Why Insurers Say ‘No’
As published in World Aircraft Sales Magazine, March 2014
The Reasons Behind the Decision…
Many savvy aircraft owners/risk managers ask if higher deductibles or amending insurance to ground-only coverage when their aircraft is down for an extended maintenance will result in a decrease in premium. Stuart Hope explains why the answer is usually “No”.
To minimize premium costs, most of us consider increasing deductibles on our various insurance policies. After all, insurance is really meant to protect us from catastrophic loss, not to pay small attritional claims. Therefore we are comfortable with higher deductibles, and we expect significant premium savings by doing so, which may be the case with certain types of insurance.
Aviation coverage, however, is different. The irony is almost all policies on turbine business aircraft have deductibles of zero (i.e., no deductible). The exceptions are rotor-wing aircraft (helicopters) and aerial applicators. Increasing deductibles save the insurance companies money only in areas that have a high loss frequency, like auto insurance, workers’ compensation insurance for construction companies, etc.
In aviation, we don’t have an issue with loss frequency. In fact we have very few claims. Our issue is one of loss severity. When we have claims they are typically very expensive.
For this reason, insurers realize that giving a significant premium decrease to an aircraft owner for taking a higher deductible doesn’t make much sense, since the odds that the insurance company will actually apply the deductible to a loss is very low.
Rotor-wing operators and Aerial Applicators have a much higher frequency of claims, and insurers assign a higher deductible to these operations.
Another common request that, on the surface, seems reasonable but often results in a “No” decision involves aircraft inactivity – in which an owner’s aircraft is going into an extended maintenance event or will not be flown for a lengthy period of time for other reasons. The owner might request putting the aircraft on “ground-only coverage” and expect a return premium for removing flight coverage. Some aircraft owners might actually want to remove all coverage, stating the aircraft will be in the repair shop and the shop owners have confirmed that they had insurance on the aircraft when it was in their hangar.
The reason for an insurance carrier saying “No” in the first scenario typically relates to a lien on the aircraft. Banks typically require that a coverage called breach of warranty be placed on the insurance policy in their favor when an aircraft is purchased. This coverage in essence provides an exclusion-less policy (with a couple of exceptions) for the lienholder (e.g., the bank) concerning their interests.
If the aircraft owner has an accident and the claim is denied because the owner breached the terms of the policy, the bank will still be paid the outstanding lien amount owed them. For this reason, insurance companies will not allow an aircraft owner to amend the hull coverage to ground-only if they have breach of warranty coverage on the policy in favor of a lienholder.
It would be too easy to void coverage with any in-motion claim. Imagine, for example, that an owner forgets to alert his mechanic he purchased ground-only coverage. The mechanic then starts the aircraft to exercise the engines and has a loss while taxiing. (If there is no lien on the aircraft, however, the owner can certainly select ground-only coverage or even no coverage on the aircraft if so desired.)
The reason for the insurance company saying “No” to the second scenario is the shop owner’s insurance does not provide first-party coverage on the owner’s aircraft.
The shop owner’s insurance is limited to liability protection for the shop owner. If the shop owners’ negligence causes your aircraft to be damaged while in their care, custody or control, their liability policy would respond. However, if your aircraft is damaged due to a cause other than their negligence (e.g., snowstorm causes hangar to collapse), their policy would not respond.
For this reason, an aircraft owner would never want to rely on a shop owner’s insurance for protection. You would think this is obvious, but you would be surprised how often I get the request. Certainly it is smart to seek ways to reduce the cost of your insurance program. Higher deductibles or reduced coverage when appropriate are two strategies. The fact you might receive a negative response from your insurance carrier doesn’t mean you shouldn’t ask the questions.
NBAA Releases 2014 Top Safety Focus Areas
The National Business Aviation Association (NBAA) Safety Committee released its 2014 Top Safety Focus Areas on March 5th. HOPE Director of Operations, Eric Barfield, currently serves as Chair of the Safety Committee. Read the NBAA press release here for his comments. Hope Aviation Insurance is a leading provider of insurance and risk management brokerage services, in part, because we are industry leaders in promoting safety best practices for the entire business aviation community.
The 2014 Top Safety Focus Areas:
The deliberate quest to always do the right thing through ethical behavior, personal accountability, continuous improvement, and operational discipline that includes a firm commitment to the practice of active safety management. The Professionalism Working Group is dedicated to promoting professionalism and providing useful tools and resources to support professional behavior throughout business aviation.
