(September 2020)
A highly specialized coverage, aviation insurance, is written by a relatively small group of insurers. Insurance agents rarely receive requests to write an aviation insurance policy. Therefore, most agents rely on representatives of the major aviation insurance markets for technical assistance in arranging coverage. This discussion concerns the need, the market, and the available coverage for aircraft insurance risks.
General aviation is the largest segment of the aviation industry. It is also the primary segment from which a request for coverage arises. The general aviation segment is diverse, including all types of flight activity except those involving commercial airlines and the military. The various categories of general aviation - business flying include:
· Public
· Corporations
· Business
· Personal
· Instructional
· Aerial application
· Aerial observation
· Aerial (other)
· External load
· Other work
· Sightseeing
· Sport (autogyros, ultralights, hang gliders)
· Air medical
These categories are identified by the Office of Airline Information in the FAA Statistical Handbook. The FAA is still collecting information on the impact and categorization of unmanned aircraft systems (UAS) and registered operators/pilots.
Personal aviation has consistently been the most active category with regard to both the number of hours flown and primary use, followed by business. Since 2010, the number of active pilots in the US. has been declining. As of 2016, there were roughly 584,000 active pilots in the United States. Of that total, there were 162,000 private pilots who owned, rented, or leased small aircraft for business and pleasure use.
As of 2018 there were more than 167,000 active aircraft in the United States. About 62% of these are single engine models, about 10% are multi-engine, and about 7% are turbo props or turbo jets. The remainder consists of other types of aircraft, such as gliders and helicopters.
Note: No information is included regarding drones.
There are four major classes of aircraft owners/operators:
1. Industrial aid
2. Business and pleasure
3. Flying clubs
4. Fixed base operators
1. Industrial Aid Operators - refers typically to corporations which own aircraft and employ full time, highly skilled professional pilots to fly them.
2. Business and Pleasure Operators - this category consists of individuals, businesses or corporations that own and operate aircraft for both business and pleasure. However, they usually do not employ professional, full-time pilots. In many cases, the president or a chief executive officer is the principal pilot.
3. Flying Clubs - these are non-profit organizations composed of at least three individuals who jointly own and operate all aircraft, but strictly for pleasure use.
4. Fixed Base Operators - commonly called FBOs, these are airport-based businesses which own, operate, buy, sell, rent, and lease aircraft. They also provide a variety of aviation-related services including fueling, repairs, flight instruction, etc.
Here are the types of active pilot certificates:
Each classification of aircraft owner/operator requires varying types and levels of insurance coverage, including:
An alert agent or broker can be successful arranging a proper insurance program if he or she becomes familiar with the exposures and the requirements of the applicable aviation insurer and coverage form.
Another aspect of aviation insurance and loss exposures is the high level of regulation. Any number of federal agencies may have oversight of a given activity.
Related Article: Aviation Regulation
Aviation loss exposures demand a great deal of personal attention from an insurance professional. Although the frequency of aircraft-related accidents doesn’t compare with the level that occurs with automobiles, death and serious injury are more often the result. This fact emphasizes the need for extremely high liability limits. Besides a primary level of aircraft coverage, additional (umbrella or excess) liability might be sought from an aviation underwriter.
The aviation exposure to liability for injuries to passengers is created by statutes in some states. It also exists internationally. Originally, such liability was controlled by the Warsaw Convention. The Warsaw Convention, adhered to by most nations since it took effect in 1929, was superceded by the Montreal Convention. In 2003, the United States was the thirtieth country to sign the convention. It substantially liberalized the limitations of the Warsaw Convention which was criticized as being too restrictive to respond to modern losses. The Montreal Convention established two tiers of coverage. The first operates under strict liability and is capped according to the value of the special (monetary) drawing rights specified in the agreement. The second tier depends upon the circumstances of a given loss, specifically regarding an allegation that negligence may be involved. Air carriers may be obligated to pay damages injured passengers may seek in excess of a particular agreement's initial tier, unless the carrier can prove that it was not negligible for a given accident. The changes created by the Montreal Convention increases the per passenger liability and lift many of the restrictions on lawsuits that may be brought against aircraft owners.
Note: Aircraft liability is a global exposure that has a substantial impact on commercial ventures. Since conventions are international and subject to adoption by individual countries, significant changes are rare and occur at a glacial pace. However, rules are constantly reviewed and critiqued, particularly after high-profile incidents. For instance, some regulatory and safety changes may arise from the highly publicized 2014 loss of Malaysia Airlines Flight 370.
Insurance producers have another opportunity to service aviation clients that is often overlooked. In many instances, pilots need renter's policies or non-owner coverage. Pilots who operate aircraft that they rent or borrow have a serious liability exposure that is excluded by the typical aviation policy. A non-owned aircraft policy covers liability for bodily injury or damage to property caused by the insured pilot. However, the policy does not cover damage to the aircraft being operated by the insured since that coverage should be handled by the owner's policy.
Airport operations or fixed base operators need airport liability and hangarkeepers legal liability coverage. Contractual and products liability coverage can be included in such a policy. If the airport operator owns and rents planes to pilots (including student pilots), an aircraft hull and liability policy is needed. In most instances, financial institutions finance the sales of aircraft. Banks and other lenders need physical damage coverage in order to protect their insurable interest in aircrafts covered by their loans. There are many other types of coverages available to respond to different aviation needs, including separate, aviation products liability and separate, excess layer policies. The agent or broker should carefully survey all of a prospect’s exposures before submitting an application.
Generally, a risk is evaluated by such factors as pilot qualifications, aircraft used, the type and value of the aircraft, and any other extensions of standard coverages.
Related Article: Aircraft and Aviation Insurance Underwriting Considerations
The aviation insurance market consists of a handful of
carriers. This line of business is extremely difficult for new entrants. The
current markets offering aviation coverage are, primarily, pools of companies.
The markets that write aviation exposures in the
· Global Aerospace U.S.
· United States Aviation Underwriters
· American International Group
· Allianz Aviation
· CV Starr Aviation
· XL Caitlin U.S.
· Berkley Aviation
· ACE USA
· Phoenix Aviation
· W. Brown & Associates
· Munich-American Holding Corp.
· International Aerospace Insurance Services
· Houston Casualty Company (HCC) Insurance Holdings
· Lloyds of London and other European Underwriters
Most of the above insurance companies work with wholesalers to place their coverage. The wholesalers operate within their underwriting authority and place business in accordance with their level of experience, book of business and expertise.
Aircraft
Pleasure, business, and commercial aircraft policies are constructed in the same manner. All consist of the following coverages:
· Physical damage to the aircraft
· Bodily injury (to passengers and others)
· Property damage (to property of passengers and others)
· Medical payments (for the insured and passengers)
The policy resembles an automobile policy. Since there is no standard aircraft policy, it is important that any given policy be carefully reviewed.
Related Article: Aircraft Insurance Coverage Analysis
Aviation
Airports, Fixed Base Operators and
Related Article: Aviation General Liability Policy