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Aviation opportunities exist despite grounded rates

Specialists can help take the fear out of aviation insurance

By Dave Willis

Many of the issues faced by the aviation industry over the past few years carried over into 2013. But some are starting to shift. For instance, according to Travis French, aviation insurance broker with Arlington/Roe & Co., aircraft values are still down. "It appears that they've bottomed out," he says, "but it's still a buyers' market."

Interest is especially strong in the smaller, more fuel efficient aircraft, he adds, noting that one of the up-and-coming classes is light sport aircraft. "We're seeing a lot of new purchases of these," French notes.

Even while planes are getting smaller and more fuel efficient, they're also becoming more technologically advanced. "That's especially true when compared to their counterparts from the 1970s and '80s, which still make up a huge part of today's general aviation fleet," he says.

"Given the increased reliance on computers, there's a risk of the general pilot population losing the stick-and-rudder skills that used to exist," he adds. "You won't find many people with sectional charts and compasses, drawing lines from one place to another to estimate fuel burn."

According to Greg Hiser, president of Air Capital Insurance, aircraft-manufacturing activity continues to be generally depressed. "The good news is all of the manufacturers are still viable and they're still aggressively looking for buyers," he explains. "We see them at national and regional events generating sales."

One area that's rebounding a bit, he adds, is fractional sales, in which buyers own a "share" of a plane and can use it for an allotted amount of time each year. "We're seeing fractional ownership coming back slightly," Hiser notes. "That's probably an early indicator of an improved aviation economy, so that's a plus."

"As the economy gets better, we're seeing more startups," explains Bob Watson, a partner at Aviation Markets, Inc. "For a while, we didn't see too much of that. But when things improve, so do the opportunities for everyone from FBOs to tool shops and machine shops that do things for an aviation manufacturer. It all trickles down."

Aviation insurance

The aviation insurance market is undergoing modest change, as well. "Fortunately for the end consumers, the insurance buyers, it's a very soft market," Hiser explains. "There still are a lot of players. Capacity seems to be at an all-time high and insurance premiums continue to be at all-time lows." In addition, he says, higher limits of liability are available quite economically.

Hiser says discussions he had with market leaders at this year's Aviation Insurance Association convention indicate rates are artificially low compared to historical rates. "That's because there is a lot of capacity and because we haven't seen any really major losses," he explains.

Watson describes the aviation insurance market as "relatively stable." He says right now, there's not a lot of movement of insurers into or out of the market. "Carriers are trying to get increases because rates have been depressed for so long that they're not making any money," he explains. "They're all trying to do that incrementally, but it's difficult because of competition."

French adds, "Some segments are showing signs of hardening. For instance, agricultural aviation risks aren't as soft as other segments. Premiums are lower than they were 10 years ago, but they're not as reduced as other classes are. Commercial rotor wing risks are another example. Commercial risks in general are not as soft.

"I am very slowly starting to see signs of what I would consider to be a hardening market," he says. "They are few and far between, and they're far from consistent. It's even tough to call it a trend at this point." Two companies left the market this year, which may lead to more hardening, he adds.

"There are some other signs that point to a hardening market," French says. "A few companies are asking for—and in many cases, getting—increases. Some have instituted increases across the board, while others are limiting them to certain classes. And they're sticking to their guns.

"Things have been unsustainably soft for so long, it's time that something changed," he adds. "If you look at it like a pendulum, I think we have reached to the far side of being soft, and we're just now beginning to swing back the other way. It's in its very early stages. The pendulum will continue to swing. I'm not sure at what speed. Day to day, you won't notice a change."

Hiser doesn't expect much change, either. "I don't think we're going to see any significant hardening of the market," he explains. "I've been in the business for 25 years and I've seen cycles; this is the longest soft cycle I've ever seen, and it looks like it's going to continue," he says.

Watson says slight increases may surface. "But it's still competitive," he adds. "Everyone wants to write the good accounts, so it's a struggle."

Agent opportunities

According to Hiser, many retail agents and brokers don't understand the technical side of aviation insurance. But that doesn't mean there's no place for them in the business.

"In most cases," he explains, "it makes sense to bring in an aviation insurance expert—someone who is familiar with the various lines of aviation insurance. Let them get an understanding of the customers' needs and then let them decide what coverages apply and where to get the coverage. That's generally what's best for the insured."

French agrees. "Many of the agents and brokers we work with on aviation risks are far from aviation experts," he explains. "The overwhelming majority, maybe 80% or better, have only one or two aviation accounts. Often, they're existing customers who happen to own a plane."

He says aviation specialists can help retailers place risks, because they're familiar with the markets and the trends. "Agents don't necessarily need to get a pilot's license or fully immerse themselves in aviation," he notes. "They can still serve their customers and get them coverage."

Watson notes that retail agents and brokers may have other opportunities within their existing book—or at least in their communities. "For example, a manufacturer who makes widgets but also makes parts for airplanes needs to place the products liability coverage for the aircraft separately," he explains.

"The agent or client may assume it's covered in a standard policy, but it's not—because of an aviation exclusion," Watson adds. "If they have a client who is a manufacturer and part of its product ends up in an airplane, you need a separate policy. We do a lot of that."

Workers comp represents another and similar opportunity. "If a client makes aircraft products, it's possible to get a workers comp quote from the aviation market," he explains. "This often can be quite competitive when compared to the standard market.

"Generally speaking," Watson notes, "for any type of insurance, if there's an aviation exposure present, it's worth a call to a specialist to see if they can help."

French encourages agents not to fear aviation risks. "Find the similarities with insurance lines you already know," he advises. "For example, while there are obviously differences between an aircraft policy and an auto policy, the basic structure is the same. It's not totally foreign.

"If you can insure a home, you can insure a hangar," he adds. "If you write a widget manufacturer, you can probably write an aviation widget manufacturer. Just partner up with a good specialist—someone you feel comfortable with—and take it on."

There's good reason to do so. "Many of the aircraft risks most retail agents and brokers come across are for people or businesses they already serve," he notes. "A specialist can give these agents the confidence to address the aviation business and, in doing so, strengthen their relationship with the customer."

The author

Dave Willis is a New Hampshire-based insurance freelance writer and regular Rough Notes magazine contributor.

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