Carrying aircraft insurance is not a legal requirement in most states, yet having a policy could save you from a serious financial disaster. The last thing an aircraft owner should have to think about are the legal and financial ramifications of an aircraft accident or incident. Our 2022 Aviation Insurance Guide, will provide you with the information you need to protect yourself and your investment.
There are nearly 6,000 car insurance companies in the United States, yet there are currently only 16 companies that will insure aircraft. That means the aviation insurance industry is a relatively small, specialized industry, that as a market, has a lot more fluidity and rate fluctuations than a larger market like the car insurance industry.
In mid 2018, after 10 years, of year over year rate decreases, the market started to harden and rates began increasing dramatically between 20% and 50% every year. In a hardened market, when rates are increasing significantly, aircraft owners tend to begin aggressively shopping their aircraft insurance policies annually to find a better rates and keep costs down. Since there are only 16 aviation insurance companies, each with a small handful of underwriters, the increase in shopping activity puts enormous and overwhelming pressure on the individual underwriters at each company. In turn, the underwriters simply can’t keep up with the workload and will begin declining to offer quotes at a higher rate than in a soft market. This compounds the problems that come with a hard insurance market as we now have higher rates and fewer companies and underwriters offering quotes.
Aviation Insurance Shopping Strategy:
What is the best strategy to ensure you get the most competitive rate and best coverages?
Find a broker that you trust and let them shop the market for you.
I know that this seems counterintuitive, as we have all been blasted with car insurance commercials encouraging us to shop all the time to find a lower rate, but this is the opposite of how the aviation insurance industry works and it can work against you.
How can shopping with multiple brokers, work against you?
Out of the 16 aviation insurance companies, about half of them will open quote and the other half will not open quote. What this means is that once a broker sends out your N-number, aircraft type and pilot information to several insurance companies for a quote, half of those companies will block all quote requests to any other brokers that come in after you for a quote. For example, my broker sends out quote requests with my N-number to all 12 aviation insurance companies. Let’s say that all 12 provide a quote, 6 of those companies will now block all other aviation insurance brokers from obtaining a quote, as they have already provided a quote to the first broker.
Not only does this limit the terms your current broker can obtain, but when the handful of underwriters at each insurance company see the same N-number, aircraft and pilot information coming in from multiple brokers, they may opt to start declining all quotes, due to their high workload. Having less quotes in an already small market means that shopping with multiple brokers can result in you having a higher aircraft insurance rate, rather than a more competitive rate.
Setting your aircraft insurance broker up for success:
After you have settled on an aircraft insurance broker to advocate for you, it’s important to provide them with the right information to give them every advantage in their efforts to find you the best rates and coverages. There are thousands of different aircraft makes and models, pilots with different licenses, ratings and experience and many different aircraft insurance uses such as part 135, part 91 and the standard pleasure and business use. Because of this wide variation, it is extremely important that your broker knows which questions to ask you, to ensure the underwriters have all the information and can review and offer the best terms possible.
This one single part of the aircraft insurance process is key and is a huge differentiation point between aircraft insurance brokers. Some brokers specialize in seaplanes, other brokers specialize in experimental aircraft or student pilots purchasing turbine aircraft, etc. When a broker specializes in a specific aircraft insurance type, they will most likely have a better understanding of the unique questions underwriters will want answered as well as which underwriters and companies to submit a quote request to, to get the best terms for you. As an example, if BWI specializes in Cirrus insurance and you are purchasing a brand-new Cirrus SR-22 aircraft, we aren’t just going to ask about how many hours you have in SR-22’s, we also want to know if you have any SR-20 time as well. Why? Because we know that some of the 16 insurance companies will consider SR-20 time, as well as SR-22 time and therefore help obtain the best, most competitive rate possible. Brokers that don’t specialize in Cirrus Insurance, may only ask for your SR-22 time, report 0 or low hours to the insurance companies, which will significantly increase and impact the rate they quote.
The second most important part of providing your aircraft insurance broker with the best information possible has to do with how aircraft insurance quotes and risks are rated. Aircraft insurance underwriters provide quotes based on the aircraft and pilot information provided by agents up to the time of binding the policy
After the policy is bound, the rate is not reviewed again until your policy is up for renewal, a year later. An example of this is getting your instrument rating. Depending on the type of aircraft, having an instrument rating could significantly help lower the insurance rate. If you start a policy without your instrument rating and pay a higher price for insurance, and then 1 month in to your insurance policy, obtain the rating, it’s not going to change or reduce the rate until the information is reviewed and re-sent to the insurance companies at renewal next year. Here is another differentiating factor between aircraft insurance brokers.
