Specialty Lines Markets
Into the wild blue yonder
Aviation market offers opportunities for agents, brokers nationwide
By Dave Willis
“It’s a fairly small market with some fairly big players.” That’s how Rick Lindsey, underwriter for Salt Lake City-based Evolution Insurance Brokers, a national surplus lines broker, describes the U.S. aviation market. Fewer than 20 carriers underwrite the business—although that number has grown somewhat during the last couple of years—and market access generally comes through specialist agencies and wholesale brokers.
“Two years ago, we had about a dozen pure aviation markets,” says Joe Barnett, founder and co-owner of Aviation Markets, Inc., a Chicago-based aviation wholesaler. “Now, on the market summary sheet we have 18. A lot of the new ones are providing high limits.” New entrants boost competition. “Rates have been dropping for almost two years,” says Bob Watson, Barnett’s partner. Most markets use the same reinsurers and must fill treaty commitments.
Louisville, Kentucky-based Connie French, vice president-aviation for Arlington/Roe & Co., another aviation wholesaler, has seen reductions ranging from 10% to as much as 50% on certain accounts. “We’re starting to hear things might be changing,” she adds. News accounts confirm this. A recently approved deal between Berkshire Hathaway and Munich Re to buy U.K. insurer Global Aerospace Underwriting Managers Ltd., the world’s largest aviation underwriter, may help tighten capacity, too, notes Karl Jorda Jr., chief underwriting officer-aviation at Britt/Paulk, a specialty lines underwriting firm in suburban Atlanta.
Access for agents
Even in a competitive environment, opportunities exist for retail agents, regardless of experience. A few aviation wholesalers and a larger number of brokers that also do wholesaling hold the key, Jorda notes. “If you’re a local agent and don’t have aviation insurance expertise and, perhaps, have some trepidation about doing it, these firms can help.”
One such firm is Arlington Roe. “We do anything aviation-related, from pleasure and business aircraft to corporate aircraft to commercial, charter operators, maintenance facilities, aviation products liability, airport liability,” says French. Her firm adds new agents monthly. “Agents call us and say they just hired a new producer who happens to have his pilot’s license or is really interested in aviation,” she adds. “We’ll help get them started.”
From boats to planes
Aviation Markets is another wholesaler—one that long-time ocean marine agent Bill Fowler tapped when he started writing aviation business. “I got into ocean marine because I owned a yacht and people were having trouble getting reasonable policies,” he recalls. He built a successful niche.
Recently, Fowler, an agent with San Leandro, California-based McDermott Costa Insurance, was inspired to renew his pilot’s license and combine his personal and business aviation interests, as he did with ocean marine. “One thing that attracted me to the yacht business is that it’s a recreation,” he explains. “I like dealing in that environment.” The same holds true for aviation.
Given the market and the access other agents have to it, Fowler—who maintains a remote office near the Livermore Municipal Airport—works hard to stay in front of prospects. “It’s a matter of getting out and getting face to face with people and selling yourself,” he notes. He goes to air shows and other aviation-related events—talking airports, airplanes and, when the time is right, insurance.
He also calls on commercial aviation enterprises. “I make it point to visit FBOs (fixed-based operators) and other aviation-related businesses,” Fowler explains. “I find them easy to talk with.” Nationwide, more than 5,000 FBOs offer aircraft fuel, parking, hangar rentals and related services.
New jets debut
New opportunities—and challenges—exist within the aviation market. Among them is a new breed of aircraft: VLJs, or very light jets, which sell for a fraction of the cost of traditional business jets. “VLJs are coming on strong,” says Bob Watson of Aviation Markets. Partner Joe Barnett adds, “It’s probably the biggest thing in aviation right now.” Owners have started taking delivery of two models within the last year; more are being certified, Barnett adds.
“They’re getting a good reception because of their low cost, compared to other jets, and their economy of operation,” Watson says. “They can get in and out of smaller airports, where the airlines don’t go. They’re very popular for small businesses, charter operators and wealthier individuals.” VLJs sell for less than $2 million, versus standard business jets that go from $8 million up.
Jorda of Britt/Paulk has seen the growth, too. “The rich seem to be getting richer, so you get a lot of people still buying toys,” he says, adding that retiring boomers are buying aircraft, too. “They have more time and money. They want to get around and don’t want to deal with airlines and the security and hassles” of commercial air travel.
