AOPA reports many calls in recent months from members concerned about the hull and liability insurance premium increases they are seeing during their renewal period. AOPA President Mark Baker and other AOPA leaders have met with numerous underwriters and insurance executives to understand what is happening in the insurance market to cause premium increases of 10 percent to 100 percent or more in some cases.
The change is a result of a hardening of the insurance market after more than a decade of flat to, in some cases, decreasing premiums. However, as the insurance companies have sustained significant losses in aviation and other markets in recent years (think hurricanes, tsunamis, floods, earthquakes, and fires), losses have outpaced premiums. That has caused some insurers to exit certain markets, including aviation. In order to be profitable, those that remain have increased premiums—in some cases dramatically, particularly in the owner-flown turbine market and for older pilots. AOPA continues to be involved in helping to educate insurance underwriters about the continually improving general aviation accident rate as the AOPA Air Safety Institute works to create training materials to help pilots fly more safely.
To help understand the changes in the insurance market, AOPA spoke to Bill Behan, CEO of Assured Partners Aerospace, the association’s partner in hull and liability insurance for members. In the in-depth interview, he uses his 40-plus years of experience to explain the dynamic marketplace and hints that more increases will come before things begin to flatten out in 2021. He also offers some suggestions for pilots on how to mitigate some of the increases they will face.
Please explain what is happening in the global insurance markets and, separately, inside the aviation markets that is contributing to the increases owners are seeing in aviation.
Insignificant premium levels to support aviation industry losses are the prime culprit for the increases pilots are experiencing today. All the aviation insurance premiums in the United States last year totaled between $1.5 billion and $1.6 billion. Those premiums included space (satellites), airlines, manufacturers, products, and general aviation. The pleasure and business insurance niche is sustaining the least of the increases in premium costs thus far.
How does the hardening market affect owners’ abilities to get higher liability limits?
It is painful now for an aircraft owner to secure liability limits higher than what they currently have in most cases. It’s not a matter of paying a higher premium—it is simply not available in most cases. There is no set standard currently, but in canvassing insurers, their guidelines suggest they will not incur a loss greater than $2.5 million for any pleasure and business policy. Some insurers’ threshold levels are as high as $5 million but only for exceptional risks. That is hull and liability combined. Some companies have thresholds lower than that, few higher. So, if you have a new $1 million hull, and want to purchase a $2 million liability limit, that places that insurer at a potential max exposure of $3 million. That creates a series of underwriting hoops which the broker then has to share with the client, addressing training, where the aircraft is maintained, pilot age, et cetera. Every request for higher liability limits is scrutinized more fully today not only for premium cost, but also for whether it fits the underwriter’s parameters for a higher limit.
Has the Boeing 737 Max situation impacted GA premiums?
Absolutely, as have other airline-related accidents.
What can individual pilots do to help mitigate potential premium increases?
Work with their insurance brokers to provide all the updated flight experience information, aircraft information, and training updates possible. Some aircraft owners may want to consider higher hull deductibles in order to trade premium concessions for self-insuring deductibles. Some insurers simply are not interested in such trades; others may show some premium breaks for enough increases in deductibles, especially of turbine aircraft. Deductibles of $25,000 to as high as $100,000 are not considered unrealistic by some turbine aircraft owners, who may want to trade their ability to sustain a hull loss of that size for the need to have high liability limits—which have become very expensive—and an aircraft owner chooses to limit their insurance spend accordingly. This is a strategy that could be employed for two to three years and modified when the market begins to improve. Remember this, however: Hull deductibles apply to foreign object damage as well, so increasing deductibles for turbine-engine aircraft places more risk upon the aircraft owner for those uncontrollable birds, rocks, et cetera, which can cause costly damage to turbine engines.
The insurance industry seems to place a lot of emphasis on the importance of simulator-based training. However, with so many aftermarket avionics solutions now available, often the simulators don’t reflect the panels that pilots are flying behind, particularly in legacy airplanes, including turbines. Is there any movement toward placing greater value on in-airplane recurrency flights?
Unfortunately, underwriters today are much less skilled aviators [and more] gamers. Honestly, the percentage of pilot underwriters who are making decisions for your membership may be at an all-time low, which is problematic as…they’ve been told, “sim training is good.” That is not to say sim training is not good. We strongly believe [in] and support it. However, your point is well taken, especially given the myriad avionics packages out there that populate aircraft, especially legacy aircraft, and that makes this a very, very challenging matter. Take into consideration the scenario where an insurer who historically has covered a member’s aircraft and now says they want 30 percent more and only want 50 percent of the risk and will not agree to the $10 million limit but will agree to offer only a $5 million limit. That renewal, which consumed five to eight hours of a broker’s time last year, just went to about 30 to 40 hours to thoroughly serve just that one client. The broker must approach a dozen other insurers now to find that other 50 percent—some of which may have already rejected it at 100 percent. Then, after submitting to the dozen insurers, phone calls discussing the aircraft, loss history, avionics packages, training history—and oh, by the way, we don’t want to use SimCom because our panel is different than what SimCom has in their Meridian—and one by one, by one, the dozen insurers drop to one or two and the price keeps going up. I think you get the picture. In the melee of the process of a renewal right now, the first year of the market turning hard, these insurers just don’t want to hear it. This will be something which, in 2021 and 2022, brokers can use to help loosen the grip insurers have upon us all to bring reason and common sense back into the market, hopefully.
Thomas B. Haines is the Editor in Chief of AOPA Pilot and a senior vice president of AOPA. This story originally appeared in the April issue of AOPA Pilot.
Three Tips for Mitigating Insurance Premium Increases in This Hardening Market
- Be proactive in presenting to your broker evidence that you have exceeded FAA minimums for recurrent training. The broker can use that as leverage with the underwriters to help make a case for why you as an individual should get preferential treatment. Specialized training in your particular model of aircraft and adding a new rating or certificate are great ways to demonstrate you are serious about safety.
- Establish a relationship with an underwriter and stick with it unless there is a strong reason to change. Underwriters are more comfortable underwriting a pilot they have dealt with before. This is especially critical for older pilots who are already considered a higher risk by underwriters. Changing companies to save a couple of hundred bucks this year may mean that next year the “new” company may be less willing to insure you at all, or may require an even higher premium. Do not let your policy lapse.
- Consider changing how and what you fly, especially as you age. There’s no set age when an underwriter begins to expect a pilot will present a higher risk, but it seems to be in the 70 to 75 age range, and certainly by age 80. At that point, and especially in this hardening market, insurers may refuse to underwrite a pilot or may require significant changes to provide coverage. Among the things they may ask for are annual physicals to ensure good health. Also, consider stepping down in complexity. A pilot turning age 80, for example, flying a Beech Baron may see a dramatic increase in premium, even if she has years of experience in the twin. To mitigate that, she might consider stepping down to something simpler, such as a fixed-gear Cessna 182. The slower, simpler airplane gives the underwriters comfort. An alternative is to always fly with another pilot experienced in make and model—that too, however, comes at its own cost if you must hire and insure another pilot. —TBH
