Aviation insurance is a specialty coverage which requires both specialized underwriting and production facilities. It is written by a relatively small number of insurance organizations, most of which are specialists in the field. Since insurance agents get very few requests to write an aviation insurance policy, most agents rely primarily on representatives of the major aviation insurance markets for technical assistance in arranging coverage. Our discussion in this section will focus on: (1) the need; (2) the market; and (3) coverage for aircraft insurance risks.

General aviation is the largest segment of the total aviation industry and the primary area from which a request for coverage arises. As the term implies, general aviation is a diverse industry which includes all flying, except that done by the commercial airlines and the military.

There are several categories of general aviation business flying. They include public; corporations; business; personal; instructional; aerial application; aerial observation; and air taxi. These categories are identified by the Office of Airline Information of the FAA Statistical Handbook. In 1996, personal aviation accounted for about 35% in hours flown and almost 60% in primary use. The next highest category in primary use was business with slightly 30% in use.

There were in 1996 about 622,000 active pilots in the United State, including 254,000 private pilots who owned, rented or leased small aircraft for business and pleasure use. Today, there are more than 160,000 aircraft in the United States. About 85 percent of these are single engine models; 10 percent multi-engine; and about 6 percent are turbo props or turbo jets.

There are four major classes of aircraft owners/operators: (1) industrial aid; (2) business and pleasure; (3) flying clubs; and (4) fixed base operators. Industrial Aid operators are corporations which own and employ full time, highly skilled professional pilots to fly them. Business and Pleasure operators are individuals, businesses or corporations which own and operate aircraft for both business and pleasure but do not employ professional, full-time pilots. In many cases, the president or a chief executive officer is the principal pilot. Flying Clubs are non- profit organizations composed of at least three individuals who jointly own and operate all aircraft for pleasure use only. Fixed Base Operators are airport-based businesses which own, operate, buy, sell, rent and lease aircraft as well as perform a wide variety of aviation services including fueling, repairs, flight instruction, etc.

Each classification of aircraft owner/operator requires varying types of coverages, including: aircraft hull and liability, medical payments, voluntary settlements, airport liability, hangarkeepers liability, product liability and workers compensation. An alert agent or broker should have little trouble arranging an insurance program if he or she becomes familiar with the requirements.

As more aircraft are built, the professional agent or broker has more demand for personal attention to potential aviation insurance exposures. Although the frequency of accidents causing injury or damage doesn’t compare with that of an automobile accident, death and serious injury are more often the result. This fact emphasizes the need for high liability limits. If the insured has a personal or commercial umbrella policy, excess liability may be provided, but coverage must be secured from an aviation underwriter. Passenger liability coverage is an exposure created by statutes in some states, and internationally under the Warsaw Convention which was adopted by most nations and became effective in 1929.

An airline’s liability was restricted on international flights originally to a sum of $8,300 per passenger, unless willful misconduct of the airline could be proved. Today, the Warsaw Convention liability cap is $75,000 per person. There is also a liability limit of $850,000 per aircraft per occurrence under the new USAir policy.

Another opportunity often overlooked that most producers can take advantage of is renters policies or non-owner coverage. Even if an individual does not own an aircraft but flies occasionally, he or she has exposure. The standard non-owner policy covers liability for bodily injury or damage to property other than the insured aircraft.

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 for indi-vidual pilots or student pilots, an aircraft hull and liability policy is needed. In areas where large numbers of planes are sold, the local financial institution finances these sales. Physical damage coverage for the protection of the interest

of the lender may be needed. There are many more coverages available for practically every exposure, and 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, the uses of the aircraft, the type and value of the aircraft, and any other extensions of standard coverages.

An application must be submitted for every aviation risk, subject to the approval of the underwriter. While there is a trend toward a shorter application, the following is basic information required: (1) name, address, age and business of the aircraft owner; (2) aircraft make, model, year of manufacture and value; (3) purposes for which the aircraft will be used; (4) names, ages, ratings and experience of the pilots who will fly the airplane; (5) types of hull and liability coverages desired; and (6) past loss experience.

Certain commercial risks, such as pilot instruction, aircraft rentals and air taxi operations, as well as special types of aircraft such as seaplanes, amphibians and helicopters, require more underwriting data.

In many respects the most important consideration an insured faces in selecting insurance is the integrity of the insurer. Since insurance is an intangible product, the insurer’s financial condition, underwriting philosophy, claims handling, service and price are very important in selecting an insurer, whether the insurance is purchased through a direct writer or through agents and brokers. Another factor is that aviation insurance policies vary somewhat, particularly in rates and policy wording, neither of which is regulated by state insurance departments or rating bureaus. Each policy differs in some aspect. A company which is very competitive in writing corporate aircraft flown by professional pilots may be very uncompetitive in both policy wording and rates when it comes to insure low-time pilots in high-performance single engine aircraft.

Aviation insurers can range from a small department in a large multi-line company to a company that writes only aviation business. While most companies accept some risk before reinsuring the rest, some organizations take none of the risk but pass it all on through various reinsurance treaties. These so-called fronting companies generally last as long as they protect their reinsurers. Once underwriting results deteriorate, the reinsurers pull out and the fronting companies are forced out of business.

Most aviation insurers are excellent. Unfortunately, the marginal firms appear during a great expansive period in the aviation industry and then retire during a recessionary period. There are fewer markets for aviation insurance today than there were twenty or thirty years ago. It is important for the agent to pick an insurer that has been in business for a long period of time and to check on the insurer’s claims paying record.

There are several different types of aviation insurers. The largest share of the domestic market is handled by the two multi-company aviation pools: the United States Aircraft Insurance Group (USAIG) and Associated Aviation Underwriters (AAU).

