As a consumer, you buy many different insurance policies. When was the last time you switched insurance carriers for one or more of your policies? If you’ve switched recently, what were the driving factors behind this decision and were there any repercussions or risk in doing so? If you’ve moved an aircraft policy, the answer is yes, there is risk and there could be consequences.
When something changes, human nature is to react. Just like flying the King Air, the normalcy of a flight is comforting. The operations are consistent – plan the trip, run the checklist and operate the aircraft. Only when something changes do we react, ask questions and make changes to get us back on the desired path. The aviation insurance market is changing and King Air owners are reacting.
With non-aviation policies, I’ll confess, I’m not an expert, nor do I read them from cover to cover. Similarly, I can assume, most of you reading this article don’t read your aircraft policies from start to finish. King Air owners trust their insurance broker to help them make informed decisions. We all recognize change. The big change that gets everyone’s attention is price – how much was paid last year versus the current bill. While understandable, price shouldn’t be the only reason to change insurance companies.
There are other changes that should be taken into consideration. Has your exposure or risk profile changed? What about your desire to carry a specific coverage or liability limit? Has your carrier’s appetite for your risk profile changed, or are they eliminating an ancillary coverage that is important to you? If the answer is “yes” to any of these questions, then it is probably time to take a deep dive into your insurance renewal and contemplate changing insurance carriers for your King Air policy. As with most things though, there are risks in switching insurance carriers. To be an informed consumer, be aware of these possible ramifications before making your final decision.
Aircraft hull and liability policies are very broad and cover many perils. They are “all risk” contacts that specifically state what is not covered. If the policy does not state something is excluded, then you have coverage. Here is a true scenario to serve as an example on why it is important to consider possible ramifications before switching insurance carriers:
In early April I received a call from an aircraft broker who wanted my opinion on a situation his client was facing. The client was selling his King Air, which was currently undergoing a pre-buy inspection and generally where issues can arise that instigate a phone call to the insurance company. The list of repairs and squawks during the inspection process can be long, nitpicky and expensive – all of which contribute to an informed buying decision and serve as part of the negotiating process. Of course, the expensive and airworthy squawks are the ones to get the most attention, by both the buyer and seller.
My phone was ringing because of a squawk regarding magnetism of the engine. In 2014, the aircraft was involved in a lightning strike. The strike was an insurance covered peril and was taken to a service center for inspections and repairs. Upon completion, the King Air owner signed a “proof of loss” document acknowledging all repairs had been made and paid for, thus closing the claim.
The “proof of loss” document is standard operating procedure. Insurance companies must be able to close their books on claims, otherwise there is an unmanageable opportunity for future financial payouts that can’t be predicted. Once the claim is closed the parties involved sign the “proof of loss” and move on.
One would assume a magnetism check of the engine would have been part of the lightning strike inspection at the service center. However, the King Air owner now has an $85,000 problem on their hands in 2019 and the uncertainty of who is going to pay for it. A couple of possibilities need to be considered:
Did the service center indeed check for magnetism of the engine? If so, the magnetism has occurred between signing the proof of loss and now. The next step would be to find out how it was magnetized and when.
If the service center failed to check for magnetism and doing this check is standard protocol, this is grounds for you and/or your insurance company to go back to the service center to have this rectified.
After I brought these two comments to the aircraft broker’s attention, I asked an important question: “Has the King Air owner been with the same insurance carrier since the lightning strike in 2014?”
He said he didn’t know and asked why this was relevant.
I believe it is intrinsic for people to work harder for those who are loyal to them. If you have been with your carrier for an extended amount of time, they will instinctively go above and beyond for you. While you did sign a “proof of loss” to close out the claim, the insurance carrier could join the cause and help you out under point No. 2 if they were your insurance carrier then and now. If you are with a new carrier since the claim occurred and was formally closed, teaming up with your former carrier can be difficult as their level of interest in working with a former client may not be a top priority.
Under scenario No. 1, if you are with the same carrier now that handled the original claim, you have a new claim to file with your insurance company. This particular King Air owner was having a hard time determining if there was a particular event in the last five years that would have resulted in magnetization. While I’m not a PT6 specialist, the experts at Pratt & Whitney can consult with you on possible causes of magnetism. However, it may be difficult to pin down the exact time engine magnetism occurred. The insurance company is only responsible for occurrences taking place during your policy period. If the King Air owner switched insurance companies at least once since the 2014 claim, they may have put themselves in a predicament.
In a subjective situation where a metallurgist determines when damage occurred, there is a window of time along with probability levels. Each insurance carrier you have had a policy with since the 2014 lighting strike is going to want the other carrier to pay. Each carrier will seek proof from you that the occurrence happened on their watch in order for them to pay the claim. However, if you have been with the same insurance carrier for many years, the carrier knows they are obligated to pay as there isn’t another carrier in the picture.
Sometimes change is necessary and you may find yourself needing to switch insurance companies. If you get in this situation, do so carefully and for the right reasons. Price is important, however, an extra $1,000 in annual premium would be well worth it for the King Air owner facing an $85,000 bill to get their aircraft sold.
If you do switch carriers, a very important consideration should be given to the financial strength and claims reputation for your current carrier versus the carrier you are considering.
Be sure you are comparing apples to apples when assessing a change. There are over two dozen ancillary coverages to be evaluated and considered. Not all carriers’ ancillary coverages are the same or offer the same limits buried within the policy. Ask your broker what coverages you might be losing if you switch insurance companies. Also, consider carrier flexibility. For example, would they be accommodating if you needed to request a 30-day training extension for the pilot in command?
Kyle P. White is an aviation insurance specialist for a global insurance brokerage company. He has professionally flown King Air 90s and B200s and holds an ATP and multi-engine instrument instructor license. You can reach Kyle at firstname.lastname@example.org.