While the aviation community is relatively small compared to other industries, I have found on various aviation trade organization forums a rich source of talented and knowledgeable aviation professionals who willing share what they have learned. They are just as interested in learning from those whose experiences are different from theirs. These forums are dedicated to providing a free flowing information exchange to help improve safety, experience, and knowledge concerning the full spectrum of aviation operations.
Recently I ran across an interesting thread on one of these forums. Even though this was a fixed wing forum, the conversation applies equally to rotorcraft since insurance rates for helicopters are generally higher, our experienced rotorcraft pilot force is aging, and there are fewer training facilities and opportunities for young pilots relative to the fixed wing community.
While the conversation began along the topic of training, spiraling training costs and getting experience for low time pilots the subject of insurance quickly was broached. For the sake of brevity and discussion below is a condensed summary of some of major points made on this thread.
1.The insurance underwriters were driving the training requirements and using a “cookie cutter” template for their rating decisions with little regard to identifying or rewarding the safest and best operators.
2. It was suggested by one that instead of being part of the solution the insurance companies current methods of rating a risk (or not) were part of the problem. The suggestion was made that if you were big, you must be good because the biggest operators always got the best rates.
3. In addition, by failing to reward the “good/safe” companies and punish the “bad/unsafe” companies the aviation insurance companies were somehow abdicating their responsibility and not being held accountable.
Rather than classifying operators in terms of “good” and “bad” or “safe and unsafe”, I tend to view operations on a sliding scale from “minimum standard” to “excellent”. Certainly there are some “bad/unsafe/substandard” operators. I have found very few operators who didn’t believe they were conducting a safe operation-at least in accordance with minimum FAA standards. Personally, I try to avoid representing minimum standard operators unless I can help them move into the standard to excellent spectrum of the scale. That is part of the “value added” service an aviation risk manager/broker can bring to a client. Brokers get rated by underwriters for the quality of risks they bring to the table. In addition we have a moral and ethical obligation to accurately represent a client or risk to the underwriters so an informed decision as possible can be made on how to rate the risk.
While I don’t always think it is fair, I agree that size matters. Every underwriting company has their own methods and rating scales, but most employ fleet and multi-aircraft discounts or rate reductions of some sort in relation to total premium on an account in a similar manner hull rate reductions are given to higher value aircraft.
Not all underwriters are the same, just as not all flight operations are the same. There are horses for courses. Right or wrong, once the deal is negotiated an underwriter will usually put the file away until something happens. For the “minimum standard operator, that can be a good thing, until something happens. For the “above standard to excellent” operators, that doesn’t have to be. Working with your broker to continue building the relationship with your underwriter throughout the year can go a long way to separating you from the rest. All the underwriters prefer to insure clients who are perceived as the lowest risk. Some underwriters like to visit their customers or potential customers, but it isn’t possible to visit them all. However, they still can be a good resource in helping you find a way to do it better and safer without a personal visit. A proactive broker will look for an underwriter and underwriting company who fits your operational style and work to help find a mutual solution to your operational needs. Everyone should be interested in the same thing-a safe and efficient flight operation that “sees and avoids” accidents.
Underwriters use standard rating procedures for many seeming like risks. It is a little more complicated than it may appear to the casual observer. It is a manual process and very subjective according to the underwriter’s best judgment based on the underwriting criteria they have been given by the insurance company and with the information they have available about the risk. All they have to go on are their internal resources, what the broker gives them and in turn, what you give the broker. If your broker submits only the standard information then you are probably going to get a standard result. Cultivating the confidence and understanding of the underwriter can and does make a difference, not only in premium, but in flexibility such as giving experience to a lower time pilot. All of that impacts the “total cost” equation of a flight operation.
While it may not be apparent, they are held accountable-by their insurance company and re-insurers. When there is a loss, that underwriter gets the opportunity to “explain the risk”, especially when there is what appears to be an avoidable loss. If there is some impropriety, like the use of a pilot that doesn’t fit the open pilot warranty or an illegal charter, you can bet the broker is going to get a call to query whether the underwriter was given a complete description of the operation to the best of the broker’s knowledge. Bottom line, if a broker breaches the trust of an underwriter, they could lose their appointment with that company as well as get involved in an Errors and Omissions law suit. Bottom line, if the underwriter continues to show a loss on his underwriting activities, they won’t be around long. Bottom line, if the insurance company does not make a profit, they will not be able to get the re-insurance necessary to stay in business.
The market place is changing. Rates have leveled at historic lows and are starting to creep up in certain segments of the market. Underwriters have already become more selective in what new business they want to pursue and what they are willing to bid for them. Their biggest dilemma continues to be how to tell the different between a “standard” risk, an “excellent” risk, and the one they feel falls outside their underwriting guidelines. When in doubt, the number they put on the page will naturally tend to get bigger, their training requirements more “cookie cutter,” or they will simply stamp the submission “declined.”