The good news about aircraft insurance is that for most owners, insurance has never been more affordable or more available. The bad news is that most people in the business think that the pendulum is about to swing back the other way. What got us here? Ironically, the 911 attacks had something to do with it as does the current economic malaise. Demand is slack, there are more providers than ever and companies are willing to deal. But, as always, it wont last.
A Bad Year, A Good Year
Following the 9/11 attacks, insurance rates for most aircraft increased dramatically. The amount of the increases depended upon the market segment, with many big iron operators seeing their rates double overnight.
Most light aircraft owners saw less of an impact, but as a result, 2002 and 2003 were some of the most profitable years for the industry in recent history.
This profitability did not go unnoticed by the MBAs talking to the corner office. A number of companies, seeing dollar signs, jumped into the market. “Jump” may be a little misleading. Starting an insurance company is a bit like erecting an office building: It takes two to three years or more in most cases.
Insurance is regulated by the states and insurers need to have their policy forms approved by every state insurance department where they do business. They also have to find sources of capital, hire experienced people and recruit brokers to their cause.
In 2002, depending on how you count, there were nine aircraft insurers. By the beginning of 2006, that number had risen to 16. You read that right-they nearly doubled.
As the hungry new entrants came on line, the existing carriers were forced to lower their pricing or lose business to the new guys. Long the darling of underwriters, corporate heavy metal operators reaped much of the benefit. Premiums for many of these operators are now 25 percent of what they were in 2002. One quarter. Gradually, the competition expanded to include light airplanes and some helicopters, although the reductions here were not all quite as dramatic.
Hey, Skip a Year
In addition to price decreases, underwriting began to relax in a number of ways. Several companies began to allow some turbine owner-pilots to attend school every other year, rather than the traditional annual requirement. Several companies began to offer higher limits of liability on light airplanes that had not been available at any price since the early 1990s.
The insurance business is a cyclical one, rising and falling from so-called “hard markets” to a soft market. Some of the ups and the downs are caused by sweeping trends in reinsurance, which are often driven by large, non-aviation catastrophes like hurricanes. These swings are also related to the business cycle.
Most soft insurance markets occur in times of economic