(September 2023)
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, when arranging coverage,
most agents rely on representatives of the major aviation insurance markets for
technical assistance. 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 U.S. 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 2021 there were more
than 164,000 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
that 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