With increased sales come challenges. “These buyers oftentimes have an awful lot of money but not a lot of aviation experience,” Jorda explains. “They’re getting into aircraft that are fast and very complex.” Still, he notes, it’s possible to underwrite them.
For instance, factory training comes as part of the purchase price. More instruction can lower the risk. “If they’re willing to fly with a mentor pilot for a period of time—it could be a full year, it could be 50 hours, it could be 100 hours—and then go back to the manufacturer’s training after a number of months, we can engineer risks so they’re acceptable,” Jorda says.
“Buyers need to have the right mindset,” he adds. “Safety needs to be really important to them.” That’s not always the case. Fresh in his mind is a risk he quoted earlier this year. “I think we were more competitive, pricewise,” Jorda says, but his offer required 50 hours of dual operation, followed by recurrent factory training, something Jorda thinks was unacceptable to the buyer. Recently, the pilot suffered a fatal crash on approach at a local airport. “Had he gone with our program and had another pilot aboard, it could have saved this fellow’s life.”
Too often, he adds, buyers of these jets “have a lot of faith in their abilities and may not feel the need to have someone, quote-unquote, babysit them for that amount of time.”
Pain at the pump
Another factor affecting aviation is fuel cost. Mid-summer jet fuel prices averaged more than $6 a gallon nationwide—more than $9 in some areas. Non-jet fuel was about 5% lower. This means some pilots are flying less. “The segment feeling the impact the most is the light-to-medium piston twins,” says Barnett. “Single-engine aircraft are doing okay,” as are larger turbo-props and jets. People who can afford those larger aircraft can afford the fuel, he comments.
Unlike reduced auto mileage, it’s not always a benefit to fly less, at least not according to underwriters. “If their hours go down because of fuel prices, what will pilots do to stay proficient?” asks Jorda. They may need extra time with a certified instructor to make up the shortfall, he notes.
Increased fuel costs have sparked an uptick in sales of some recreational aircraft. “We’re starting to see some pleasure and business accounts selling their planes because they’re not as economical to operate,” says French. There is a silver lining for agents. After all, every plane sold must be bought and every buyer is a prospective new client.
Outside the box
As with many lines of business, some aviation risks are just plain tough to write. That’s where surplus lines brokers come into play. “We write business where standard markets have no appetite,” says Lindsey, who also underwrites for Prime Insurance Syndicate and Prime Insurance Company. This could include activities such as demonstrations and exhibitions.
It also could include specific types of craft, such as experimental or homebuilt aircraft. Rotorcraft pilots, helicopter pilots, gyroplanes, hang gliders and power parachutes all seem to find their way to the E&S marketplace, too.
Location can also present complications. “I work with a lot of private airports,” Lindsey says. “They might have 16 hangars with guys tinkering around in them, but they’re not within the fire district. It’s not something the standard markets will write.”
Agents can access coverage through surplus lines operations for most nonstandard risks. “We’re an open market for retail agents and wholesalers,” says Lindsey. “We allow them to file the surplus lines taxes in the state or, if they can’t, we will. It all flows rather smoothly.”
Agents looking at aviation—as a focus area, to counter shortfalls in other areas or to serve existing clients better—can do so knowing that specialists and wholesalers are available to help. “Many times, retail agents miss opportunities,” says Watson. “They’ll give up business to another firm rather than market it through a wholesaler.”
As agents work to serve aviation clients, they can bolster client safety and, at the same time, present a better risk to a prospective carrier. “Underwriters want to hear about any kind of training insureds have done to make themselves better, safer pilots,” Jorda notes. “If an insured has done anything, make the underwriter aware of it. That could bring an account credit and get a better deal.”
Agents also can suggest greater protection than an expiring policy offers. “While the market is soft and while it’s so affordable, buy higher limits,” French advises. “Some people don’t carry high enough limits anyway. This is the time to get as much as you can.”
While the aviation market may be a “fairly small one with some fairly big players,” it appears there’s still room for more. *
Freelance business and insurance writer Dave Willis chairs the board of a regional airport in New Hampshire.
“If you’re a local agent and don’t have aviation insurance expertise and, perhaps, have some trepidation about doing it, these firms can help.”
—Karl Jorda Jr.
Chief Underwriting Officer - Aviation
Britt/Paulk Insurance Agency, Inc.