Keep Me Covered

Lots of pilots can afford expensive upgrades but insuring them at any price is proving difficult.

For those of us in the market for aircraft insurance, it is, as they say in the classics, the best of times and the worst of times.

Fueled by a robust economy, the markets are brimming with capital to underwrite everything flyable. And yet, many buyers and brokers are finding the coverage they want hard or impossible to come by.

One of the longest periods of post-war prosperity shows signs of continuing into the next millennium. As a result, pilots are buying their first airplanes in relatively large numbers and even more are moving up to bigger and faster models, often when they lack the experience to do so, at least in the insurers eyes.

General aviation manufacturers are building light airplanes at rates not seen since the late 1970s. Were not quite back to 1975 yet, but for those of us who rode through general aviations Quaalude years, the current market seems robust, if not frantic. So whats the problem, you ask? For most owners, prices for insurance have never been lower. But for others, the availability of coverage is diminishing while the price is increasing. For some, adequate liability coverage is not available, period.

Haves and Have Nots
This is an insurance market of haves and have-nots. Some can have whatever they would like at a price they can readily afford. Those who have it best in this market are the owners of corporate airplanes. Almost as well off are owners of light fixed-gear single engine airplanes who are comfortable with limits of liability of $1,000,000 and less.

Pilots stepping into single-engine retractables are also able to find coverage fairly reasonably, provided they have instrument ratings and prior experience in RG aircraft or a willingness to get checked out by a good instructor.

In general, owners of mainstream types whose ratings, experience and skill make them well-matched to the airplanes they want to step up to are finding no bumps in the road to higher performance.

Some of the have-nots in the current market include owners stepping up to more complex airplanes. So many people are upgrading, that the demand for insurance seems to be outstripping the supply. Whether youre moving up to a complex single or your first twin, youll probably have to look harder and spend more for insurance than you would have two years ago.

A particularly difficult area is liability coverage. Limits over $1,000,000 are all but impossible to write, expensive if you can find them at all and are mostly offered to pilots with substantial flight experience. Plenty of newly wealthy business owners who want to protect their assets with high liability limits are finding they lack the flight experience to make it happen.

During a transition, you may also be limited by your underwriter to $100,000 of coverage for each passenger, or worse yet, each person. High net worth owners accustomed to carrying large limits of liability may have to do without until they accumulate more flight experience.

Plenty of Money
With all of the capital available to insurers, why are they having such difficulty providing a product to meet the needs of the large number of pilots who are transitioning into their next airplane?

After all, the amount of capital available to underwriters has usually been a more important factor in determining rate levels than have accident rates.

While accident rates tend to rise and fall within a fairly narrow range, the amount and the cost of capital fluctuates dramatically and has been responsible for pricing gyrations in the market during the past 15 years. From all accounts, lack of capital is definitely not the cause of the gridlock plaguing some segments of the industry.

Consolidation is, at least partly. There are now eight major domestic underwriters, while there were 11 just two years ago. Several of the insurers that were absorbed into larger companies served niche markets that concentrated in areas that other companies shied away from. There are still insurers that specialize in transitions, there just arent as many as there once were.

Automation is another force that has changed the way underwriters do business. In the quest to increase profits and offer their products at a lower price, more companies rely on clerical people guided by computer algorithms and underwriting manuals to determine who can fly what.

This often results in less flexibility. Two or three years ago, you could have proposed a training program for a transitioning pilot, and you would have had three or four underwriters, themselves pilots, who would have listened to the training program and offered a quote based upon their own slightly modified version of it.

Not anymore. Now, only one or two companies will offer terms. The others will tell you that the pilots flight time simply doesnt meet their underwriting guidelines for that type of airplane, end of story, no appeal.

High Hull Values
Another difficulty for insurers trying to cover new pilots is high hull value. New Skylanes can easily top $250,000 and a new Bonanza, Saratoga or Mooney will cost twice that, or more.

You can now pay over a million bucks for a new piston single or light twin. Many insurers dont want to roll the dice on that much money unless the pilot has a lot of flight time.

Concentration in certain market segments is a result of these changes. The problem isnt that theres competition between underwriters, but rather a lack of diversity in what theyre seeking.

Theres currently intense competition in some areas. Key phrase: In some areas. Most companies go after what they feel is the most profitable part of the business and are steering clear of everything else.

