There are several indications the current soft market that began in 2006 may have bottomed out, signaling a potential return to the hard markets seen in 2001 -2005.
A “Hard Market” is generally characterized by fewer markets bidding on a particular risk resulting in fewer options, increased rates and premiums, decreased limits of liability, fewer ancillary coverages, in addition to more stringent underwriting requirements on training with less flexibility for the operational managers.
For most industry experts, the question isn’t “if”, but “when” and “how” the aviation insurance industry will return to a hard market. The other questions are, “how hard and how fast?”
There isn’t a single underwriter who wouldn’t like to see premium rise. The consensus is that there are two major factors keeping premium rates down-the poor economy which has shrunk demand for insurance and too much capacity for the market conditions.
The “Big Bang” theory is that a catastrophic event with a huge potential liability settlement will shock the insurance companies into turning on a dime, drastically raising rates and severely tightening underwriting requirements.
A more pragmatic scenario might be characterized by an improving economy combined with a reduction in capacity through merging aviation underwriting companies or further departures from some are all markets by some insurance companies. Rate increases and underwriting restrictions would be more gradual and implemented selectivley.
Either way, every insurance buyers needs to consider the potential impact on their budget and what they can do to mitigate potential cost increases.
Understanding how insurance quotes are generated can help.
Aviation insurance is not automated like auto insurance. Except for light pleasure and business aircraft, most aviation quotes are generated manually by an underwriter using a rate book base on a “best guess according to historical experience” of that insurance company. A scale of rates is created for each type of risk that the underwriters must follow. The goal is making an underwriting profit.
The underwriters manually apply these rates to generate the quote based on the information sent to them by the broker. One of the keys to getting the best quote is to help the underwriter get a better understanding of the risk they are rating and to find a comfort zone which will allow their pen to move down the scale instead of up.
The quality of the submission by the broker is usually the only thing the underwriter has to determine the quality of the risk.
There are two parts that make up a quality submission-an accurate, full description of the risk and the appearance and organization of the submission itself.
Individual aircraft operator, small aircraft management companies and charter operators
Gathering and organizing the proper information needed for an aircraft quote is a relatively simple process. Most good brokers have detailed quote forms they use to gather the customary information about the insured and the risk. However, as the market hardens more underwriters may require addition information to better judge the risk. This might include further details pertaining to:
The Aircraft Owner and Operator-who has operational control and who is the go, no go decision maker?
Who’s on board-average passenger load, family, company employees, or guests?
The Aircraft-what is the total time on the engine(s), airframe, rotor blades/propellers, and other time compliance components.
The Mission-especially if it involves international flight or flights into hazardous conditions or unprepared airfields or landing zones.
Initial and Recurrent Training-underwriters are beginning to ask more specific questions, especially about in-house training programs and those with “pilots as approved by the named insured” language in their aircraft policies.
A word about Pilot History Forms
Pilots hate forms, especially pilot history forms. The hardest job a broker has may be getting a properly completed, legible, and signed pilot history form from the insured’s pilot(s). From a common sense point of view, if the insured is asking the underwriter to give them the best rate, and the only thing the underwriter has to go on is information presented on paper, doesn’t it make sense to put the most complete information in the neatest, most organized way, especially if the pilot is short on some experience?
A submission for an FBO, commercial/fleet operators other service provider is much more complex. However the principle is the same…it just has more moving parts which include Aviation Commercial General Liability, Property, Commercial Auto, Workers Comp, in addition to any aircraft operation such as charter, management and flight training.
Appearance and Timeliness Matters
The underwriters don’t have a lot of time to sift and hunt information they need to rate the risk. So why not lay it out for them in an easy to read and organized manner? Gathering and organizing the information for a single ship operation doesn’t take long. However, for the complex commercial operation, this become a vital and involved process for both the insured and broker. To do it right requires a team effort. A good broker will provide a checklist of information they need and coverages desired the insured.
If the information sent to the underwriters is not readily at hand and logically organized, they may assume the risk is average or worse and rate it accordingly.
Don’t wait to the last minute. Don’t expect the underwriter to drop everything because the submission was late. If they are rushed they will either pass or give it a mediocre rating. If the insured is late getting the information to the broker, they are putting themselves at a negotiating disadvantage by compressing the time to get the renewal quotes.
Substance Matters Most.
To an underwriter, the quality of an operation is defined by the quality of the operator and has many different parameters.
More experience, better training, and the implementation of other risk reduction practices that addresses the inherent risks of an operation all play a major risk evaluation role. Every aviation operation is unique. The only time excellence doesn’t matter is if it is not properly represented to the underwriter.
Operational Improvements and Risk Management measures can turn an average risk into a good risk. For instance:
If the operation uses older aircraft, is there a proactive, preventative maintenance program addressing the inherent reliability issues that comes with operating older aircraft?
If some pilots are relatively inexperienced, is there a training program in place which allows them to gain the experience they need while addressing operational needs and the concerns of the underwriter?
Has an FBO with a history of hangar rash and dinged wingtips implemented a coordinated training program such as the NATA’s Safety First, and SMS programs for their line techs, operational employees, and management? These training programs set the standard for excellence in the industry and can make a difference with both the underwriters and the FBO’s accident rate.
A picture is worth a thousand words.
A good underwriter can be a valuable resource and partner in safety if they are allowed to. The best brokers know that a great way to instill underwriter confidence in their client is to bring them for a personal visit (or bring the client to the underwriter). They know that it gives their client an opportunity to show their operational needs, limitations, and best practices directly to the underwriter. It allows the underwriter to put face on their customer so that when they generate the renewal quote it is more than just numbers and words on a page. This is especially important when addressing issues that are out of the norm.
The best operators with a favorable loss history and the safest operation are going to continue to get the most attention from underwriters, even in a hard market. The more underwriters willing to bid on a risk, the more leverage the broker has to negotiate favorable renewal terms. While premium savings won