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.
One of the nicks is insurance. Specifically, there’s a hole that may be swallowing up exactly the kind of new pilots who could breathe some life back into the industry: moderate-net-worth individuals with low pilot time.These are folks with the financial resources to rent aircraft regularly, and probably step into ownership or shared ownership, but who could be completely devastated financially by a serious lawsuit after an accident.We heard from one 63-year-old, 220-hour pilot who said, “I would not drive with only $100,000 liability coverage, so it makes no sense to fly with that little either. I’ve tried several insurance companies, but no one will consider higher limits for a renter, or even an owner with under 500 or 1000 hours.”
How Much is Enough?
What insurance you really need and whether or not you can buy it is a matter of divergent opinion. Mike Adams, Vice President of Underwriting for Avemco, says that more liability coverage isn’t popular.“Our experience has been that even when we did offer bodily injury limits greater than $100,000, very few pilots purchased it. Essentially we were putting our entire non-owned premium at risk for one or two high-limit policies. Our experience has also been, the higher the liability limit, the greater the claim settlement amount. This fact was borne out by a study of our claims where we were able to identify similar injuries and property damage with claims that had different limits of liability.”
Jon Doolittle, owner of Sutton James Insurance Brokers, generally agrees. “Whatever limits people have is what the lawyer will settle for. It’s pretty rare that it goes past that.” But “rare” isn’t “never,” and Doolittle says that if you can get more than $100,000 in liability, it’s worth going after just to have sufficient coverage for the cost of defense. This is where “per seat” limits matter and factor into who you take with you in the air.
If you have $1 million liability coverage and plow through someone’s wheat field and barn, the entire million is potentially available for payout. However, if you had a passenger with you, payout to that passenger is limited. This is typically $100,000 per person, although a flood of new insurers entering the market in the past couple of years has made $200,000 limits more common. Policies without this restriction (so-called “smooth” policies) are virtually unavailable to renters or low-time owners in some aircraft.Of course, this is just looking at liability to passengers or property on the ground. Renters must pay extra for non-owned hull damage if they might be sued for the cost of the damaged aircraft. This could add well over $1000 to a policy for $100,000 of hull coverage for low-time pilots. But you might not need that much. A rental agreement should specify a limit of your responsibility for aircraft damage. If your share is only the FBO’s deductible, that’s all the coverage you need.
This gets sticky if you borrow a friend’s airplane. In the absence of a written agreement otherwise, brokers tell us a court is likely to assume you are responsible for returning the aircraft in the state you borrowed it.This may be true even if you meet the approved pilot status on the policy, unless you can get the owner’s insurance company to provide a waiver of subjugation—a promise that after they pay the owner’s loss, they won’t come after you for the balance.
Even if you’re on the hook for the entire aircraft, a lesser amount of non-owned hull may still protect you. Your renter’s insurance company should require a release of further liability before they pay. So if you total a $100,000 airplane and have $50,000 non-owned hull, your buddy’s insurance company may take the $50,000 and settle, rather than trying to get the full $100,000 in court with your renter’s insurance company defending you.
We asked Doolittle what someone should do who isn’t comfortable with only $100,000 liability and partial hull coverage protecting their assets even with an unlimited defense fund. “Beats me,” he said. “You cross your fingers or you buy an airplane.”
Partnerships and Clubs
The situation changes somewhat when looking at ownership. The underlying question underwriters ask is how well the pilot is suited to the aircraft. A low-time, VFR-only pilot owning a basic single such as a Cessna 172 or Piper Archer can usually get $1 million smooth for as little as $3000 a year. Put that same pilot in a Cirrus SR22 and half the companies won’t underwrite him until he gets 500 hours total time and an instrument rating. A few will write, but require an instrument rating within a set number of months.
None will allow $1 million smooth until 50-100 hours of time in type. The numbers for turbines are often much higher—$5 million and high or smooth sublimits are common—but requirements such as mentor pilots factor into the equation. As your total time and, more importantly, time in type build, your options get better. Doolittle points out that pilots trying to move directly to high-performance aircraft with low time must prioritize. The three factors are: coverage, cost and crew.
For example, you can often get the high limits but for a stiff price and only with a mentor pilot in the right seat. Or you can go solo, but your limits will be low and the cost high. After a year, you might get two out of the three factors in check. It might be another year before you get the complete package. Flying clubs generally get insured at the experience level of the least-experienced pilot. But there are exceptions. Read the policy. For partnerships, the magic number is five. At five or fewer pilots per aircraft, “pleasure and business” rates apply and what is close to the rate one pilot would pay is divided by five. Rates for six to 10 owners per plane can be two to four times as high. More than 10 owners and most underwriters pass.
Underwriters and brokers tell us they often have the sad task of telling potential owners that their umbrella policy almost certainly excludes aviation. Some pilots with life insurance that includes aviation tell us they are simply betting they die in any wreck severe enough to injure passengers. We’re not sure this counts as sound fiscal planning.
Another factor is who your passengers are. If you almost always fly alone, per-seat limits are of little consequence. Employees of your company flying with you are also usually excluded from any aviation policy, as company insurance is supposed to cover them on the job. This could be a serious catch with high-worth employees where $1 million wouldn’t begin to cover the total payout. If this is a concern, some companies specifically offer add-on liability coverage.
With about 22 companies competing in a market occupied by only seven a decade ago, an old issue might return and you should watch for it. Some states allow the insurance companies to walk away from your defense once they’ve offered their total indemnity—so long as it was stated somewhere in the policy’s fine print. Make sure your policy has no escape clause where your carrier can be released from their duty to defend before a final agreement has been reached.
How Big a Problem?
Is this issue driving away pilots? Jason Wissmiller, a co-owner of Regal Aviation Insurance, doesn’t think so. “I hear people saying they wish they could have higher limits, and we do what we can for them, but I’ve never had someone tell me to cancel a policy because they were selling their plane because they couldn’t get higher limits.” He also echoed that most owners don’t opt for higher limits even when the price delta is only $200-$300 per year.
We think it’s not a huge issue, but it has some legs. We’ve also heard anecdotally about good flight instructors leaving the fold for essentially same reason: They don’t feel any available insurance can cover their ongoing liability for students they’ve trained. In the end, it really comes down to acceptable risk. As Doolittle puts it, “My view is you buy the highest you can and go fly. Life’s too short.”
Jeff Van West is Aviation Consumer’s former managing editor