Answers for Pilots

Fewer options, stricter standards, and higher premiums

There's no argument that insurance is one of an aircraft owner's largest annual fixed costs. Add to this the prevailing attitude of "It'll never happen to me" among pilots, and you can see how insurance premiums can easily become a bane to most owners.

Despite this, the fact is that in the past few years, the premiums charged by the aviation insurance companies have not kept pace with the rising costs of aircraft repairs and the size of bodily injury litigation awarded in the courts. "Simply put, the claims and expenses paid plus the companies' expenses have exceeded the premiums collected, resulting in marginal or unprofitable results for nearly all aviation insurers," says Greg Sterling, executive vice president of the AOPA Insurance Agency. "We now see signs, however, that insurance companies are making several course corrections to change their results."

One of the most obvious is increasing premiums, explains Sterling. In the past few months, most aviation insurance companies have either increased rates or announced plans to do so. Another sign that things are changing, he adds, is the recent reduction in liability coverage offered by some companies. Underwriting standards have always varied from company to company, but in the past few years, a $2 million combined single limit of liability was generally available to a pilot who met underwriting qualifications. A number of companies, however, have now announced that they are limiting their light-aircraft accounts to a maximum of $1 million each. Still others have tightened their requirements for increased limits. "In 2000, there is every indication that aircraft owners will be facing higher premiums for the same level of insurance protection they once enjoyed, if it is still available at all," says Sterling.

The good news is that there are some things aircraft owners can do to help keep insurance costs down and increase the chances that they will qualify for higher liability limits:

• Obtain the instrument rating. For many companies, this is the first question asked when evaluating a request for higher limits.
• Commit to annual recurrent training. A requirement for some aircraft types already, recurrent training is becoming more and more recognized by the insurance companies.
• Fly your aircraft. Companies review all facets of your flight time, with special emphasis on time in the make and model, as well as time in the last 12 months and last 90 days. Not surprisingly, a current, active pilot presents a lower risk to a company than one who flies infrequently.

Another notable change in the market has been the withdrawal of several companies from commercial GA insurance, notes Sterling. Citing unprofitable experience and rising costs, both Avemco and the Great American Insurance Company recently announced that they will cease insuring airports, FBOs, flight schools, flying clubs, and other common commercial GA businesses. As a result, existing commercial customers are being advised that their current policies will not be renewed. (Noncommercial or "business and pleasure" use aircraft are unaffected by these changes and continue to be written by both companies.)

Several other aviation insurers continue to write commercial business, albeit at increased premiums, tighter requirements, and/or reduced coverage. This all means that commercial operators will likely be facing fewer options, stricter standards, and higher premiums for the same level of protection they once had, says Sterling.

The AOPA Insurance Agency does not offer commercial insurance, but AOPA's aviation specialists do have some suggestions that could help to minimize commercial insurance premiums. Sterling also offers these suggestions for commercial operators concerned about insurance availability and costs:

• Contact an aviation specialist insurance broker to handle your account. A specialist will understand the aviation-specific nature of your account better than a general insurance agent and will be better able to advocate for you with the underwriters.
• Work with your broker to ensure they have complete information on your account before they go to the markets. This will increase the likelihood of the underwriters offering a competitive quotation.
• Carefully evaluate the insured value of your aircraft. Don't over- or underinsure. Check the Vref Aircraft Value Reference for an indication of proper insured value.
• Think about accepting a higher hull deductible if necessary to obtain affordable terms. This helps to decrease your costs and partners you in any loss with the company.

AOPA takes an active role in aviation insurance because of its integral nature with aircraft ownership. "Through our joint venture and the largest light-aircraft insurance agency in the world — the AOPA Insurance Agency Inc. — we'll continue to closely monitor these changes," says Sterling. "But most important, we'll continue to actively advocate for aircraft owners and pilots with the insurance companies and keep you informed."

As an AOPA member, you have access to the best resource anywhere for information and answers for pilots. The AOPA Online Web site ( www.aopa.org) provides members with access to a wealth of information and resources. The AOPA toll-free Pilot Information Center gives you direct access to the specialists in every area of aviation. The center, 800/USA-AOPA (800/872-2672), is available to members from 8:30 a.m. to 6 p.m. Eastern time, Monday through Friday.