April 2002 (Originally written)
Aviation insurance is one of the most complex and specialized fields in the insurance industry. It is a much smaller portion of the industry than home, auto, life, health and other general commercial insurance sectors. In fact, in premium volume, aviation insurance makes up less than 1 percent of the entire insurance industry. Given its size and specialized nature, the aviation insurance industry operates in its own unique manner from other lines of insurance. In this first article “Purchasing Aircraft Insurance: The Right Way,” we will look at how the aviation insurance market works and how to determine the best way to go about purchasing aircraft insurance.
It is extremely helpful to have some education as to how the aviation insurance market works. Aviation insurance companies write policies in one of two ways: directly (a direct-writer) or through an appointed aviation insurance agent/broker. Currently there is only one direct-writer in aviation insurance, AVEMCO. All the other companies deal exclusively through brokers. In such a specialized and complex field it is extremely advantageous for the companies and aircraft owners to have experienced and knowledgeable aviation insurance brokers.
All of the companies in the aviation insurance marketplace will quote and negotiate policies with only one broker at a time (with some minor exceptions for pleasure and business aircraft). For a broker to be able to work with a company, he or she must be appointed by that company. Most brokers are appointed by several Companies. It is most advantageous to you to work with an insurance broker like Professional Insurance Management—that is appointed by all aviation insurance companies. Knowing that your broker is shopping all of the companies is extremely important to most aircraft owners.
How do you know whether or not your broker is appointed by all of the markets? You can simply ask. Here is a list of all the current domestic aviation insurance underwriting companies:
- Aerospace Insurance Managers
- AIG Aviation, Inc.
- Aerospace Insurance Managers
- Allianz Aviation Managers
- Berkley Aviation
- Britt-Paulk through AXA
- Global Aerospace
- Inter-Aero through Arch Insurance Company
- London Aviation Underwriters (Seattle, WA)
- Phoenix Aviation Managers (for Old Republic)
- Starr Aviation
- Travelers Aviation
- United States Aviation Insurance Group (USAIG)
- United States Specialty Insurance Company (USSIC formerly HCC Aviation)
- William Brown & Associates through XL Speciality
- XL Aerospace
In some situations, although not typically in the case of private aircraft, we are able to place coverage through the Lloyds of London facilities or with a few domestic quota share markets. All other aviation insurance company names you might see are agencies or brokers. Each underwriting company has their own niche and prefers to write different types of aircraft and situations. Depending on your particular aircraft model and pilot experience, you may have one to several of these companies that will write a policy for your aircraft. However, many of the standard models are often quite competitive.
Another important question to ask your broker is if they specialize in aviation insurance. Are they dealing directly with the underwriters or do they have to go through another broker to get the quotes (called co-brokering). In this situation, you are essentially adding another middleman and providing another opportunity for information to be lost or misconstrued. Plus, you lose the advantage of working with someone who directly understands and deals day-to-day with the aviation insurance marketplace.
These companies will only negotiate with one broker on a particular risk. For pleasure and business use aircraft (pleasure and incidental business travel where no charge is made), AIG Aviation and Phoenix Aviation Managers will quote any broker that approaches them for a quote via an automated system. They have their rate chart set up so that if any broker (whether 1, 2 or 5) submits application information, all of the quotes should be the same. There are potential problems with this method. If for some reason you supply your information to more than one broker and get varying quotes from the different brokers, there is either a difference in liability limits, hull values or incomplete information supplied for the quote (i.e. ratings or hours that a pilot does or does not have or if an aircraft is tied down versus hangared). Also remember that reporting information inaccurately to obtain cheaper rates or for any other reason, could result in the denial of a claim in the event of a loss. This demonstrates an important rule when making your aircraft insurance decision: always make sure you are comparing apples to apples and providing accurate information.
So what do you do to obtain quotes from another broker if you are unhappy with your current agent/broker or just want to change to someone else? You sign a broker of record letter. Don’t be mislead by a dishonest (yes there are a few) broker. If you sign it, it will allow the new broker to obtain quotes for you; but it will take away any ability of your current broker to quote, negotiate or place coverage with any of the companies mentioned on the letter, if not them all of them. Another important issue to know is that when a broker of record letter is given to the new broker, that broker will receive the same exact quotes from the companies that already quoted to your previous broker, unless substantially new information is provided. So always be aware of what you are doing when you sign a broker of record letter. It is your tool to using a new broker, but it does terminate the relationship with the current one.
Now that we have been through all the loops and barrel rolls of how the aviation insurance market works, we simply need to put the pieces of the puzzle together. First, find the right broker, make sure they are appointed by all of the aviation insurance companies and that they are competent to serve your needs. Do they specialize in aviation insurance? Do they shop each company every year? See if they deal directly with the markets or have to go through another aviation insurance broker. If not you may want to consider working with someone else. When doing so, always consider that AIG Aviation and Phoenix Aviation Managers quotes should be the same if the correct information has been provided and that when you sign a broker of record letter appointing someone else as your broker, you do so for the right reasons and with full knowledge of its implications. Understanding how the aviation insurance market works, combined with working with the right broker, will make purchasing your aircraft insurance easier, more cost-effective and efficient. With that, you can accomplish the real goal of getting in the airplane and enjoying the blue skies with peace of mind.
In Part II of “Purchasing Aircraft Insurance: The Right Way,” we will expand on what we have learned here and consider what values, limits and coverages to carry with your aircraft insurance and look at important factors to keep in mind when purchasing them.