CJP Insurance Committee
Aviation Insurance: Times Have Changed
For those of you who have owned airplanes or have been in the general aviation industry for the past 15 years or more, you saw insurance premiums skyrocket after the events of September 11, 2001. By 2006, insurance carriers built up significant reserves and profits. As a result of those positive financial returns, the aviation insurance market grew from eight underwriting companies to approximately 19. As capacity increased, prices dropped and the softening cycle continued for more than a decade. As a result, a year ago, rates on many aircraft and general aviation risks were a third of what they were in 2006. In addition to lower rates, aircraft policies for owner-flown aircraft, for example, have been broader than ever before and include coverages that were once reserved for only the best, professionally flown aircraft risks. It’s been a classic supply vs. demand model. The soft aviation insurance market has been great for the consumer!
Unfortunately, times change just like the wind on short final. In 2017, the insurance industry was hit for an estimated $135 billion in losses. Those losses resulted from the devastating hurricanes in Houston, Florida and Puerto Rico, as well as wildfires. Although insurance companies maintain reserves that contemplate catastrophic (CAT) losses, 2017 was one of the worst loss years in history. The insurance industry also experienced heavy losses again in 2018 due to Hurricane Florence and Michael as well as one of the worst fire seasons in recorded history in California.
So, who pays for those losses? The insurance companies? Yes, however, that ultimately means consumers pay increased premiums to replenish the insurance company’s loss reserves. Additionally, carriers tighten underwriting rules to mitigate their risk.
In 2018, we saw our third aviation carrier within the past couple of years exit the aviation insurance market. We also saw rate increases that averaged between 3% and 10% even on the best risks that the carriers determined were priced too low for the market. Today, we’re seeing rate increases from 10% to 25% and in some cases as high as 40%. In addition, the carriers are looking closely at risks that they deem to have less than desirable underwriting standards. For example, accounts with old airplanes and/or older pilots, pilots with relatively low experience, and accounts with recent claims.
A potential solution to combating these rising premiums is participating in the CJP Insurance Program, especially with the Gold Standard Safety Award as your goal. There are several carriers that participate in the program and have agreed to give a premium credit on renewal for your participation in select safety seminars at the CJP annual convention. Recurrent training and having no claims is also required to receive the credit. This program is yet another valuable benefit of your CJP membership. It may not prevent the rising premiums but could certainly help reduce the increases.
Firming in the market is not limited only to premiums. Specific to owner-flown jets, some carriers are limiting risks to a maximum of $5 million combined single limit liability. This means that some of you who carry more than a $5 million liability limit may see a reduction in your limits on renewal. Many carriers are also no longer quoting owner-flown risks with hull values above $5 million. This could be an issue especially for the later model Citation owners. Furthermore, even though many of the Citations are approved for single-pilot operations, some insurance carriers may not write it unless you have a two-pilot crew. This is because carriers are becoming nervous about insuring an aircraft worth nearly $9 million or more for single-pilot ops. However, there are other options to circumvent these issues.
In addition to the hull and liability changes, several carriers are no longer writing pilots transitioning from piston to turbine aircraft or pilots with relatively low multi-engine time transitioning to jets. Some will still write transitioning pilots, however, they are increasing the training requirements for pilots, adding deductibles and limiting the broad form endorsements in the policy.
Many of you have not experienced a hard market yet. The underwriters are under pressure to re-underwrite risks and increase premium rates to levels the carriers and reinsurers deem adequate for the risk. As the market continues to harden, you will see less cooperation from your underwriters including but not limited to: increased pricing, additional premium for endorsements that they once included at no charge, increased training requirements for pilots, a lack of higher liability limits, narrower policies, higher deductibles and fewer markets (if any) for difficult accounts.
Not all is bleak! It’s important to understand that while some risks are becoming more difficult, they are not impossible. A good aviation insurance agent knows how to place even the most difficult risks. There is still a lot of capacity in the aviation insurance market today and this capacity gives the consumer options.