Business Aviation Insurance Cycles: What You Should Know for 2011

January 14, 2011

For much of the past decade, business aviation operators have enjoyed a buyer’s market for aviation insurance. That cycle is ending and prices are likely to rise.

This is the consensus of experts on the Aviation Insurance Working Group, part of NBAA’s Tax Committee, who offered this explanation of what is happening and how best to respond.

“Corporate Aviation insurance customers have enjoyed soft buying conditions the past several years and that is beginning to change,” says David McKay, president and chief operating officer of USAIG and member of the NBAA Associate Member Advisory Council. A “soft market” is characterized by lower rates and competition among insurers for operators’ business, while prices rise in a “hard market” in part because of losses, contracting capacity, and rising costs to insurers to provide the retail product, he explains.

Since about 2003, “the market has experienced historically low rates for aviation insurance,” says Stuart Hope, vice president of Hope Aviation Insurance and an NBAA Aviation Insurance Working Group member. “There are a number of factors effecting this change including the recent reinsurance renewal cycle, and Members should be prepared to see increases in rates as soon as this year.”

Factors include the departure from the market of several large insurance companies, and one of the worst years for aviation claims losses since 2001. “While business aviation had a good safety record in 2010, losses rose significantly for airlines, which can affect rates for general aviation as both sectors are covered by the same insurers and reinsurers,” Hope explains.

Also, general aviation suffered a major loss last winter with the collapse of a hangar at Dulles International Airport in which a number of business jets were damaged, McKay notes.

Factors Operators Should Consider

“From an operator’s point of view, there are several things you need to think about,” says Dave Weil, chief financial officer of Solairus Aviation and a Working Group member.

“First, take steps to prepare for possible higher rates,” he says, by examining adjustments you can make in your limits and values that will lower your insurance needs. “And of course, it is critical to do everything you can to maintain the safety of your operations, and to document and certify your safety record.”

NBAA’s experts recommend this checklist to help Members prepare for rising insurance rates:

• Differentiate and communicate about safety.
  The experts are unanimous that the safest flight operations get the best rates – whatever the market dynamics. They suggest documenting your company’s commitment to safety, including frequency of training and maintenance standards. Invite your broker and insurance company for a site visit. “If you haven’t already, consider pursuing IS-BAO certification, which is the most recognized standard for safety in business aviation operations,” Hope adds.
• Remember it’s a partnership.
  Ask your aviation insurance broker to provide you with a comparative analysis of quotes, and carefully examine policy differences. Before making a decision to move, consider how long you have been with your current insurer, and the benefits that loyalty may have earned.
• Be realistic about your needs in order to manage costs.
  The ‘stated value’ of your company’s aircraft is a good place to start thinking about current needs in light of the market for business aircraft when renewal time approaches.
• Exercise good risk management practice.
  Ask your broker to review contracts, such as for hangar leasing, before you sign to be certain you are not inadvertently assuming someone else’s liability risk.