Here Are Some Tips on Aircraft Insurance Strategies

Though not quite as headline grabbing or sexy, aviation insurance is cyclical too. For more than five years as FLYING’s aviation insurance contributor, I’ve been lamenting the woes of higher insurance rates and tougher underwriting standards. I was starting to feel like a killjoy of a post-pandemic general aviation party, where more people were becoming pilots, and they were flying more hours in more capable airplanes—a boom we haven’t experienced in decades.

Happily, I now come as a harbinger of good news. The upward curve has flattened, rates have stabilized, the underwriting wrench has ceased tightening, and absent any claims activity, premium increases on most policies are roughly tracking inflation rates.  

In my opinion, the predominant stabilizing factor is abundant capacity in both the primary insurance and secondary reinsurance markets. We are still seeing a rise in claims expenditures due to stubbornly persistent increases in aircraft repair costs far outpacing inflation and nuclear jury verdicts that plague our industry with outlandish awards in liability claims. 

However, higher premiums attract investment, and new insurers and reinsurers not weighed down by prior unprofitable years have entered the market with an edict to grow. In the past year alone, four new aviation markets arose in the domestic U.S. market as insurers lacking an aviation division contracted with entities called managing general agents (MGAs) to perform their aviation underwriting.

MGAs remove barriers to entry so insurers without knowledge and experience in an industry can rapidly scale by leveraging their special expertise. Indeed, the new aviation MGAs emerging over the past year consist of experienced and knowledgeable teams of aviation underwriters, most of whom hailed from our legacy insurer pool.

New competition is pressuring all aviation insurers to moderate rate increases and offer flexibility, especially for the most “desirable risks” as underwriters endearingly term their most favored category of client.

The remainder of this article will explain factors that go into rating an aviation insurance policy and provide practical guidance to help you become a “desirable risk” and make insurance-buying decisions that will have insurers competing to win your business.

Many variables go into pricing aviation insurance, which is why generalizing costs is difficult even for a specific aircraft model. Aside from use (commercial costs more than pleasure and noncommercial business use), the pilot or pilots operating the aircraft are what often drive the greatest variability in insurance costs.

Aviation insurers look at pilot age, ratings, total time logged in all aircraft, make/model time, total time flown in the past 12 months, and any prior accidents, FAA violations or DUI convictions. Factors that lead to higher rates and/or insurer declinations include high-time student pilots, pilots with no make/model time, pilots over 70, pilots with zero or few hours logged over the prior year, and any recent claims activity.

I’m often asked if a new rating will lower rates. Usually obtaining a rating doesn’t move the needle much with the one exception being an instrument rating, unless, of course, the rating is meeting a minimum prerequisite for the aircraft being insured (i.e. multiengine or sea rating if insuring those aircraft).

Even if you are flying an aircraft not equipped for IFR flight or have an IFR-capable aircraft but never intend to fly in IMC conditions, you will obtain more competitive premiums with an instrument rating. Underwriters believe experience gained in earning this rating better equips pilots to handle inadvertent flights into IMC conditions, which is the most common cause of spatial disorientation accidents. 

With regards to medical status, I’m happy to report that BasicMed has almost universal acceptance from the aviation insurance community across the scope of aircraft pilots who are qualified to fly under that category. Senior pilots over 75 may be an exception, as some insurers will require a second- or third-class medical in that cohort.

Senior pilots will also pay more and may have difficulty obtaining coverage for a new purchase if they’re over 70, especially for aircraft that are retractable gear, turbine, or higher value. 

While highly controversial, this practice is a form of legal discrimination. State regulators grant insurers considerable leeway to use certain demographic factors when determining who they will commit to financially with a “promise to pay” under terms of an insurance policy.

The type and value of the aircraft are also key factors in determining cost. Basic, two- to four-seater, non-high performance, fixed gear, single-engine aircraft typically have the lowest premiums. However, any additional complexity—such as retractable gear, floats, tailwheels, more seats, more engines, or higher horsepower—will increase baseline costs, as will any aircraft not under a standard airworthiness certification. A large portion of the insurance premium is allocated to hull coverage, so insurance costs for the same make and model can vary significantly if hull values differ greatly.

How your aircraft is stored (hangared vs. tied down) can also affect hull premium, as tied-down aircraft are exposed to all the weather elements. Often, the premium difference is relatively small. The bigger issue is that many insurers will decline to quote at all if aircraft above a certain hull value are kept outside.

Despite overall rate stabilization, insurers remain sensitive to recent claims, whether at fault or not. Aircraft owners with any claims activity in the past three to five years will pay more and likely find few to no options for competing quotes at renewal. Fortunately, aviation insurers rarely don’t renew coverage for existing clients due to prior claims unless circumstances were egregious. This is no small measure to take for granted. I’ve seen insurers in general lines of nonaviation insurance drop policyholders when they need support the most. 

Aside from manipulating variables described above to move premiums in a favorable direction, there are some proactive measures an aircraft owner can take to reduce costs.

A big one is model specific training and experience, especially for high value and/or turbine aircraft. If transitioning into a new model, obtaining training and logging any make/model specific time in someone else’s airplane before you purchase yours will improve the outcome, especially if you log enough time to move out of the “transition pilot” category.

Some insurers will offer additional discounts for experienced pilots attending a make/model specific refresher course. Many of these are offered by owners’ group associations or a manufacturer-certified training center. 

Additionally, completion of an FAA WINGS Pilot Proficiency Program phase will earn a small discount with certain insurers, as will membership with aviation associations, such as the Aircraft Owners and Pilots Association (AOPA) or Experimental Aircraft Association (EAA).

