by line, amongst the carriers. Which of those ancillary coverages are important to you? Do they meet your needs; do any of them need to be modified? Are all the carriers offering the same coverages and limits for a particular peril? Some carriers are negotiable on those coverages and will increase them if your broker asks. For example, consider medical payments. Do you have $5,000 per passenger and want $25,000 per passenger, including crew? Perhaps one carrier is only offering $10,000, but is cheaper than the carrier offering $25,000? Another example is Guest Voluntary Settlements. Do you want $1,000,000 per passenger, including crew? The lower premium quoting carrier may only be offering $250,000, and excludes crew members. There are dozens of ancillary coverages you need to consider when comparing and contrasting the insurance quotes you receive. You may find the cheapest quote isn’t necessarily the best quote for you. Just like the cheapest King Air may not be the best aircraft.
Another consideration when evaluating which insurance company is best for you is the carrier’s time and experience in the marketplace. No one wants to purchase insurance from a carrier that doesn’t renew your policy 12 months later because they are exiting the aviation market. Most likely there are many King Air owners reading this article who experienced this exact scenario after having a policy with a well-known carrier that stayed in the aviation market less than 24 months. Their policies were so inexpensive buyers would ask if it was for a six- or 12-month policy. They were quoting King Air insurance for 50% of their expiring premium. Not surprisingly, they left the market as quickly as they had entered.
Note, that the carrier left the market by choice, not because of insolvency. There is a significant difference between the two. If they were insolvent, the state insurance commissioner would have been involved for any existing claims. This is less than ideal if you are in the middle of one of the most common claims a King Air operator faces, FOD, which may not be found until a routine inspection. This means it is entirely possible your previous policy, which expired six months ago, could be held liable for FOD damage that isn’t uncovered until the carrier is no longer in the aviation market and you are with a new provider. This might seem far-fetched, but it happened to a King Air 200 operator, and was determined when the current carrier hired a metallurgist to verify the date of the FOD occurrence.
Lastly, consider the claims process and reputation of the carriers whose policies you are considering. Ask your broker what their experience is with the varying carriers regarding claims management, as well as their attitude towards “betterment” when adjusting a claim. Some carriers have a more favorable reputation than others when adjusting claims.
Consider this “betterment” claim we processed with a new carrier about six years ago. It was our first claim with this market and was not going well. The claims adjuster wanted to put a used deice boot on the leading edge of the wing, or charge “betterment” for putting on a new boot. The client was furious. He explained, and showed pictures and documentation to show the boots on his airplane were in excellent condition and meticulously maintained. He routinely stripped the old wax off and resealed them. There weren’t patches over pinholes, or any other devaluing aesthetic appearance. After relaying this information to a manager at the insurance company, they recognized they had an opportunity to go above what was legally required. We also reminded the carrier that, being new to the aviation market, they needed a good reputation amongst the aviation community regarding claims adjustments. Although they aren’t the cheapest quote today, the client is still insured with this carrier six years later. The primary factor in the client willing to pay more was how that claim was adjusted.
As with most things in life, cheaper isn’t necessarily the best option. This applies to your insurance policy, as well. There are many great carriers out there, some are legacy markets and some are new. A market may be aggressive for your business by offering a cheap quote. Be cautious, and ask three simple questions of your insurance broker:
1) How do the ancillary coverages compare?
2) How long have they been in business and what is their financial rating?
3) How does their claims process compare to other markets?
It can be difficult to consider these less than ideal scenarios, but is necessary to ensure you have the best policy and carrier defending you, should you need it.