Years of unsustainably low premiums have caused insurers to lose money, and now the aviation insurance industry is responding. As we continue to see an upward rate shift, we want to offer some tips to help you maximize your 2019 renewal.
Aviation Insurance: How We Got Here
Before we discuss how to cope with the rising aviation insurance costs, let’s first explore how we got here. The decade-long rate decline was mainly due to the vast financial capacity within the marketplace and significantly improved safety records. While capacity remains strong domestically, some insurers have changed their appetites, offloaded portions of their books or simply exited the space (i.e., WR Berkley in 2018).
Safety is a key part of industry culture, but attritional claims continue to affect overall loss ratios. These are smaller, more frequent claims involving things like bird strikes, foreign object debris and severe weather events. They make up nearly 70% of all airline claims.¹ This is important because the basic concept of insurance is risk pooling, and everyone is basically lumped together in the aviation world. Whether it’s an airline, a charter operator, a fixed-base operator, a maintenance and repair facility, a products manufacturer or even a single general aviation aircraft owner – rates are affected across the board.
Coping with Higher Rates
We know aviation insurance rates are transitioning upward to restore market profitability, but is the sky falling? Not necessarily. Although everyone will be affected, some will experience a smaller impact than others. For larger operations, the underwriting shift will focus more on long-term loss histories to appropriately price accounts to cover expected claims. In these cases, we encourage you to evaluate the services you receive from the insurer and decide if they meet your operational needs. Every insurer offers different benefits, so it’s vital to assess your options with a broker. Effective claims management, mitigation and subrogation can have a big impact on your risk profile. If your account is in a marketing year, interview the claims representatives assigned to your account, along with your broker’s internal claims department. Understand the individual philosophies of each insurer as they relate to claims handling. For companies experiencing attritional loss, the claims team relationship will shape your future aviation insurance premiums.
If you’re a general aviation insurance consumer (such as a single-location fixed-base operator, small industrial air fleet or individual aircraft owner), review your current policies and understand your coverages. Smaller operations have fewer claims and usually don’t receive loss control services through an insurance company. However, requesting higher or additional ancillary coverages may help you maximize the value of the increased rates you’re paying. Here are some examples of common ancillary coverages to consider:
- Automatic increased value coverage for modifications
Premises liability (including premises medical coverage)
- Baggage coverage for passengers / crew
- Hangar property damage liability
- Hangar keepers liability (typically only afforded on general liability, turbine or fleet policies)
- Equipment coverage (portable avionics / headsets, spare parts)
- Extra expense for renting a substitute aircraft
- Non-owned aircraft liability
Navigating the New Rate Climate
Regardless of your risk profile or size, a 10% to 15% rate increase could have a big financial impact. For more complicated risks, underwriters may even issue a 20% to 25% increase. Our aviation insurance specialists can provide cost-effective guidance to help you achieve better results. For more information, contact our Aviation Risk Services Team.
¹ “Insurance Marketplace Realities: Aerospace.” April 12, 2018. Willis Towers Watson website. Accessed on February 13, 2019 at www.willistowerswatson.com/en/insights/2018/04/aerospace-insurance-marketplace-realities
This article originally appeared in the 2019 | ISSUE ONE of the SilverLink magazine, under the title “Aviation Insurance | Navigating Your Rising Costs” To receive a complimentary subscription to the SilverLink magazine, sign up here.