Operators being forced to lower liability limits; while airports, corporates see continued competitive pricing
BY John Boyce, Contributing Editor
There doesn't appear to be any clear trend across the spectrum of classes of aviation insurance. However, there does seem to be a trend among underwriters to want to force liability limits downward for individual aircraft operators and FBOs with flight operations.
As Glenn Tate of AON Risk Services in Wichita, KS put it, "The upper limits of liability are getting kind of precious."
Bill Behan of AirSure Limited in Golden, CO, explains further, "For the small aircraft owner," Behan says, "the rates are generally stable, but some are going up if the consumer is looking for a higher liability limit of $2, $3, or $5 million. Those rates are very noticeably going up 20 to 50 percent. And they're especially noticeable at $5 and $10 million. Not many people have those needs, but the professional people that are flying a new Bonanza or a Baron or something like that, they don't want to have a $1 million limit. The availability of limits is not what it was two or three years ago."
This is a disturbing trend to Tom Coughlin, president of Air-Sur in Ormond Beach, FL. Referring to a major aviation insurance underwriter, Coughlin says, "What disturbs us about that particular trend is that we haven't seen that out of USAIG in the 22 years we've been in business. What's happening is that on those higher layers they've been paying out those kinds of awards (for losses). So, apparently they're not getting enough premium for the limits they're selling. They term it ’limits management.'"
Coughlin says that limits management has been attempted in the past with marginal success, but now better success is expected because not many companies are offering the higher limits at more competitive pricing.
The situation troubles Coughlin because the lower limits the operators are being forced to buy, "Frankly, are not going to be adequate."
Although Behan at AirSure concedes that this trend is unfortunate for the consumer, "it really has a healthy affect on the industry. If you charge too little for your product, sooner or later you're out of business and that doesn't serve anyone's long-term needs."
PREMIUMS ON AIRPORTS, CORPORATES
On the other hand, insurance competition for all airports, from general aviation to major commercial hubs, is so fierce that the pricing continues to go down, prompting Ed Underwood, president of Avsurance in Ann Arbor, MI, to say, "Airports are dirt cheap. There are multiple underwriters and I mean good, financially very strong underwriters. I just haven't seen any increases in airport premiums.
"The premiums are very low even on major hub airports. I don't see any hardening (of prices) at all because the (loss) experience has been very good on airports."
Much the same can be said of the turbine/corporate operators market. The loss experience has been good so rates are soft, perhaps dangerously soft for the insurer. "The turbine/corporate operators market is as soft as I've ever seen it since I've been in business in the mid-70s," Behan says. "It seems to be trying to stabilize but the market is at a level where none of the four companies that are predominantly writing that class of business can afford to take a Gulfstream hit and make a profit. It's down to a ridiculously low level of premium...
"The buyers are obviously pleased but these insurers don't want to give up market share, and as long as there's one of four willing to offer lower prices today than yesterday, the other three will chase them."
According to observers of the industry, the irony of the situation is that the underwriters are not making money. Under usual economic circumstances, that situation would tend to force the price up but it hasn't. Major airports are seeing as much as 25 percent reductions in their premiums.
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