Keep Me Covered

Insurance rates are likely to remain low for awhile but if you want high liability limits, fuggedaboutit.

As much as we loathe using clichs, we can think of one that describes the current aircraft insurance market: There’s good news and bad news.

The good news is that more companies are vying for business in a relatively flat market and financial markets are flush with cash. That puts downward pressure on rates, which owners will find agreeable.

The bad news is that virtually all of those companies have abandoned the option of writing high-limit coverage. These days, $1 million smooth is the max liability youre likely to see. That may be a non-issue for private owners but for anyone operating an aircraft for business use, the coverage squeeze is on.

Market Reshaped
For owners of professionally-flown turboprop and jet airplanes, last year brought few changes. Insurance for corporate airplanes has never been cheaper and the companies that provide this coverage remain little changed.

For the rest of us, the picture is quite different. Two forces are reshaping the market. The first is a substantial consolidation among insurers. During late 1996 and 1997, a company almost unknown outside the aviation insurance industry purchased a big share of the market.

HCC Insurance Holdings, Inc., a division of Houston Casualty Corp., purchased AVEMCO, U.S. Specialty Insurance, (a broker division of AVEMCO), Signal Aviation Insurance Services, Inc., Continental Aviation Underwriters, Inc., and Southern Aviation Insurance Underwriters, Inc.

AVEMCO will continue to operate independently. Southern, Signal and Continental have been merged to form a new company called Aviation & Marine Insurance Group, Inc., or AMIG. Of the three, Signal was the largest and underwrote a wide range of general aviation aircraft.

Southern was more of a niche underwriter, concentrating on warbirds, antique aircraft and multi-engine transitions. Continental insured many ag operators. All three companies are now located in what was Signals headquarters in Addison, Texas. Yet another company, Commercial Aviation Underwriters (COMAV) was purchased by AIG Aviation and is being integrated into that company.

As consolidation shakes things up, several companies are aggressively increasing their share of the so-called pleasure and business or P&B market, which includes privately owned non-commercial light airplanes, a market that has traditionally been profitable.

Associated Aviation Underwriters (AAU) has already opened a Kansas City office to sell light aircraft insurance and CIGNA Corp. is showing interest, as well. The company is providing a limited number of its aviation agents with the ability to quote and bind a range of single-engine airplanes through a computerized rating system installed in the brokers office. These brokers will actually be able to issue CIGNA policies from their offices.

USAIG is also nibbling at the digital revolution. Starting with a small number of large-volume agents, the company is granting these agents limited authority to quote and bind through on-line links.

Shrinking Limits
In the last quarter of last year, USAIG announced that it would no longer provide liability limits higher than $1 million for light airplanes, except for its own renewing customers. The company is now also offering per seat sublimits of $100,000. Both of these developments are radical departures from the companys past policy of providing whatever limits customers wanted. For years, USAIG advertising extolled the virtues of the level limit, with no limit per passenger. Although underwriting guidelines were strict, limits were never a problem for those who met them. Yet even though USAIG will write limits of over $1 million to its existing customers, the price will be exorbitant. In most cases, premiums for $5 million of coverage will cost three times last years rates.

Great American Insurance, AOPAs underwriter, will offer a maximum of $2 million for piston-powered airplanes and underwriting guidelines are fairly stringent for that limit. AIG Aviations Light Aircraft Division is also maxed out at $2 million. AIGs branch offices can offer higher per occurrence limits, but theyre usually subject to a maximum per seat.

AMIG can provide higher limits, but rarely will unless the pilot is highly qualified. Similarly, Phoenix Aviation Managers can offer higher limits but continues to be choosy about who theyll insure.

Wide Swings
There have been drastic swings in prices and limits available in the past, but what makes this latest trend so remarkable is that there’s plenty of capacity in the market. With stock market averages at an all-time high, there’s no shortage of capital, the underlying force thats the big driver of rates and availability of high limits.

Another rate driver is the availability of lucrative investments for insurance company revenues. When investments are cooking, carriers will sometimes slacken underwriting standards to draw in more business, cashing in on short-term money in the bank.

Whats causing the current limit draught is the continuing high court awards in light aircraft accidents. Most underwriters we spoke to believe that in serious injury or death cases, the actual dollars amounts of liability coverage are meaningless. Whatever the limit-$1 million or $5 million-its all forked over to the survivors. After all, if youre a juror faced with the weeping widow and orphans, how hard is it to give away some insurance companys money? In this judicial climate, underwriters argue, they cant possibly charge enough for their product.

London insurers have become very leery of providing liability coverage to airplanes based here in the colonies. Theyve learned their lesson from our courts. In order to buy excess liability coverage through the London market nowadays, you first need to find $5 million in primary liability for a typical four-seat airplane. If you have more than four seats, you’ll need at least $10 million of primary insurance before theyll sell you excess.

Bottom Line
Whats the result of all this turmoil? In the short run, due to cash oozing out of every crack in the markets, rates for most of us will remain fairly low, although many owners will pay more next year than they are now. For most of us, rates have either stabilized or increased only slightly. Owners stepping up to the next rung or those who carry limits in excess of $1 million are most affected, as are owners operating seaplanes or helicopters.

The airplanes getting the best rates right now, other than corporate turbines, are single-engine four-seat fixed-gear airplanes with values between $50,000 and $100,000, with $1 million liability limits and $100,000 per passenger.

In the medium long run, were certain that the smaller number of providers in the market will eventually translate into higher rates, especially if the money dries up. In the very long run, as insurers become more efficient-we think its likely that buying light aircraft insurance will become more like buying car insurance. The purchase will be faster and simpler, if not quite so inexpensive.

-by Jon Doolittle
Jon Doolittle is an Aviation Consumer contributing editor and owner of Sutton James Insurance in Hartford, Connecticut.