March 1, 2007
John W. Olcott
Purchasing liability insurance for sophisticated aircraft is challenging for the owner-pilot who wants more than minimal coverage.
Consider the case of an instrument-rated owner-pilot in his mid-50s with about 800 hours' total time who purchased a new Garmin G1000-equipped light twin, his first multiengine aircraft. Fascinated with aviation and needing personal transportation between his permanent residence in the mid-Atlantic states and a winter vacation home for skiing in New England and a summer home near the coast, this high-net-worth individual began flying lessons in 2003 after retiring from his successful business. Upon obtaining a private certificate in 2004 he purchased a new Cessna 182 with Garmin G1000 avionics. This individual was indeed an active aviator, flying whenever possible and taking every course associated with his aircraft and its avionics suite. Within 12 months, he transitioned to a new Mooney Ovation with all the bells and whistles, including a TKS anti-icing system. After accumulating nearly 400 hours in the year he owned the Mooney, he replaced the sophisticated single with a new fully equipped light twin.
Cautious about covering newly rated multiengine pilots, his underwriter insisted upon factory training, which included simulation and intensive coverage of the aircraft's Garmin avionics. The pilot complied willingly and excelled, displaying his extensive knowledge of the G1000's many functions and capabilities. The underwriter also required 75 hours of dual instruction following delivery before the new owner could fly his twin solo, a milestone that was met quickly.
In spite of the owner's currency, his affinity to mastering the aircraft's systems, and his unblemished safety record, liability limits were capped at $1 million. Initially, he was unable to purchase excess liability coverage, which was available for the Mooney and Cessna. Eventually, working through his broker and communicating actively with the underwriter, he obtained excess liability insurance but at limits below the coverage previously held.
If obtaining liability coverage for owner-pilots flying light twins is difficult, what is the likelihood that the insurance community will embrace owners of very light jets (VLJs)? Underwriters say they will treat VLJs as a new class of aircraft, therefore paying claims out of the pool of VLJ premiums rather than aggregating premiums and claims among all business jets. That strategy appears to be influencing some underwriters that are in a position to insure VLJs but are reluctant to do so since the pool of premiums may not be sufficient to cover initial losses.
To illustrate, if the premium for full hull and $1 million liability insurance for a VLJ is $40,000, the first 100 aircraft in this new class will generate a war chest of $4 million. Conceivably, that pool could be consumed quickly, even if less than 2 percent of the initial fleet encountered significant mishaps during the first year of service. Thus, underwriters have expressed considerable caution in approaching the owner-pilot market, preferring instead to insure professionals or, in some cases, taking a wait-and-see attitude before aggressively offering any form of coverage.
Obtaining insurance is not the only issue; limit of liability is another hurdle lying in the path of owner-pilots who are considering the purchase of a VLJ.
Is $1 million in coverage sufficient to cover individual claims that might arise from injured parties involved in a tragic accident, particularly when the pilot's personal worth far exceeds that liability limit? Certainly not, even if the aircraft is held within a corporate structure designed to shield the owner from liability. In today's litigious society, everyone connected with the accident aircraft is likely to be sued, and claimants will ask for the moon.
Some experts in risk mitigation recommend coverage approaching what the insured might lose if the claimant was successful in squeezing the last dime from the pilot's estate. Others are more pragmatic and probably more realistic, especially when advising pilots with considerable assets. Although $1 million usually is considerably less than the net worth of an owner-pilot who can afford a VLJ or new light twin, liability coverage provides the insured with legal defense regardless of the policy's limits. Thus, the first consideration should be coverage even if the limits are suboptimal. The second consideration, however, is providing sufficient coverage to reduce the likelihood that a claimant will attack the estate of the unfortunate pilot involved in a particularly messy accident. Ultimately the decision of what coverage is enough is personal.
Obtaining coverage is more involved than just a willingness to accept low liability limits and pay the premium. An underwriter must want to write a meaningful policy — and it may not always want to in the case of the owner-pilot with no turbine experience. When a potentially willing underwriter is identified, issues of coverage and cost can be addressed. Finally, at the time of renewal (assuming some level of coverage has been purchased) a case can be made for better terms based upon the applicant's recent experience.