In general, companies are looking to increase their share of that part of the market where the law of large numbers works in their favor. Once you get beyond the realm of Skyhawks and Cherokees, there arent enough similar units for underwriters to accurately predict the number and cost of their losses, or to reliably set profitable rates.

As a result, theres strong competition for factory-built single-engine airplanes of low to medium value flown by experienced pilots who dont require large limits of liability.

Two of the major underwriters specializing in non-commercial light airplanes, or the pleasure and business segment as its called, dont insure twins in those programs at all. So we dont even bother to call them.

Get Rated
If you have your instrument rating, the jump into a retractable wont pose a big insurance problem, provided you are willing to spend some time with an instructor.

If you dont have an instrument rating, or if youre moving from a single into a twin, its likely that for a while at least, you may not be able to purchase more than $100,000 of coverage for each passenger. Few owners who spend $100,000 or more on an airplane live in trailers and $100,000 of coverage for each passenger is not much protection these days.

So whats the answer? Does the current situation mean you should put off buying your next airplane, and hope that things will get better? It depends upon what your ratings and experience are and what kind of airplane youre considering.

But overall, we dont think waiting will accomplish much. We dont see much change in current trends anytime soon. Here are some steps to help you stay on the straight-and-narrow if youre looking at stepping up.

Do your homework. In addition to finding out all costs associated with owning your next airplane, check out the insurance angle and do it early, before you get your heart set on something you can afford to buy but cant afford to insure.

This is where a good insurance broker earns his or her money. Before you choose a broker, talk to several that others have recommended to you and decide which one you think can get the job done. Dont send more than one out into the market or you may shoot yourself in the foot.

A good broker will know how to sell you to insurers and he or she will have some sense of what company will do what. Find out not only the cost of the premium, but how much liability coverage you can purchase, and what to expect in the way of training requirements.

Proactive on Training
Ask what training you can do that will make you a more attractive candidate to an underwriter and get that training done. The cost of training-relative to high insurance premiums and the cost of the airplane itself-is trivial.

Your experience will often be the limiting factor. If youre considering a high-performance single, especially one with six seats, plan to have your instrument rating well under way. If youre looking at a twin, have the rating in your pocket.

If you dont have it yet, be prepared to be flexible about whether to get your multi-engine rating in your new airplane or in a rented airplane. Sometimes an underwriter would rather have you do the training in the airplane youll flying. Others prefer to see you step into that airplane with the rating complete and some nominal amount of multi-engine time.

If youre going straight from a single-engine retractable to a cabin class twin, dont be too surprised if underwriters require you to attend simulator school. If youre flying a pressurized airplane, or a turbine, you can count on it.

You may need to purchase an interim airplane thats less-than-optimal for your mission in order to gain experience to get where youd like to be. If youre flying a fixed-gear single and you need a turboprop, you may need to buy a piston twin first.

Hire A Pilot
Another option, especially in larger twins and turbines, is to hire a pilot to fly with you for the first year or so. In some cases, the savings in premium will offset part of your crew cost and it may also be a way to get the limits of liability that you need. If no one will sell you insurance to fly the airplane by yourself, maybe they know something that you dont.

A broker can offer advice, but only you know whether or not you can live with the low limit of liability that you may be stuck with initially. If liability is a problem and if you carry umbrella insurance, make a call to your umbrella provider to find out if the airplane is or can be covered under it.

This is a long shot, but worth the effort. If most or all of your flying is with your family, passenger liability may not be a problem. Bear in mind that the instructor the insurance company makes you fly with is also a passenger.

Look beyond the horizon, too. Get estimates of insurance cost and available limits as you grow into the new airplane. What will the picture look like next year? The year after? The more you fly, the better it will get.

In order to step up in the face of the limitations in the current insurance market, youll need to be creative. If youre looking at a big transition, you may have to consider alternatives, such as hiring an instructor pilot, or buying an interim airplane.

You may have to pay more than you would like, or start out with less coverage than youre comfortable with. But if you do your homework, and if youre willing to be flexible, it can be done. It just might take a little longer than you planned.

Also With This Article
Click here to view “Bottom Line on a Baron.”
Click here to view the Insurance Checklist.
Click here to view “Generous Juries.”

-by Jon Doolittle
Jon Doolittle owns and operates the Sutton James insurance edifice in Hartford, Connecticut. He flies a Mooney 252.