Pilots often inquire if higher hull deductibles will provide any material discount, as most aircraft owners are willing to bear some claims cost if there are meaningful savings on the front end. While carrying a higher deductible is an effective way to save premium on homeowners and auto insurance, there is usually little premium relief to be had when requesting higher aircraft deductibles. This is because home and auto insurers receive many small nuisance claims that having their policyholders carry higher deductibles mitigates. In aircraft insurance, there are few claims of the “fender bender” variety, so the insurer doesn’t save enough to create an incentive for higher deductible options.

If an owner is willing to put serious skin in the game, and has no loan on their aircraft, forgoing hull insurance will reduce premium substantially because hull coverage usually comprises 70 to 85 percent of the total policy cost. There will usually be a surcharge added to the liability premium if hull coverage is declined, but the overall policy cost will be reduced significantly, and the aircraft owner will retain protection against the potentially more financially catastrophic outcome of a liability lawsuit.

Aviation insurers offer what’s termed “agreed value” hull coverage, which means that in a total loss both insurer and policyholder agree the value stated on the insurance policy is what will be paid (less any deductible).

This is different from auto insurance where the insurer only pays bluebook market value determined on the date of loss. Agreed value is better because you always know where you stand and won’t find yourself in an upside-down situation where you owe more on an aircraft loan than the claim settlement amount.

However, agreed value coverage has  pitfalls if you substantially overinsure or underinsure your aircraft. Setting a hull value too high could mean that the insurer will elect to repair extensive damage, and you will get back an aircraft you don’t want, with ongoing squawks and severe diminution of value.

On the other hand, if an insured hull value is set too low, the insurer could declare a total loss for damage that was repairable. Then the policyholder is left with a check that won’t replace what they had while their aircraft is turned over to the insurer and auctioned for salvage.

I recommend using Aircraft Bluebook, VREF Aircraft Value Reference, or, ideally, a professional appraisal to determine the market value and insure your aircraft close to that number. Be sure to periodically reassess value, especially following any significant engine, airframe, paint, or avionics upgrades. Aircraft appraising is more art than science, especially in a constantly changing market, so achieving a perfectly accurate hull value is unlikely. If you need to err, I suggest slightly overinsuring to be certain you have enough coverage to expeditiously replace your aircraft.

Additionally, if the insurer opts to repair an aircraft you would rather not take back, there are usually opportunities for negotiation to reach a mutually agreeable solution.

If you thought determining appropriate hull value was difficult, identifying the right liability limit is an even more nebulous endeavor.

Fortunately, or unfortunately, for lower-time, noninstrument-rated pilots, or for certain models of aircraft, the underwriter will make that decision easy for you by only offering one or two options. In such cases, the highest liability limit available may be $1,000,000 with a $100,000 per passenger sublimit.

Because aircraft owners are usually individuals of some financial means, I often find them desiring limits much higher than what is available for their experience and/or aircraft. It usually boils down to a decision whether they want to take on the risk of being protected with a lower liability limit than they have covering other activities of their life—or just not fly. In my experience, passion wins over practicality hands down.

For aircraft owners not fenced in by a few low limit options, I recommend purchasing the highest limit available and financially feasible. Everyone has a different level of risk tolerance, and no insurance professional can determine how much coverage you really need. But several factors should be considered when choosing a limit—passenger exposure, personal and/or business assets at risk, and how your limit benchmarks against peers.

In defense of a liability claim, it will be instructive to show that you purchased a limit in the 90th percentile of what’s available for the type of aircraft you fly, and the plaintiff’s attorney may be more apt to encourage their client to settle. Higher limits also provide a “bird in the hand” to incentivize contingent fee based personal injury attorneys to get paid now versus pursuing court litigation that could drag on for many months or even years.

A discussion on liability would be incomplete without addressing “smooth” liability limits versus liability coverage with either a “per person” or “per passenger” sublimit.

Aircraft liability is typically offered as a combined single limit that covers both bodily injury and property damage claims. However, many policies, particularly for piston aircraft or rotorcraft, dictate a per person or per passenger sublimit, which may be $100,000, $200,000, or even $250,000. This means that regardless of the policy’s total limit, the insurer will not pay more than the prescribed sublimit for any individual in that category.

A per person sublimit is more restrictive as it limits coverage for claims arising from any individual inside or outside the aircraft, whereas a per passenger sublimit only applies to individuals riding in your plane. Although more expensive, I strongly recommend opting for a smooth liability limit if available, as bodily injury claims, especially those involving passengers, are the most prevalent and emotionally distressing high-dollar liability claims seen.

Unless you are working with a direct writer (there is only one in the domestic U.S. market currently), you will be engaging with an insurance broker to represent you. Aviation insurance is a specialized segment with many nuances, so I would recommend working directly with an aviation insurance agency to cover your airplane even if you have a great relationship with a general insurance broker on all your other lines of insurance coverage.

Most aviation insurance agencies have access to the same insurers and, like it or not, most will only allow one broker to represent an aircraft owner at any given time. It can be counterproductive to call multiple insurance brokers to “bid out” out your policy as they will be tripping over each other, which immediately presents your account in a negative light to underwriters who prefer to build their book with accounts they have reasonable expectation of developing long-term business relationships with.

A better approach is to interview several aviation insurance brokers and identify one to represent you who has the most industry knowledge, responsive service, and solid relationships with their underwriters. While all may have access to the same companies and products, the outcome in terms of cost and coverage can be drastically different if you make the wrong choice.

It also helps if you select a firm where you can develop a relationship with either one or a small team of professionals who will be specifically assigned to handle your account and get to know you as opposed to speaking to different people each time you call.

The best aviation insurance brokers will also closely monitor market trends to guide you and facilitate the best outcome through both highs and lows of the inevitable hard and soft market cycles that will forever be a fact of life.

This feature first appeared in the January Issue 954 of the FLYING print edition.