Top brokers will not only ask about your current pilot qualifications, hours, etc, they will want to know future plans and in progress ratings or pilot training courses planned. Based on this information, your broker can advise you on the best course of action and help develop the right aircraft insurance shopping strategy for your unique aircraft and pilot situation.
Understanding and obtaining the right aircraft insurance coverages
Aircraft insurance policies are designed to protect the aircraft owner from the increased liabilities and risks, associated with owning and operating an aircraft. The base coverage on every aircraft insurance policy is liability coverage, which protects the aircraft owner in the event that bodily injury or property damage is caused as a result of the operation of the owned aircraft, In addition to liability coverage, physical damage coverage, also known as hull coverage, is an optional coverage on most aircraft insurance policies that covers physical damage to the aircraft itself. Let’s break these 2 coverages down:
Owned Aircraft Liability Coverage
For single-engine aircraft, the most common liability coverage offered is $1,000,000 total liability (per occurrence), limited to $100,000 per passenger. You may see this on your quote written as 1 Mil/100k. 95% of every aircraft that BWI insures, is insured at the 1 mil/100k liability limits as this is typically the standard in the aircraft insurance industry. 1 mil/100k means that if you have an accident or incident (which is an occurrence) your insurance policy will pay up to $100,000 per passenger for damages you are liable for, with the remaining policy limits available for damages (outside of the aircraft). For example, if you have a serious accident and you have 2 passengers injured, $100,000 is set aside and available for each passenger, with the remaining $800,000 in coverage left over for any damages outside of the aircraft. Higher limits may be available, although in a “hard market,” much more difficult to obtain. These limits are usually 1 mil/250k ($250,000 per passenger, within the total 1 million limit) or 1 mil smooth (the full million limit can be spread between the passengers)
Owned Aircraft Physical Damage Coverage
The second coverage on an aircraft insurance policy is physical damage coverage, this is an optional coverage and covers damage to the aircraft itself. Aircraft physical damage coverage is based on the term (Agreed Value) and that basically means that if you request a quote for your aircraft and state that it’s worth $300,000, when an aircraft insurance company comes back with a quote showing that amount, they are agreeing with you that they think it’s insurable for that amount. Unlike auto insurance, there usually is no depreciation and in the event of a total loss, the insurance company will cover the insured amount of the aircraft, less any deductibles. Unlike auto insurance, the deductible options available are limited and based on aircraft and pilot situations, and underwriter guidelines. For most qualified pilots in single-engine aircraft, the deductibles will be very low or $0/nil. For pilots transitioning into more advanced aircraft, seaplanes for example, you will see higher deductibles. For seaplanes in particular, the physical damage coverage includes the value of the floats or amphibs, but the value of the floats is usually broken out at the time of quoting. An example is the aircraft has total physical damage coverage in the amount of $185,000, with $30,000 of that $185,000, set aside for damage, loss or theft to the floats specifically.
After submitting your information to the aircraft insurance companies and depending on your aircraft and pilot situation, your broker will begin to receive multiple quotes back to review with you. When you and your broker are reviewing quotes, there are some key things to look at and understand such as the price, training requirements, deductibles, reputation and service of the insurance company and your future plans with future aircraft purchases or additional pilot training. An example of reviewing price and training, you may receive a quote from one company for $1,500 and another quote from a different company at $1,750, with the same deductibles. If you are transitioning into a new aircraft, look carefully at the pilot training requirements, as the higher priced company may only require 5 hours of dual, compared with the lower priced company might require 15 or 20 hours of dual. With the price of fuel at record highs, plus CFI hourly costs, it may make more financial sense to go with lower training requirements.
You will also want to review and ask your broker about the history and reputation of each insurance company. It may make more sense to go with an insurance company that has a great reputation and has been in the business of aircraft insurance for many years, rather than saving a few bucks with a newer aircraft insurance company.
Preparing to activate coverage
After your broker has shopped the market and presented/reviewed with you the various quotes and options, the next few steps involve preparing to activate coverage. In order to activate coverage with BWI for example, you will need to review, sign and complete a full aircraft insurance application. This application should reflect the aircraft and pilot information you gave to your broker at the beginning of the quoting process. At BWI, we also require a 20% down payment (check, credit card, wire, ACH, are all accepted) We also offer easy monthly financing, which can help spread out the cost in multiple payments.
If you need to provide Certificate of Insurance to an Airport Authority or a Training Facility you will also want to request those at the time of binding
Why choose BWI?
BWI is one of the largest aviation insurance specialty brokerages in the United States, and we have been specializing in aircraft insurance since 1977. Our agency is family-owned, staffed with highly trained, friendly, and experienced aviation insurance professionals. We are licensed and have insureds in all 50 states, and we strive to provide the very best aviation insurance experience for our customers. We would love to be your aircraft insurance advocate and look forward to working with you.