At each stage of the buying process, the key to securing appropriate insurance is selecting a broker who can make a strong argument why the underwriter should accept you as a reasonable risk. A corollary key is actively and aggressively helping your broker intercede on your behalf.
Underwriters are willing to insure professional pilots for several reasons. Professional aviators are current in the aircraft they fly and focused in their approach to aviation. Professional pilots typically have been trained using motion-based simulation and, at a minimum, refresh their knowledge and skill yearly. Professionals engaged in air-taxi or airline operations generally are required to demonstrate their proficiency every six months, and many pilots flying for corporations also train twice yearly.
Corporate flight departments and companies offering commercial transportation systematically document their procedures in operations and maintenance manuals, which describe standard operating procedures for all aspects of their activities. Professional pilots are expected to follow the standard operating procedures stated in the operations manuals, and peer pressure has established an environment where such practices are followed with little or no deviation.
Aircraft flown by professionals typically are subject to maintenance procedures that go beyond the minimum required to be legal. An unexpected event is addressed promptly, thereby assuring continued airworthiness.
Underwriters believe that the training, standardization, and airworthiness practices of professional aviation have created a safety culture that minimizes risk and makes professional operators good candidates for insurance. Safety statistics for salaried crews operating company aircraft justify such confidence. Unfortunately, underwriters do not have the same perception of owner-pilots, and the providers of insurance have no experience with VLJs with which to modify their initial impression. They regard the typical owner engaged in personal or business flying as potentially an unknown risk. No one likes uncertainty, especially when underwriting insurance.
Yet underwriters understand that some owner-pilots are highly proficient and safety conscious. Any aviator can choose to follow acceptable standards and adhere to best practices. The challenge is identifying those nonprofessionals who act "professionally," reflecting a strong and enduring safety culture.
A knowledgeable broker who has an established track record with an underwriter can help obtain appropriate insurance at a fair price, provided the owner-pilot applicant can demonstrate his or her approach to safety. Thus, it is vital that you and your broker convince the underwriter that you behave more like a professional than the nonsalaried aviator.
Everything that affects safety, such as training, currency, and aircraft airworthiness, is in the owner's control. Furthermore, the pressure to fly is self-imposed. It is easier for the owner-pilot to delay departing in poor weather or divert when adverse conditions are encountered than it might be for the pilot whose boss or passenger is insistent that the mission be completed. Heed the advice of the ancient Greeks: Know thyself, and everything in moderation.
More than platitudes and a good safety record are required, however, to be an acceptable insurance risk. The owner-pilot who wants the best insurance coverage needs to demonstrate a structured approach to aviation and have sufficient documentation to be credible. Just as professionals adhere to an operations manual, the owner-pilot also should have his or her own ops manual that includes procedures for flight planning and personal dispatch, aircraft airworthiness, weather considerations, pilot currency, standard operating procedures, minimums, fatigue awareness, systematic training, and ready access to professional resources to address special situations. It need not be long or involved. But the document should identify the way you approach aviation, and your flying record should reflect adherence to such self-imposed procedures.
Type-specific training, employing motion-based simulation, is the norm for turbines and other sophisticated aircraft, and the owner-pilot should plan for it. For Mustang customers, Cessna Aircraft is using the services of FlightSafety International as it does with other aircraft in its Citation line. Eclipse Aviation collaborated with Willis Global Aviation, a well-established broker, specifically to develop a comprehensive program that includes simulation services of the United Flight Training Center to prepare Eclipse pilots for flight and mentoring and operational support post training to assure successful operations. Based upon the Eclipse program, Willis has attracted the interest of underwriter AIG Aviation, part of the American International Group and based in Atlanta, which is looking favorably on insuring participating owner-pilots.
Armed with appropriate documentation and the owner-pilot's flying records, including training certificates and logbook entries, a knowledgeable broker of aviation insurance is in a position to negotiate the best insurance buy for the client. When insuring operations in a VLJ or any sophisticated general aviation aircraft, broker selection is essential, as is the need to demonstrate a "professional" approach to safe flying.
John W. Olcott is the former president of the National Business Aviation Association.
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