Aerospace Quarterly Winter 2007 Newsletter
If you have questions or comments regarding this electronic publication, please contact John Averill, Vice President, Insurance Office of America at 800-535-4305, extension 2314 or john.averill@ioausa.com.
INSURANCE PREMIUMS CONTINUE TO FALL FOR SELECT TYPES OF AIRCRAFT
The underwriters continue to remain aggressive. All underwriting companies are aggressively seeking to retain their preferred existing clients and to acquire new clients that fall within underwriting guidelines. Some of the underwriters are starting to re-evaluate what type of business they are entertaining, older aircraft, single pilot operations and those aircraft operators that have a history of losses. We are not sure if this is a sign of market changes in the future or if some poor past decisions are being rectified.
Underwriters continue to reward those aircraft operators that have:
- Professional and full time employed pilots (W-2 employed as opposed to 1099 contractors)
- A positive operating history
- A demonstrated ability to successfully manage their operation
- A positive loss history or how the operation has successfully addressed loss control
- Aircraft that are 17 years of age or less (the case for most underwriters – not all)
As very light jets start to appear in the aviation community, we expect that those that are professionally crewed will be treated as any other professionally flown aircraft and those with owner pilots will be rated on a case by case basis. We have seen indications of very liberal underwriting for some owner flown VLJs.
The premiums in the aviation insurance market place continue to decrease. Premium decreases from year to year largely depend upon the type of aircraft and risk characteristics and how aggressively it was priced the previous year. We have been benchmarking hull and liability premiums year to year and in November / December of 2007 premiums in some cases were significantly lower than comparable risks in the fourth quarter of 2006.
Single pilot turbo props and jets and older aircraft continue to be closely underwritten and typically do not receive the same rates as dual crew newer aircraft. Rating of aircraft also is contingent upon other aircraft in the same fleet.
Underwriting companies also continue to allow additional coverage enhancements that were not allowed last year.
One final note, in reviewing how most of our clients prefer to purchase insurance, we see a continuing concern for a depth of expertise in claims handling by the underwriting company. Not all of the recently formed underwriting companies have demonstrated expertise in claims adjustment. This is one of the primary reasons that we continue to build our claims adjustment staff at IOA. We are one of the very few aviation specialists that have licensed claims adjustors on our staff.
EUROPEAN UNION INSURANCE REQUIREMENTS CONTINUE TO CHANGE
As the U.S Dollar continues to lose strength in the global economy, liability limits that are required for aircraft to travel into European Union countries continue to rise. The limit required is based upon maximum gross take off weight (MGTOW) and the MGTOW is tied to the SDR, not the USD. Thus the need to monitor the exchange rate between the USD and the SDR.
IOA has been monitoring the changing limits of liability requirements closely. We have several clients that purchase limits of liability that are close to those required by the EU, the problem being that the required limit continues to float with the SDR exchange rate. We currently release a chart on a monthly basis that updates the requirements in relation to what limits of liability our clients currently purchase. (Please let us know if you would like to included on this distribution list).
While all of consequences of insufficient limits cannot be known, the penalties imposed when discovered by the EU are severe. For example, on 12/1/06 the EU limit required for a Falcon 50 was 121 Million USD. On 12/1/07, the EU limit required was 128 Million USD. If you purchased a limit of 125Million (Like many aircraft owners did) you would be out of compliance.
Please let us know if you would like more information on this subject.
FEATURE ARTICLE FROM WALTER HINTON LAW
As part of our quarterly newsletter, we feature a particular aspect of risk management or a non insurance oriented product.
Below you will find an article by Walter Hinton, an experienced aviation attorney. Walter assists clients with a variety of private aircraft matters, including aircraft purchases, sales, financings, FAA regulatory matters and compliance, among others. Additional information about Walter’s services can be found at www.walterhintonlaw.com.
Closing on a New Aircraft? Help Your Insurance Broker Help You!
Acquiring a business aircraft can be a bewildering experience. Business, financial, operating, taxation, regulatory and insurance considerations all come into play. In the activity leading to closing, the central importance of insurance coverage should not be forgotten. The insurance broker’s role is to take the customer’s needs into the insurance marketplace and come back with a policy that meets the needs at acceptable cost. The broker must paint an accurate picture of the risks to be covered. Although expert in aviation insurance, your broker must rely on you for necessary details of your operation and financing of the aircraft.
Identity of Operators. Your broker needs to know what parties will actually fly the aircraft. Will the owner and operator be the same, or will an independent manager or “dry” lessee fly the plane at least some of the time? If a management agreement or a dry lease is involved, you will help your broker immensely by forwarding him or her a draft copy of the agreement. There are many variations in aircraft operating arrangements -- perhaps you also are entering into a pilot services agreement. The rights and duties spelled out in the actual agreements can be key to your obtaining the right insurance coverage. The broker also can be helpful in commenting on insurance provisions in draft agreements, based on availability and cost of coverages in the marketplace.
Type of Use. Private operation of a corporate aircraft by a company under FAR Part 91 ordinarily dictates an “industrial aid” insurance policy. This type of policy is appropriate where a corporate operator simply flies its own officers, employees and business guests for its own business purposes. In that case, there is no receipt of compensation from others for flight services. But many companies that fly their own aircraft enter into “time sharing agreements” with other companies. Basically, a time sharing agreement is a charter arrangement with limited compensation as permitted under FAR Part 91. Also, many companies place their aircraft in the hands of a Part 135 charter operator, in an effort to defray costs of ownership with charter-derived income. An industrial aid policy is not sufficient for an aircraft operated under a time sharing agreement or for on-demand charters. Those types of operations will require a charter operator policy. If you expect to have a time sharing agreement or an arrangement for Part 135 use, show your broker a draft of the agreement so the broker can shop the policy appropriately for your planned use.
Lender’s Requirements.Probably the most complicated document you will see from your aircraft lender will be the Security Agreement. Most security agreements contain a section on risks and insurance setting forth in some detail the coverages, monetary limits and endorsements the lender will require. Different lenders have different “hot button” issues of their own when it comes to insurance, such as loss-payee status for the lender under the hull policy, breach-of-warranty (or lienholder’s interest) endorsements, designation as an additional insured under the liability policy, or waiver of subrogation. Failure to comply with your lender’s requirements regarding insurance can put you unknowingly in a potential default situation under your loan documents. It is of primary importance for you to provide a copy of the draft Security Agreement to your insurance broker, so that the policy ends up matching the lender’s requirements as well as your needs.
Your relationship with your broker is a two-way street. If your broker does not receive full background information, the insurance obtained may not fit the need. The day after an incident is too late to find out you did not buy the right coverage!
This report has been published by the Aerospace Division of Insurance Office of America
For more information about the IOA Aerospace Division Special Program, call (800) 535-4305, ext. 2314 or email John.Averill@ioausa.com for a complete demonstration of services.