King Air owners frequently ask me about available discounts for their insurance program. This has become more prevalent as the insurance market continues to show signs of hardening – coverages are becoming less negotiable, rates are slightly increasing and underwriters are becoming more critical of an operator’s risk profile.
In the May 2018 issue of King Air magazine, I wrote the article, “King Air Insurance Market Update.” The article profiled the insurance environment for King Air owners and operators over the last 15 years. In the post 9-11 market, the typical premium for King Airs has ranged from approximately $35,000 to $65,000, depending on hull value, limits of liability and owner-flown versus professional-flown. Recently the prices bottomed out from several thousand dollars for a low limit and low hull value King Air 90 to $20,000 for a high hull value King Air 350 with high liability limits flown single pilot by the owner.
Historically, the 30-plus ancillary coverages were easy to add or increase. Last May, we specifically discussed “Garagekeepers” coverage which provides coverage if your guest’s car is damaged while in your hangar or by one of your employees. For example, one of your employees details the car as a kind gesture and damages it in some manner. To save money on your insurance renewal, we recommended adding Profit Commission On Renewal (PCOR) – an endorsement that can be added to your insurance policy. The PCOR endorsement is designed to do two things. First, it shares in the profit of your policy with the insured, assuming there are no losses. Second, it creates loyalty between the insurance company and the insured. In order to share in the profits from the expiring policy, you must renew it with the same carrier. For example, assume you pay $20,000 for your insurance policy and during the policy period there are no losses. The endorsement can read a couple of different ways, one of which is “10 percent of 70 percent of the earned premium.” This means upon renewal of your policy with the current carrier, you will receive $1,400 back.
Into 2019, it is obvious the insurance market bottomed out in 2018 and pricing is not only on the rise, but the ancillary coverages we’ve written about over the years are starting to tighten too.
The new market conditions are foreign to most in our industry. We have become accustomed to getting what we want for less than what we paid for it the previous year. Driven by competition amongst the vast number of insurance carriers, there seemed to be a significant amount of flexibility and desire by each of the carriers to write your business. This started to change when last summer Berkley Aviation announced that they were leaving the aviation insurance market.
The other insurance carriers absorbed the Berkley Aviation clients and their needs, but in many situations, at a price increase. Through conversations with underwriting aviation managers at other companies, there is significant chatter that their aviation underwriting portfolio is struggling to meet their company’s targets. In order to achieve an underwriting profit, they need an obvious combination – more premium and less losses.
Understandably, you don’t want to pay more premium. So, the focus shifts to how you, the operator, can convince the underwriters you are a good risk and won’t cost them any money during your policy period. How can you get your “discount”? The answer is risk management.
Sophisticated and intelligent insurance buyers in your supply chain have been taking advantage of you. To keep your rates in check, put everything on the table and objectively assess how you can manage risk and push back on those in your circle who try and push or limit their liability on to you and your insurance company. Look at your operation from the underwriter’s perspective to effectively evaluate your risk profile:
The following bullet points are in no particular order, but are all among the most important items to manage your risk from an underwriter’s perspective:
- Limit pilots to operating only two different types of aircraft in the flight department.
- Simulator-based training every six months. If you are operating two different types of aircraft, alternate the aircraft trainings every six months. If you only operate the King Air, then at a minimum go to simulator-based training every 12 months in make and model.
- Annual “Upset Recovery training” or “All Attitude training.”
- Implement NBAA (National Business Aviation Association) resources, such as International Standards for Business Aircraft Operations. NBAA has a plethora of material to help you professionalize your operating environment. Does someone in your flight department leadership team hold a CAM (Certified Aviation Manager) designation?
- Create or overhaul and update the Flight Operations Manual to include minimums for new-hire pilots, operating minimums with regard to runway environment, duty day limits and other manageable criteria.
- Review all of your contracts with suppliers, such as hangar lease agreements and third-party maintenance contracts. Include your list of contract pilots and the contracts you have in place with them.
- Are you dry leasing your aircraft to third parties? You have now opened yourself, and your insurance carrier, to potential payouts in the event of a claim.
Underwriters are being more particular about who and what they are insuring. Position your risk profile in the most favorable light and have a knowledgeable “brand ambassador” as your broker. One of the most highly glossed over risks aircraft owners have is the hangar lease agreement. One large FBO chain wants you to sign an agreement stating they are not responsible for damage incurred to your aircraft while they service it. They are engaged in commerce but have essentially eliminated their potential liability by pushing it back on to you. This is how they have kept their insurance rates artificially low and been able to retain a high deductible with reasonable comfort. They are forcing your insurance company to pay for their negligence.
Push back on these contracts. If you don’t, this is more risk you are expecting your insurance company to absorb. When the FBO damages your King Air and your insurance company has to pay to repair it, per the contract you signed, they can’t subrogate against the FBO. In the end, you lose. You now have record of a claim, while not your fault that monetary gesture will follow you for at least five years.
Third party leases are also starting to attract the attention of underwriters. At one time insurance companies charged a higher rate for a chartered King Air versus one operating strictly as “Industrial Aid,” which refers to a corporate flight department flown by professional pilots for strictly business/personal transportation needs.
During the Great Recession many King Air owners saw their utilization go down. As an attempt to dilute their fixed costs, they entered into third party dry lease agreements. In dry leases you typically extend your liability coverage to the lessee, waive the carrier’s rights to subrogate, and have increased utilization (more takeoffs and landings equals more opportunities to fly through a flock of birds). Underwriters are going to start wanting additional premium dollars for this increased risk.
Utilizing contract pilots also opens you, and your insurance company, to a higher risk of claims. Employees are covered by workers’ compensation, but a contracted pilot is most likely not. Your policy may have “Guest Voluntary Settlements,” or GVS – the first line of defense the insurance carrier offers on your behalf. By going through a company in the business of outsourcing pilots or requiring your contract pilots to carry workers’ compensation and enter into a legitimate contract, you are a better risk in the eyes of an underwriter.
The hardening market will also likely bring additional charges from underwriters for items such as unfavorable signed contracts you may have in place. Keep that in mind before signing anything that may impact your insurance policy and coverage. Be sure to send any signed contract to your insurance broker too; it is a condition in your policy.
Strategies and professionalism are going to be what sets you apart from the pack. Having a high-level risk management program in place, while being proactive to managing the perils you are asking the insurance company to take in return for premium dollars, is going to be the best discounts you can provide your operation. Additionally, if you can attend aviation industry events throughout the year, ask your broker if he/she will be there, and if so, if there are any underwriters you can meet with face to face. Relationships will become more important and beneficial as the market continues to harden.