The art of “Transferring” your aviation risk

The art of “Transferring” your aviation risk.

Any good aviation consumer should be familiar with the products and services that are associated within the industry. Before you buy, own, rent or build an aircraft you should know what is required, what terminology is used and how much it costs. And one of the most misunderstood (and mysterious) areas in aviation is aviation insurance.

First, you need to know the structure and the process. If we had a couple, of days we might cover all the different areas...but...since we don’t, I’ll try and highlight a few important areas.

There are currently nine active aviation insurance companies in the country. That could change tomorrow! Not very long ago, there were 14 companies. However, a big merger eliminated a few. Since there are very few companies, it is important that you realize the quoting system. If you call an independent agent that has contracts with all the companies and that agent requests a quote from all the companies, no other agent can get a quote. For that reason it is important that you contact one agent and let them scour the market for the best possible quote. A word of warning, this is somewhat of a subjective business, if the underwriters start getting quote requests from more than one agent, the underwriter’s flexibility lowers.

Make sure that the agent you choose is one that you would like to do business with for the next few years. Sometimes that is not an easy choice, but start by asking many questions. If the agent does not recognize the aircraft you want a quote on, I would call someone else. If they were not fluent in aviation, I would call someone else. Personally, as an agent I love to talk about airplanes. You know that old cliché - “I eat, sleep and drink airplanes”. It is in my blood.

The advantage having an agent that is involved in aviation means they can work for you during the policy year. They can work with the underwriter to get reasonable pilot requirements or even price valuations. If they do not know about airplanes, how can they support your increase in value for the latest and greatest modification? (Just a note between you and I, many an underwriter is not a pilot! They are great with company policy and numbers - but they do not fly. Sometimes that can be a disadvantage for the insured.)

Getting the elusive quote requires providing information to the agent about the aircraft, its location and your pilot abilities. Be honest in the beginning and fill in all the blanks. (It is easier to get coverage with all the skeletons out of the closet in the beginning, instead of having the underwriter look up you record and be surprised.) After the agent gets the information, they send it to all the potential markets for a quote. With nine companies in the market, you might get four quotes back. Custom built aircraft, transition pilots, old unique aircraft...all of these might get only one or two quotes. The market is small so do not expect a tremendous number of choices.

What do you get in a quote? Typically, the agent will get a quote that discusses the liability levels offered, the hull coverage and the pilot requirements. The standard quote should be at least one million combined single limits for bodily injury and property damage liability with a sub-limit of $100,000 per passenger. That is the standard and probably the minimum you should ask for. If you are a low time or transition pilot that might be as high as you can get. Alternates might be available for some people, be sure and ask. Nevertheless, most companies are sticking to one million as a maximum for most insured.

Simply put, the liability coverage is used in an accident where the owner is being sued for causing bodily injury and/or property damage. Since you are the owner and the insurance is used to protect you -- you are not covered! Let me try to explain. Liability is used to provide coverage for you if YOU are found liable. If you are injured you cannot sue yourself because you were liable!

Always ask for a “per passenger” limit. If the policy has a sub-limit of $100,000, the passengers in the aircraft are offered protection only to that limit. If they are not a passenger, you could use the total amount of one million. BUT, if you have a “per person” limit, all the injured parties (passengers and persons outside the aircraft) are restricted to that sub-limit. It is just one way to get a little more coverage for not much more money. Additionally, you could ask for a “smooth” limit, which means a one million combined single limit with no sub-limits per passenger. This provides one million liabilities for all passengers or one passenger. But the total amount available is only one million.

In the quote will also be hull coverage’s. These are stated value policies. That means whatever you put as a reasonable value is the maximum the company will pay if the aircraft is totaled. Do not try and over price the aircraft, you will need proof. Additionally, if you do have a major claim and the aircraft is overpriced, they probably will fix the aircraft even if it is so bad that you do not want them to. In addition, the same goes for under priced, to low and they might total the aircraft before you want them to. Be reasonable in the pricing of the aircraft.

Typically, you will be offered ground and flight coverage. That means while it is parked, taxing, and flying. You might only want ground not in motion, which would protect the aircraft while its parked. Be sure you check the policies, some will not include taxi and some will. You can also buy “builders risk” or “work in progress” coverage. This covers the aircraft while you are building or restoring it. The prices vary with companies, but are quite reasonable. Look into this coverage when you get a substantial amount invested or a lot of purchased parts.

Deductibles are your “share” when you have a claim. Each company has it own set of deductibles for each aircraft. A small fixed wing tri gear might be $50 while the aircraft is not in motion and $250 while the aircraft is in-motion. Some might have restrictions like “$2500 canopy deductible on Pitts S2A, B or C.” Sometimes there are higher deductibles for nose gear collapses. It depends what the company’s history has been for that particular aircraft.

If you are going to use your aircraft for flybys and static display, make sure the agent knows. Many a time the owner of an antique is asked to bring their aircraft and put it on display at the local airshow. A few companies will not provide coverage during that time unless it is added to the policy. Check to see if you have coverage before you go.

The agent will tell you if there are any pilot requirements before you can fly the aircraft. If the company asks for ten hours of dual - make sure that you get ten hours AND the hours are from a qualified instructor. When a requirement of “dual” or a “checkout” is listed on the quote, you cannot just go get your best friend to do the signoffs. Additionally, find out if the policy is a “named pilot” only or if there is an “open pilot warranty” (OPW). The “OPW” is the minimum requirements for you (the owner) to let someone fly you aircraft and YOU will still be covered. For a small single that might be “private license or better with at least 300 hour total time and ten in make and model.” In a light twin, it might be “private or better, multi license and instrument with 2000 total, 500 multi and 25 make and model”. What ever it is you are usually protected if the person that borrows your aircraft meets these requirements (of course it doesn’t stop the insurance company from paying you for a claim and then suing the pilot for the money they spent, but that’s another story!) Most instructors must meet a variation of the “OPW”. Ask your agent before you go get the required dual.

Once you have the quote, how do you start the process? Tell the agent to bind coverage. Don’t expect the agent to get you a quote at 4:30 Friday afternoon. Be reasonable and plan. Almost all the companies require a fax and then it can take days to get the quotes back. If there is a “need for speed” the agent can call and play phone tag with the underwriters until they get a quote. But, it usually doesn’t happen in a matter of minutes. After you bind, the agent will send out applications and invoices. Your coverage started when you told the agent to bind!!! You become financially responsible for the insurance at that point. Do not put the agent and your insurance reputation in jeopardy, ask for a binder, and not pay. Remember, it is a small, small world and everything goes around in this business.

Insurance can have different meaning for different people. To some it is unavoidable. To others it is like a savings account if something goes wrong. Whatever it is for you, you need to spend time evaluating you risk. Insurance is one way to transfer risk from you to someone else. That is what it does. But because someone else will pay the bill if you have a claim, they want you to do a few things for them. Moreover, use your agent! They should help you find the best possible coverage for your situation, at the best price. That does not always mean the cheapest. Always compare “apples to apples”. Find a good agent, work with them, and have them shop the market, ask them many questions and if that doesn’t work call me.

And if you have any questions, ask for me, I own the company!

Scott Sky Smith

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