There is a persistent misconception that all aviation insurance agents work for the insurance companies. First, there are two kinds of agents: captive agents and independent agents or brokers. In the auto insurance industry companies like State Farm or Allstate, have a large network of captive agents who sell insurance policies exclusively for that insurance company and no one else. Sometimes they are employees of that company. Often times they are independent contractors with an exclusive agreement to sell only that company’s products. The term “direct write” is often used to describe this system. Either way, when a buyer talks with one of these agents, he is going to get a quote from only one insurance company and must therefore shop elsewhere for other quotes. While captive agents are knowledgeable, capable, and bound by the same ethical standards as all insurance agents, they are under no obligation to act as an advisor to the buyer or to find alternative insurance options OUTSIDE the product line of their company.
Independent agents or brokers work for the client. They have contracts with several insurance companies that sell the same products. They develop their business by cultivating clients who use their services to find several options from which the client can choose according to the client’s priorities; whether that be price, coverage, quality of company, or a combination of several factors.
One big difference between the aviation insurance market and the auto insurance market is size. While there are more than 2000 auto insurance companies in the United States, there are only 15 companies who offer aviation insurance. Like the larger auto insurance market, aviation insurance companies have their preference of what type of risk they choose to insure. For instance, there are only three companies that will insure an agricultural applications risk. There may be as many as five and as few as one who will insure rotorcraft operations. A stand alone air ambulance service that uses piston aircraft based in West Virginia will discover there is a single company willing to insure their risk.
Because of its small size and unique market, the aviation insurance companies have found that using the broker system gives them the ability to economically create a wide network of agents. Only one company sells aviation insurance directly to the public and only for non commercial light piston aircraft.
For the underwriters there are a couple of downsides to the “broker system.” First, the broker’s loyalty lies with the client, not the underwriter. They understand this and are perfectly comfortable knowing that the broker is going to get other quotes from competing companies to offer the client. They are more concerned that the broker is honest, appropriately licensed, competent and knowledgeable in aviation insurance, and can properly advise the client on the provisions and value of the coverage offered. That is why they have a qualification process to approve each agent or agency before they offer them a contract to sell their product.
Second, unless some sort of priority system is established the underwriters could be inundated with multiple quote requests from different agents for the same risk, creating a huge workload. Since they can’t assign territories to independent brokers, the industry has adopted a first come first serve priority system. The underwriters will assign a new customer to the first agent who brings them a valid quote request. To every agent that follows, they will inform them that they are “involved” with another agent and can’t disclose the quote. Since the customer did not specify who he preferred- to get the quote, this is a very logical and fair way to sort it out. The potential customer gets a fair quote based on the information given to the underwriter through a qualified agent. If the customer prefers a different agent, they have the option of providing that agent with a “broker of record” letter which the underwriter will honor.
While a buyer could easily get a dozen quotes from several different auto agents (without a duplication of insurance companies), the aircraft owner or operator may only find two or three quotes depending on the nature and history of his aircraft operation or business. Once a new aircraft owner discovers that a full service aviation broker can provide all these quotes, the big question becomes “which one?”
Airplane owners and aviation operators employ three basic approaches to finding a broker or agent: The “Shotgun” Approach, Assign Markets, and Hire an Exclusive Broker.
“I need a quote” is the mantra of the shopper who is looking for insurance and doesn’t particularly care who he gets it from or what insurance company provides it. He usually assumes that all insurance policies are the same and is shopping for price. He has asked several, maybe even a dozen, agents to provide a quote. Most brokers find this approach aggravating. While they aren’t afraid of competing for the business, nobody likes to be treated like a number. Underwriters don’t like this approach either because it puts them in a no win position of having to sort out who got there first and breaking the “bad news” several brokers. (This is usually when the broker finds out the potential client has been looking elsewhere. It is not the highlight of their day.)
Some customers haven’t established a satisfying relationship with one broker or just prefer to deal with several different brokers. They also understand the limited markets available to provide insurance for their particular operation. They will assign each aviation insurance company to a different broker through a broker of record letter. The net effect is that they have turned those brokers into a “captive agents” who are now trying to sell them something. This is a perfectly acceptable practice to the underwriters. Depending on the size of the account many successful brokers prefer not to participate in this process because they could put in a great deal of effort with nothing to show for it in the end.
Interviewing and hiring an exclusive broker is the preferred method employed by the vast majority of aviation insurance buyers. Many large operations consider it “outsourcing” their aviation risk management needs. They look at their broker as a trusted adviser and a good broker will work hard to earn that trust.
There isn’t a single aircraft owner or operator in the world who doesn’t want to reduce the cost of insurance. A good broker can make a big difference. They way you choose that broker is up to you.