The market for aviation insurance continues to be soft-perhaps very soft. There are simply too many aviation insurance companies offering to sell policies, relative to the number of aircraft owners looking to buy them. And each of these too-many companies is trying to keep the customers it has, and to grow by taking customers away from one of the other companies.
We asked Jon Doolittle, principal of Sutton James aviation insurance brokers and a CFI, about the insurance market for a new tailwheel pilot buying his dream airplane. He told us that it depends a little on what kind of airplane. For Cubs, Champs, Citabrias and similar, fairly benign handling machines, 10 hours of dual, including a tailwheel sign off, will work. Some companies do not require a specific number of hours, just an endorsement will suffice.
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.
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.
According to GAMA statistics, there are 611,000 active pilots in the United States and only 223,000 registered general aviation aircraft. Even allowing for air taxi airplanes, clubs and partnerships, this means that lots of us are flying airplanes that we don’t own. Some of us rent from local flight schools, some borrow from friends.
According to GAMA statistics, there are 611,000 active pilots in the United States and only 223,000 registered general aviation aircraft. Even allowing for air taxi airplanes, clubs and partnerships, this means that lots of us are flying airplanes that we don’t own. Some of us rent from local flight schools, some borrow from friends.
Many of us have gone through the drill: the life insurancesales person extols the benefits of a policy and the attractive price. We consider it and recognize that the coverage is appropriate for us, so we say we’ll buy. Then comes the application, which asks if we engage in any “hazardous” activity. “No,” we think, “we declined the course in sword swallowing in college and quit juggling chain saws once we got out of our teens.”
The insurance market cycle has come a full 180 degrees from where it was in 2003, from very hard to very soft. The number of insurers competing for every GA insurance dollar has never been higher. As a result, rates are historically low. Underwriting guidelines are more relaxed than they have been in years.
While it’s easy to peg GA’s continuing decline on rising avgas prices or threadbare FBO aircraft, the reality is more diverse. It’s a “death by a thousand cuts,” where cost and the fleet are major wounds, but free time, demographics, and a score of other factors play in.
Flying is one of the fastest ways to burn money in this life. Airplanes are expensive and helicopters even more so. For most light airplane owners who fly less than 100 hours each year, owning the airplane actually costs more than operating it. And in recent years, many airplanes are depreciating much faster than they are being physically worn out. Buying the right amount of insurance to match the aircrafts value is trickier than it used to be, but is still the only way to protect an expensive investment.When deciding how much physical damage coverage to buy, there are two considerations, depending upon what happens to the airplane.
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. 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.
Test your knowledge of aviation insurance practices. Which of the following statements is true? If you take off 250 pounds over gross, youre in violation of the FARs and your insurer wont pay any claim resulting from an accident related to the overgross condition. On a long cross country, you blithely forget a weather briefing and fly straight into the icing layer from hell. You end the flight (alive and scared) in a farmers muddy cornfield. Your insurer wont pay. Last, you forgot that your annual was due last week, but only after you landed gear up. Your insurer wont pay. The answers? Probably false, even though the fine print in your insurance contract clearly allows the insurer to deny a claim, in many circumstances-perhaps the majority-they pay the claim anyway. Why? Several reasons. One is that laws governing contracts like insurance policies from state to state and some regulators take a more customer friendly stance than do others. Second, the aviation insurance business is a small (and shrinking) segment. A company with a habit of denying claims will soon find its business going elsewhere.
