Question of the Month

What drives the cost of aircraft insurance for a club?

October 18, 2013

Flying club insurance rates are influenced by many factors—aircraft type and value, pilot proficiency, and coverage levels just to name a few. With the insurance premium often being the largest single expense item in a club’s annual budget, it’s worth taking some time to understand how premiums are calculated.

A good broker will do more than simply seek insurance quotes, help you assemble information, and bind coverage. If they take the time to know the club and its culture, they can act as an advisor on insurance matters.

To begin with, insurance may cost more than you think!  In general, you can expect the premium for a flying club to be about three times the price of a single pilot owning the same airplane. Compared with single-owner aircraft, the average flying club airplane typically flies many more hours each year, by a larger number of pilots, who possess a wide range of age, experience, and currency.

All this increases risk, which leads to higher insurance pricing. However, this still represents a powerful cost advantage for the flying club, and the numbers will get even better as the club grows in size and establishes a track record of safe operations as the information below shows.

Aircraft: Cessna 172 Skyhawk valued at $50,000.

Single Owner:   Flies 100 hours per year
Insurance premium:  $1,250
Cost per person:  $1,250
Cost per hour flown:  $12.50

Flying Club with 10-15 members: Flies 600 hours per year
Insurance premium:  $3,750
Cost per person:  $250-$375
Cost per hour flown:  $6.25

To aid your understanding of what drives the cost of insurance, we’ve arranged the top 10 factors in rough order of importance:

  1. Aircraft Value. Almost everyone carries hull insurance for protection against loss or damage to the club’s aircraft.  The higher the value of your aircraft, the higher the insurance rate will be.  Take care not to under-insure the replacement value of the aircraft.  Some clubs do elect to self-insure for hull damage, but you should only choose this option after very careful consideration.   If you are leasing or financing the airplane, hull insurance will be required.
  2. Amount of liability insurance being purchased. This covers aspects such as destruction of property, bodily injury or death sustained by a nonmember, resulting from use of the club’s aircraft.  The most common policy provides $1 million of overall coverage, with a sublimit of $100,000 per passenger.  Amounts up to $2 million / $250,000 are available for a higher premium.
  3. Type of aircraft being flown. Underwriters are most comfortable with “tried and tested” 2 to 4 seat fixed gear aircraft.  Expect to pay more if you want to fly high performance, retractable, tail wheel, multi-engine, experimental, unusual or rare aircraft.  In addition to higher premiums, the insurer also may impose operational restrictions such as higher total times, higher times in type, or requirement for special training.
  4. Extent of club supervision over operations. You can build confidence in your club (which means lower rates) by providing evidence of a well-organized, responsible group that cares about high standards.  This would include documentation of a quality safety program, robust pilot checkout procedures, and good maintenance practices.
  5. Flight experience and proficiency of  members. Clubs with a large proportion of inexperienced or student pilots can expect to pay higher premiums.  Underwriters are also interested in how often your members are flying (a current pilot is a safer pilot).  Clubs can reduce their insurance premium by demonstrating their pilots are flying regularly, at least one hour per month.
  6. Nature of flight instruction. The large majority of clubs allow instruction as a basic member privilege.  Some clubs seek to mitigate the cost by offering only advanced ratings only.  It can help pricing if you provide evidence that your club has a cadre of high quality instructors who are operating within a structured program.
  7. Additional types of insurance. In addition to aircraft insurance, the circumstances of your club may require other types of insurance.  Examples include premises insurance if you own a hangar or clubhouse; insurance to cover special events; directors and officers insurance.  Some clubs reduce their overall rate by requiring each individual member to have a separate renter’s insurance policy.
  8. Accident history. Over time, a club can reduce its rates by establishing a good accident history.
  9. Deductible size. The club may elect to make a modest premium saving by accepting a higher deductible.  Whatever the deductible, make sure the club’s bylaws are clear as to who is responsible for paying it (the club, the member that has the incident, or a combination).
  10. Storage facilities & airport characteristics. An aircraft in a private hangar is considered more secure than being tied down outside in the elements. The location of your airport may affect your premium, as may characteristics like being privately owned, or having grass runways.