Positive Safety Culture
The entire organization must align to fully embrace a proactive safety mindset supported by a just culture and evidenced not only by participation and belief in the culture, but the willingness to share safety data with fellow aviation professionals. The Positive Safety Culture Working Group is developing strategies to help operators continuously improve their safety culture.
As a result of cost reductions and/or entrepreneurial spirit, the necessity to arm pilots with the tools to safely manage single-pilot operations has become more important than ever. The Single-Pilot Safety Working Group provides helpful tools and informative resources, including the annual Single-Pilot Safety Standdown.
Fitness for Duty
In a physically and mentally demanding environment, a clear mind and healthy body is essential to safe business aircraft operation, maintenance, and management. Fatigue, sleep apnea, improper use of medications and many other aeromedical issues are currently being addressed by the Fitness for Duty Working Group.
Effective risk management requires operators to exercise increased vigilance while operating at unfamiliar, non-towered, or complex airport environments. The Airport Safety Working Group promotes use of tools to help manage threats on and around the airport environment to include wildlife, infrastructure challenges, and other inherent airport hazards.
The common denominator for excellence in aviation decision making, risk and flight path management is training. The Training Advisory Subcommittee aims to dramatically improve the value proposition for business aviation training that will lead to a reduction in loss of control, runway excursions, and other business aviation accidents.
Too much to do without enough time, tools or resources leads to the inability to focus on what really matters, often precluding appropriate assessment of risk as well as proper threat and error management. Achieving and maintaining situational awareness while under pressure is key for successful business aviation operations to occur.
Legislative decisions and policy making, both domestically and internationally, are having detrimental safety implications and could prove to cause a significant degradation of future safety for business aviation.
The forecasted shortage of business aviation professionals will create challenges in attracting, developmental mentoring, and retaining new professionals who can safely manage, maintain, service, and fly business aviation into the future.
The rate of technological developments and implementation has increased dramatically, challenging the ability to adapt or continue with obsolete systems.
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“Hope Aviation has been a valuable partner to our company in managing our aviation insurance needs. Their friendly and professional approach has allowed us to make informed decisions that fit our requirements.”
Stuart Weidie, President & CEO
TRIA (Terrorism Risk Insurance Act) — Coverage Update for 2014
Coverage provided under the Terrorism Risk Insurance Act (TRIA) isset to expire at midnight on December 31, 2014, by law. TRIA may very well be extended by the President and Congress before the deadline occurs, as has happened in the past. If it is not extended and you have elected to accept TRIA coverage, your insurance coverage will be reduced to no longer include coverage for certified acts of terrorism, subject to state law.
HOPE for the Future!
Hope Aviation Insurance, Inc., provides an annual scholarship to an undergraduate student studying Risk Management and Insurance at the University of South Carolina. Stuart Hope, Sr., the founder of Hope Aviation Insurance, started the scholarship roughly 25 years ago after his three children graduated from USC in the insurance program.
Will Eudailey (pictured below) is the 2014 recipient. Will is currently a junior at USC’s Moore School of Business. He has interned at Preferred Specialty Insurance and at Hope Aviation Insurance. He also serves as the Fundraising Chair for Gamma Iota Sigma Lambda Chapter Insurance Fraternity.
Emily Yepes and Samantha Hayford, who joined the firm in 2013, are both now licensed to take on the role of Account Executive.
Top Four Reasons for Claim Denial
Shannon Hope attended theSoutheast Aero Cultural Fair (SEAF)agricultural aviation convention in Mobile, AL, in February. He met with clients, underwriters, and prospective clients. The convention was well attended by agricultural aviation operators, pilots, and supporting suppliers and vendors from Florida, Georgia, Alabama, South Carolina, and Tennessee. Educational sessions covered topics ranging from drift mitigation practices to PT6A maintenance.
Marion (Bubba) Hope attended theHelicopter Association International (HAI) Heli-Expo in Anaheim, CA, in February to meet with clients and underwriters and to stay up-to-speed on the issues facing the helicopter community.
Stuart Hope currently serves as the Finance Chair of the Richland County Airport Commission. He oversees the financial stability of Jim Hamilton – L. B. Owens Airport, which is the aviation base for Columbia’s downtown business center.
Eric Barfield recently spoke at the North Texas Business Aviation Association’s 2nd Annual Safety Show-Down. This Dallas event provided over 100 attendees with an opportunity to learn of the NBAA Safety Committee’s latest Top Safety Focus Areas (see article at right) as well as numerous other helpful business aviation safety sessions.