Both pools manage and underwrite the aviation business on behalf of their member companies. Practically any type of aviation exposure is handled by these two groups. Most of the commercial airlines, aircraft manufacturers and large airport businesses (placed in domestic markets) are handled by these two pools. Each office specializes only in aviation insurance, so all underwriters, field representatives, claims adjusters and engineers are thoroughly trained and knowledgeable about problems associated with the aviation field. Regional offices are located throughout the country, where on-the-spot rate quotations are made and policies issued.

The facilities of each pool are automatically available to any agent of each member or associate company. No special agency appointment is required, nor is a special license issued. Binding authority is not generally given to most agents, but those agents and brokers who produce large quantities of aviation business may have binding authority for some risks. Agents and brokers not representing any of the member companies of the pool may be appointed, providing certain requirements are met.

The USAIG was founded in 1928 and represents the following companies or groups of companies: Cincinnati Insurance Co., General Accident Insurance Co. of America, Hartford Fire Insurance Co., Liberty Mutual Insurance Co., Nationwide Insurance Co., Royal Indemnity Co., St. Paul Fire & Marine Insurance Co., The Travelers Indemnity Co., United Services Auto Association, and Zurich Insurance Co.

The group operates in all states of the United States and Canada, and in Puerto Rico and Mexico. It is headquartered in New York City, and has regional offices in Atlanta, Chicago, Dallas, Denver, Houston, Los Angeles, Memphis, Minneapolis, New York, Orlando, Phoenix, Pittsburgh, San Francisco, Seattle, St. Louis, Toledo, Toronto, Vancouver and Wichita.

Associated Aviation Underwriters was founded a year later by Chubb & Son, Inc. and Marine Office of America. The pool is managed by Associated Aviation Underwriters, Inc., which is owned by The Chubb Corp. and CNA Financial Corp. Member companies of the group are: American Insurance Co., Centennial Insurance Co., Continental Casualty Co., Federal Insurance Co., Greenwich Insurance Co., Lumbermens Mutual Casualty Co., and United States Fidelity & Guaranty Co.

The group is headquartered at Short Hills, NJ and regional offices are located in Atlanta, Bedminister, NJ, Chicago, Dallas, Detroit, Kansas City, Los Angeles, New York, Seattle and London.

Other insurers considered a market for aviation business are AIG Aviation, CIGNA, Lloyd’s, Great American and Ranger.

An Aircraft Hull and Liability policy is similar to a combination Automobile policy in that both Physical Damage, Liability and Medical Payments hazards are combined in the same policy. The terms and types of coverages are somewhat different, however. Under Hull insurance the policy provides for two basic types of coverage: All Risks-While Not in Flight; and All Risks coverage. All Risks-When Not in Flight protects the insured against damage to physical loss while the plane is on the ground. If the aircraft were to be taxiing under its own power and only had "not in flight" coverage, the resultant damage would be covered, but if the insured had "not in motion" coverage, such damage would be excluded. A broader coverage, and obviously the best coverage for the insured, is All Risk protection both on the ground and in flight. There are few exclusions affecting the All Risk coverage. These exclusions include: War risk and Nuclear risks; damage to tires; damage caused by wear and tear, deterioration, or mechanical or electrical breakdown or failure of equipment, components or accessories; and damage arising out of noise or vibration including sonic boom.

The insured must warrant that the aircraft is licensed under an airworthiness certificate, that the craft will not be used for any purpose not stated in the declarations and not be operated in flight by other than approved pilots. The purpose of use sets forth covered activities, and the pilot warranty outlines precisely who may fly the aircraft. If the warranty is violated the entire policy is void.

A deductible generally applies to all losses while the aircraft is in motion, including taxiing. The deductible applied when the plane is not in motion does not apply to losses caused by fire, explosion, lightning, theft, robbery or pilferage, vandalism or accident to a conveyance on which the plane is being transported

The policy for general aviation risks applies to losses which occur during the policy period while the aircraft is within the U. S., its territories and possessions, Canada and Mexico, or enroute between points within these places. If the insured desires an extension of these geographical limits, the request must be submitted to the company for underwriting and rating. Experience of the pilot and model and condition of the craft are important.

Aircraft Liability coverages are usually written on the same policy as the Hull coverage. These coverages are quite similar to the Automobile Liability policy, except that Bodily Injury Liability is divided into two separate insuring agreements: Bodily Injury, excluding passenger liability; and Passenger Liability. "Passenger" is defined in the policy as any person in, on or boarding the aircraft for the purpose of riding or flying therein or alighting therefrom. There is no stipulation whether the passenger is paying or a guest. However, if the insured collects a charge for passengers the policy must be rated as commercial use and so designated in the declarations.

Liability limits may be split, one limit applying per person and another per occurrence for the separate limits of Bodily Injury coverage, or may be written on a single limit basis to provide protection for Bodily Injury, Property Damage and Passenger Liability. Single limit coverage may also be provided excluding Passenger Liability. Due to the catastrophic nature of aviation accidents, the recommended coverage would be to provide a high single limit of liability over all there coverages.

The insured may also include Medical Payments coverage on the policy if Passenger Liability coverage is purchased. Generally, Medical Payments can be added to policies covering business, pleasure and industrial aid classes. A Voluntary Settlement provision, also known as Admitted Liability, is usually added to the policy in conjunction with Passenger Liability. This is written on a limit per person basis and can include or exclude the crew. The intent of the coverage is to offer to pay, regardless of legal liability, pre-arranged sums of money for the loss of life, limbs, or sight suffered by a passenger in an accident. A release of liability against the insured must be obtained if a voluntary settlement offer is made, or else the voluntary settlement is withdrawn.