The Anatomy of Aviation Insurance
Trends in the Aviation Insurance Marketplace for 2018 and Beyond
By Jim Gardner
The James A Gardner Company, Inc.
It appears that with an improving economy there has been an increase in flying activity. Unfortunately, that also appears to have translated into an increase in claims. With the cost of repairs going up without an increase in premium, the underwriters have continued to experience an unsustainable profit margin on their underwriting operation.
Beginning in the Spring of 2017, without a single catastrophic event to shock the marketplace and without a larger reduction in market capacity, the aviation insurance marketplace had remained soft to the point that each insurance company began examining their books of business to see where they were profitable, where they were not, and making strategic decisions about their appetite for certain classes of business.
By examining their risk retention vs risk mitigations underwriting practices, the marketplace has effectively transformed from a market share underwriting mentality and are trending toward proven risk management underwriting practices.
Trends I see happening now and in the future.
- Applying “adverse selection principals” by declining to quote those with poor loss histories.
- Selective rate increases in certain classes of aircraft varying by company and their loss experience for those classes of aircraft.
- Largest rate increases for those with marginal or higher loss histories.
- Greater attention to clients with negative loss histories through one or all of the following
- • Rate increases
- • Tightening underwriting criterial to require more or better training
- • More stringent Open Pilot Warranties including the restricting or eliminating the use of “Pilots as Approved by the Named Insured.”
- Reducing liability limits exposure, especially for single pilot and owner flown aircraft.
- Selective withdrawal from certain classes of business. For instance:
- • Some insurance companies are no longer offering terms on certain types, makes & models of aircraft.
- • Some are moving away from owner pilots transitioning into turbine aircraft and new pilots in high performance complex piston aircraft.
- Closer examination of new quote requests not currently on their books with a corresponding increase in declinations to offer quotes based on more stringent overall underwriting criteria. This criteria could include:
- • As Regards Aircraft
- • age of pilot,
- • age of aircraft,
- • Owner pilots in turbine aircraft with higher than normal liability limits.
- • Single pilot turbine aircraft with higher than acceptable liability limits.
- • Certain classes, makes & models of aircraft
- • Other Classes of commercial insurance they feel they are either not competitive or have not been able to make a consistent profit.
- • Stand-alone Flight Schools
- • Stand-alone Repairs and Services Operations
- • As Regards Aircraft
These independent changes in underwriting criteria and appetite for certain classes of business is the basis for a trend of “selective reduction” in competitiveness in the market place. The net effect will eventually lead to an upward pressure on rates for you, the consumer. Every insurance company appears to be making their decisions based on strategic evaluation of what they want to insure, and what terms, conditions, and limitations they want to offer, based solely on their profitability and what they believe will be profitable for them in the future.
I’d like to make three points:
- There remains and will continue to remain plenty of capacity to provide cost effective aviation insurance to all classes of aviation consumers.
- The Preferred Operator – The aviation operation with a pristine loss record and excellent risk management practices – will continue to attract the most competition from the insurance companies which should lead to the best rates in the marketplace.
- I have always believed that operational excellence is the best insurance you can buy in any market.
Safety is not a Cost – it’s an Investment.
About the Author – Jim Gardner is a retired U. S. Air Force officer, a former commercial pilot, and President of The James A Gardner Company, Inc., an independent aviation insurance specialty broker based in Atlanta, GA. He can be reached for comment at Jim.Gardner@jagardner.com or 678-278-2100