by Jon Doolittle
As expensive as aircraft insurance sometimes is, have you ever wondered what would happen if you couldnt buy it? At any price? Without hull insurance, those of us who need to finance our flying would be out of luck. Without liability coverage, those of us with high net worth would be betting the ranch every time we flew.Theres no assigned risk pool in aviation insurance, no market of last resort. After a serious claim, or a series of claims, some of pilots find that they cant purchase coverage for the very airplane or helicopter that the insurance company repaired or bought for them.
Imagine this scenario: Flying home from a weekend at the shore, you hit a seagull. Twenty thousand insuro-dollars later, you are back in the air, happy that you stayed with the same insurance company for 10 years paying, say, $1800 per year. Youve just gotten it all back.
Ten months later, on your way to a ski weekend, you lose sight of the centerline because of snow kicked up by the propeller and you drive off a taxi way into the woods. This time the adjustor asks more questions. How far could you see? How much power were you using? How fast were you going? It takes longer to get the airplane fixed; the tab is in the mid thirties.
Six months later, your policy is up for renewal and the underwriter sees that in each of the past two policy years, his company has been betting badly, paying out at 15 to one odds. He wonders what his prospects for continued employment will be if he bets on you for a third year. This imaginary pilot went 10 years without any claims. From the companys viewpoint, there may be a pattern here and they may not be willing to see what happens next. Even minor claims are a large multiple of the annual premium and the next one might hurt someone.
What Companies Say
We spoke to underwriters, adjusters and brokers to get an idea of the scope of this problem. Is there an epidemic of pilots who cant get insurance after a minor accident or two? Or is this just a type of natural selection where we weed out pilots who shouldnt be flying?
Insurance companies expressed over and over the curious dialectic of the business: Were happy to pay certain claims, were unhappy about paying others. According to Victor Davanzo, executive vice president with USAIG, We are looking for long term, mutually profitable relationships with our insureds. Phoenix Aviation Managers Northeast manager of claims, John Cooley, is similarly stoic: People are going to have claims. Thats why they buy insurance. Several insurers said that paying claims quickly, without fuss was, to them, an advertising opportunity.
But theres a darker side of this coin. Companies repeatedly told us that while claims might be an advertising opportunity, they dont like throwing good money after bad. In the words of one underwriting manager who didnt want us to use his name, We do get tired, after a while, of paying for stupid pilot tricks.
Brokers had their own observations since they work with all of the companies (except Avemco, which sells direct) and in some ways have a broader view of the industry. Brokers told us that most light airplanes with lower limits of liability havent see much change during the past several years of a hard insurance market. The pilots who saw big increases are those who fly twins, helicopters, turbines, pilots making any kind of transition or owners who carried high liability limits.
Brokers and underwriters told us that despite the softening market, insurers are under increased pressure by their capital suppliers to produce positive results. Most insurers purchase reinsurance, which protects their business from catastrophic ups and downs caused by the small number of large claims inherent in insuring aviation.
Industry chieftains agree that so far, at least, the coming soft market is different from others theyve been through. These guys [underwriters] are stuck, one broker told us. They see rates coming down, but their reinsurers tell them they have to have to make money. If they want to keep their best customers, they have to respond to competitive rate pressures. But there is not that much investment opportunity yet. Usually, you see the softest market when insurance companies can invest the premium they collect and pay for some of their losses that way. Right now, there are some price reductions, but they still need to choose risks very carefully. So its sort of a selective soft market. Some prices are coming down, but not all of them and there still isnt much underwriting flexibility yet, which usually is also part of a soft market.
In this kind of environment, some brokers felt that companies caught between profitability and competitiveness are chasing the best risks and giving short shrift to others. One established Midwestern broker told us that while her office has not seen a single case where they couldnt find coverage for a client after a claim, she detects a sea change among underwriters since the beginning of the hard market. If its an airplane or pilot thats marginal, they have no problem saying no-thats left over from the hard market. But if the risk is really good, they all go after it–thats a result of the beginning of the soft market.
There is just no tolerance for loss anymore, said one senior insurance company vice president. After an accident, or worse yet, a second accident, there is a lot of second guessing. Why did we write this guy, or, worse, why did we write this guy again? So if an underwriter is in doubt, nowadays, its easier to say no. Youll never get in much trouble that way.
In this atmosphere of passive-aggressive underwriting, when does a claim cross the line from advertising opportunity to a stupid pilot trick? Says Scott Brown, who runs the aviation division of W.Brown & Associates in Newport Beach, California, You have to look at every claim situation, what happened, how it happened. You also need to ask yourself if it might happen again. Phoenixs John Cooley looks at the overall picture. The ones that I have a problem with are the ones where there has been more than one incident, where the pilot shows a lack of attention and care. Some folks learn from an accident and some dont.
One broker quipped, I have clients like that. Its not that they dont believe in gravity, its more that they dont believe that gravity applies to them, like theyre grandfathered out of it or something.
Since adjusters deal with the claims directly, most companies encourage adjusters to talk to underwriters about claims. Often, the adjusters recommendation will determine whether the company renews a pilots policy after a claim.
One adjuster cited the example of a pilot who took off without removing the cowl plugs. His company paid for the resulting damage to the engine caused by overheating. A little more than a year later, the same pilot lost power during an IFR descent in an aircraft type notorious for carburetor ice. He had also apparently failed to lean the mixture and expressed concern to ATC about his fuel state, even though with proper leaning, the airplane should have arrived with plenty of fuel.
After breaking out of the clouds, despite being high and fast, he continued his landing approach and ran off the runway, causing substantial damage to the airplane. According to the adjuster, the pilots lack of understanding, or unwillingness to admit his role in what happened was the main factor in recommending to underwriters that they not renew.
