On The Fly

On the fly

Aviation insurance update

FlyCorporate’s Rob Seaman shares some history and two different views of the market today through brokers on opposite sides of the pond. 

Insurance of any sort – life, house, car, recreational toys or aircraft to name a few – is something we all require, pay for begrudgingly and hope we never have to use. Around the world attitudes and requirements for insurance are different on many things. You just have to hope in the case of an incident, the other guy has as good or better coverage than you do.  

As a “product”, aviation insurance policies are distinct and different from other areas of transportation. The coverage is very specific and geared directly to aircraft operation and the risks that may ensue. It usually provides coverage for hull losses as well as liability for passenger injuries, environmental, and third party damage that may be caused by aircraft accidents.

Also read: FinServe Aviation goes international with Belgibo

Specific aviation type insurance was first introduced in the early years of the 20th century. Lloyd's of London wrote the initial policies in 1911, although they stopped offering coverage in 1912 after bad weather at an air meet caused crashes, and ultimately losses, on those first policies. 

The first specialist aviation insurers emerged in 1924, underwritten by the marine insurance providers. As an industry, aviation insurance has grown and evolved since then to become the sophisticated and well-established product we know today. 

Types of coverage

The big thing to remember is that this sort of insurance is special/specific. In other words, you cannot assume that coverage through your existing business policies will “umbrella” your aviation operations and protect you and your corporate assets. A quick review of some of the categories involved may help you understand why even with the millions in coverage your company has, a specific aviation policy on the flight ops is a good thing. 

Here are a few examples and an explanation of what they do: 

Public liability insurance: Often referred to as third party liability, this insurance covers aircraft owners for damage to a third party’s property that may be attributed to their aircraft. This can include homes, cars, crops, airport facilities and other aircraft struck in a collision. It does not, however, provide coverage for damage to the insured aircraft itself or coverage for passengers injured on the insured aircraft. 

Passenger liability insurance: Protects passengers riding in the accident aircraft who are injured or killed. In many countries this coverage is mandatory only for commercial or large aircraft. The coverage may be sold on a "per-seat" basis, with a specified limit for each passenger seat.

Combined Single Limit (CSL): Pools public liability and passenger liability coverage into a single coverage. This provides more flexibility in paying claims for liability, especially if passengers are injured, but little damage is done to third party property on the ground.

Ground risk hull insurance not in motion: Provides coverage for the insured aircraft against damage when it is on the ground and not in motion. This covers such things as fire, theft, vandalism, flood, mudslides, animal damage, wind or hailstorms, hangar collapse or uninsured vehicles or aircraft that strike the aircraft. The amount of coverage may be a blue book value or an agreed value that was set when the policy was purchased.

Ground risk hull insurance in motion (taxiing): Similar to ground risk hull insurance not in motion, but provides specific coverage while taxiing, and not during taking off or landing. Many insurance companies have discontinued this coverage because of the number of disputes between aircraft owners and insurance companies regarding if the accident aircraft was in fact taxiing or attempting to takeoff.  

In-flight insurance: Protects an insured aircraft against damage during all phases of flight and ground operation, including while parked or stored. Naturally, it is more expensive than not-in-motion coverage since most aircraft are damaged while in motion.

Expert advice

So that is the quick and dirty of insurance for aviation. Looking closer at the issues of today, it is always good to ask someone from the business for their input. In this case we turned to noted brokers from both sides of the Atlantic to give us their thoughts. 

One thing that underwriters have to do is review and evolve their coverage and policy specifics to meet ever changing global influences – social, political, war risk and even meteorological events give cause for fine tuning.  Case in point, post 911 we saw requirements, restrictions and premiums go up. So in light of the recent downing of a commercial airliner over a known war zone, and a couple of airliners that “went down” or became lost, one has to ask if the restriction on where aircraft may operate has changed from the insurance perspective? 

According to Canada-based NARCORA Insurance Brokers National Director of Aviation Sandy Odebunmi, aircraft can still be covered in most places of the world.  “Some hot spots may require special coverage and pricing,” she says.  “And such operators are aware that coverage can be withdrawn quickly, with proper notice made to them.” 

Also read: Financing an aircraft: what to do before you ask for the money

France-based Aélia Assurances’ Christelle Labeyrie adds: “the Geopolitical situation is moving fast these days, and not really in a positive way so far. All sensitive areas are being followed closely by war risks insurers - on an almost daily updated manner. They were already taking care with the operation versus area of risk, but it is true that suddenly you see lots of turmoil going on, such as in the east of Ukraine and some specific African regions.”

This then begs the question of how or if a rise in global uncertainty up to and including terrorism might have any affect on bizav insurance premiums or policy specifics? 

“Aircraft insurance premiums in most areas of the world have been quite ‘low’ for some time, comparatively speaking,” says Odebunmi. “A rise in overall claims may cause an increase in overall rates. Corporate aircraft rates have always been quite good due to superior pilots, maintenance and management.” 

Like anything though, the place you call home and where you operate your aircraft can be subject to different application of this thinking. Speaking from the Euro side, Labeyrie observes that in their market there has been a slight increase on the war risks premium portion of their insurance, which is to be somewhat expected given the proximity of the EU to some known areas of unrest. 

Of course we all know that making a claim can affect your premiums going forward. So the question to the insurance experts is “have claims for corporate aviation held level or been increasing?” 

“Corporate aircraft are one of the most preferred types of risk in aviation insurance in Canada,” answers Odebunmi. “We can see some weather related claims and ingestion claims from time to time.”

In Europe Labeyrie reports more or less the same.  

With the influence of new technologies and training having more and more influence on aviation at all levels, one also wonders whether insurance companies are paying attention and looking for the impact this may have. According to Labeyrie: “Any technical improvements and of course training, are normally supposed to affect insurance rates. Presently, the insurance market is so low that it is hard to even lower the rate below what is already considered to be super competitive. When the insurance market recovers, then of course these criteria will help.” 

“Any type of Safety Management System (SMS), technology or training will assist with aviation insurance rates,” adds Odebunmi. “If an operator can prove statistically that the systems and processes in place have contributed to a lower loss ratio, I would encourage them to ensure that this type of information reaches their insurance provider.”

At the end of the day, it “is what it is” some flight departments say – you have to have insurance and you have to pay the going price. That said, and Odebunmi puts it best, “A critical aspect of getting and managing your insurance is the way the broker assesses the risks through his/her aviation knowledge, not just checking boxes off a questionnaire. And for a good broker, the most important thing is the customer’s spirit.” 

So find yourself a good broker, develop a rapport and let them guide you – you’ll be well covered and sleep better. 

By Rob Seaman

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