Industry News

August 2015 Issue


+ Insurers are competing aggressively for your business.
+ Higher coverage limits than ever are available for owner-flown aircraft. ~ Read the insurance policy carefully—aviation policies are not identical.

Policy Sublimits: Wealth Hazard?

For more than 30 years, the most popular liability policy in aviation has provided coverage of $1 million with sublimits of $100,000. Owners sleep soundly at night, confident that they have an insurance pool of a million bucks should they roll Ol’ Bessy into a ball. These same owners have the personal net worth necessary to own an airplane and often have auto and homeowners insurance that has at least $1 million in liability coverage.

Light Sport Liability Insurance: Not So Soft

As the number of Light Sport airplanes increases and more pilots are opting to forego the third class medical and simply fly Light Sport, we were curious to see how the insurance market is for liability coverage for those airplanes.

Aviation Insurance: Soft Market, Low Prices

With more companies writing aviation insurance, it’s a buyer’s market. Premiums are at historic lows and a wide range of coverage is available.

There are only some 200,000 aircraft in the U.S.—there are more cars than that in a large town—so why any profit-oriented insurer would enter such a restricted market seems to defy logic. Yet, in the last decade, the number of aviation insurance underwriters has gone from the old, hard core of nine to 14, an increase of more than 50 percent. The result is predictable—with a relatively large number of companies competing in a limited market, insurance premiums are low and owners have little trouble getting coverage.

What does this mean for owners and pilots seeking insurance in the short run and the industry in the long run? We put those question to several insurance brokers and underwriters and got consistent answers: Because we’re in the “softest” market in over 40 years, it’s a great time to be buying insurance, but the fact that premium dollars are barely covering the cost of claims paid means the current situation should not be sustainable—yet there’s no end in sight.

How it Works

Why we buy insurance. Hull insurance pays for the repairs; liability insurance protects the owner should he or she be sued. In the current soft insurance market, prices are cheaper and more coverage is available than has been the case for decades.

Insurance companies enter into contracts to pay money to an insured should specified events (usually accidents) occur in return for a fee (the premium) from the insured. The insurer takes the premium money and invests it. So long as the amount the insurer earns from the premiums and investments exceeds what it pays out in claims, the insurer makes a profit.

One way to improve the balance sheet is to not pay claims, however, that’s not really an option for aviation insurers because the aviation community is so small. If an insurer gets a reputation for fighting claims, aviation insurance brokers learn about it quickly and steer their clients away from that insurer.

Currently, aviation insurers are being whipsawed by two realities: the stock market has been relatively flat, so return on investment of premium funds has been mediocre; and there is so much competition for customers that premiums are low. The result is that the insurers are reporting very little or no margin between income and outgo—which means that those who invest in insurance companies may move their investment dollars elsewhere.

Jon Doolittle, owner of Sutton James insurance brokerage, told us that the market is as soft as any he has ever seen, “Prices are down significantly and underwriter guidelines are eroding.” Doolittle said that where owners of turbine and cabin-class airplanes used to have to go for simulator-based recurrent training annually, now it’s likely they can get the insurer to agree to recurrent training every two years and it can be in the airplane. In addition, more and more insurers are agreeing to allow owners to take recurrent training through aircraft owner groups such as the American Bonanza Society and Cessna Pilots Association.

While the brokers we spoke with agreed to be quoted, those involved in underwriting (setting premiums and deciding who their employer insurance company would insure) would not agree to be identified. The underwriters we spoke with said that they were offering higher limit cover