An owner who has had more than one accident can be a big problem for insurers. Several underwriters cited examples of situations where they didnt feel comfortable renewing an owners insurance because of the position it would put them in if that owner suffered yet another loss. My job, one told us, is to pick the safest pilots for my company, given the information that I have. I cant non-renew somebody because he had a bird strike. I probably wont even non-renew somebody because he had a bird strike and a gear up landing a couple of years later, unless the guy is a total jerk or just doesnt get it. But if I renew somebody who has had two gear up landings within two years and something else happens, like another gear up in year three, my boss is going to ask me what I was thinking, his boss is going to ask him, and the reinsurers are going to ask his boss. Do you see where Im going with this?
The biggest factor in the unanimous agreement of every underwriter and adjuster that we talked to was the attitude and behavior of the pilot. Pilots who dont seem to be telling the truth and who arent reasonable or co-operative are the biggest complaint of insurers.
According to Jim Lauerman of Avemco, We try to give all of our clients the benefit of any doubt. And we know that a claim is a negotiation and we know that sometimes personalities get involved. But if the pilot wont accept responsibility for what happened in a chargeable (at fault) accident, then we have to take a second look at renewing him. Chances are good he isnt going to learn from what happened and well be right back here a year or two from now. And if he wont work with us on a small hull claim, we have to wonder what would happen if we had a big liability claim.
One adjuster told us about the owner of a Mooney that was damaged by a hangar door. The adjuster represented the company that operated the hangar and was responsible for the damage. The adjuster felt that the owner was difficult to deal with and unreasonable throughout the course of fixing the airplane. Several years later, the adjuster found that his company now insured this owners airplane when it slid down the runway with the gear up. The owner left the scene, leaving his flight instructor to deal with the mess. Because of the difficulty of working with this owner, the adjuster recommended non-renewal.
The problem for the pilot is not so much getting the claim paid, its buying insurance next time around. Insurance covers pilot error as well as mechanical problems. But its difficult to get lots of other insurers interested in quoting if nobody knows what happened to last years airplane. Was it really engine failure or did the engine stop running because of fuel starvation or fuel exhaustion?
In talking to underwriters and adjusters about claims, we were struck by the subjective nature of the business. Each underwriter had a different view about accident types and what they implied about the pilot. To underwriters, inadvertent gear up landings are bad news, but they happen.
And they most often seem to happen to people with experience. A bounced landing that the pilot does not recover from needs to be looked at, but life goes on. For many underwriters, fuel exhaustion is unforgivable. Others put it in a class above an inadvertent gear-up landing, but would not non-renew the pilot if they felt he had learned his lesson. Other big no-nos are things that pilots do deliberately when they should have known better. Auto infractions like DUIs and DWIs are a big problem for some companies. So is flying home after striking a prop blade. Low flying is yet another. These make the underwriter question the pilots judgment.
Phoenix Aviations Roger Ridings summed up the view of most when he said: We can teach people to recover from bounced landings, we can teach them to use a checklist. But when a pilot keeps exhibiting bad judgment, you cant send him to class. All we can do is make sure that we dont pay for those sorts of things a second time by not insuring them again.
One of the questions that pilots ask brokers frequently is whether or not to notify the company of a claim. We recommend that if you have had any kind of incident or accident involving damage to the airplane, that you notify your broker as soon as possible. Your broker works for you, and can help you decide how to proceed.
Avemcos Jim Lauerman says that he recommends that all clients notify the company of everything, even if they dont wind up claiming it, since it doesnt affect the clients history unless they file the claim. All policies require that you notify the carrier in timely fashion and often what seems like minor damage might turn out months later to be a big deal. If there are injuries or property damage, you have no choice but to notify the company or you risk not being covered.
What You Can Do
So in a universe where claims happen, what steps can you take to make sure that you can continue to buy insurance? First, discuss any situation that may give rise to a claim with your provider, whether you use a broker or Avemco. We recommend not submitting small claims, despite the temptation to get some of your money back. The problem isnt one small claim but having two claims on your record when the larger one happens three months later; the one you cant afford not to file.
We also think you need to stay involved in the claims that they you do file and do whatever you can to get the company to look into the cause, if theres a question about it. In an extreme case, you may wish to consider paying for some of the investigation yourself in the interest not only of buying insurance, but also peace of mind when you next fly the airplane.
Finally, if you must file a claim, or another claim, be cooperative. Its common sense to help somebody whos going to write you a large check. Get your broker to step in; hes your advocate and will help you navigate some of the difficult steps without undue rancor between you and the company.
Your broker should know how to get you your just desserts without making everybody mad. Dont be afraid to negotiate, just keep in mind that your insurance company (or some other insurance company) has to be a willing partner going forward. As in any business, they have to feel like they might make a profit from the service they provide to you.
The vast majority of accidents involve pilot error and adjustors know this better than anyone. Theyve seen it all before and they have to pay for it anyway. If you screwed up, help them to understand your thinking. Fess up if you forgot to put the gear down or if you forgot to switch fuel tanks or whatever. Above all, dont be too focused on getting every nickel out of the claim only to shoot yourself in the foot next time.
While we feel that insurance underwriters are faced with challenges in the current market and while some will act more conservatively than they might have five years ago, we dont see evidence that theyre trying to non-renew every one of their customers that has a claim, or even has two claims.
As one adjuster said, You pilots are tougher on each other than we could ever be. You pay for the other guys mistake more than we do. There should be a reality show about this. Every pilot who has a claim has to go to tribal council before a group of his peers and after you pay his claim, you decide whether or not he gets voted off the island. Wouldnt be too many people left on the island if we left it up to pilots. We think theres more than a little truth this homily.
-Jon Doolittle owns Sutton James Insurance in Hartford, Connecticut. Reach him at 860-249-8066.