Aircraft Insurance: What Type Should Pilots Carry?
Dr. Mary Ann O’Grady
Your aircraft and flying skills represent wonderful business and personal capabilities, but they may also constitute one of the largest exposures to catastrophes that you can imagine. So, the following summary details a list of the most critical aircraft insurance coverage types and [potential] losses:
Aircraft Hull Insurance
Aircraft hull insurance covers physical damage to the aircraft as a result of an accident where the insurer has the option to pay for the repairs or to declare it a total loss, which requires that the insured pay the insured value that is stated on the policy.
Aircraft hull insurance premiums are calculated on $100 of the insured value of the aircraft where the higher the insured value, the lower the rate per $100 drops. For example, the hull premium for a midsized jet that is not used for commercial purposes and has an insured value of $10 million might cost $13,000.00 or 13 cents per $100 of insured value. In comparison, an older version of the same jet that is insured for $5 million might have a premium cost of $10,500.00 or 21 cents per $100 of insured value.
Aircraft hull insurance is required by the bank if you have a lien on the aircraft; however, you would also need it unless you can afford to withstand an uninsured loss.
Caveat: Since aircraft hull insurance is predicated upon the aircraft’s agreed-to or stated value rather than its cash value, there is a potential for over-insuring or under-insuring it which can be problematic. For example, when the hanger collapsed at Dulles International Airport near Washington, D.C. in 2010, many of the damaged aircraft were significantly over-insured. This resulted in a situation where the insurers were forced to repair aircraft that the owners would have rather declared as total losses. Therefore, the accurate insured value to carry on the aircraft is its current market value or lien amount whichever is greater; coverage for war-risk perils should also be included since it offers broad additional coverage for a small additional premium. Annual reviews of aircraft insurance coverage should be conducted and adjusted at the time of renewal if necessary.
Aircraft Liability Insurance
Aircraft liability insurance covers liability for bodily injury or property damage that arises from an accident, and the insurance is written on a single-limit-per-occurrence basis, such as $100 million per occurrence. This type of aircraft insurance includes [legal] defense costs over and above the stated liability cap.
Aircraft liability insurance premiums are typically a flat amount that is based on factors, such as the selected liability limit, the pilot(s) who are flying the aircraft and/or the owner/pilot, and the approved use (Part 91 versus Part 135). Using the midsized jet mentioned previously as an example, with an insured valued of $10 million, the approximate annual premiums for ascending liability might be $8,500.00 for $100 million of coverage, $17,000.00 for $200 million of coverage and $25,000.00 for $300 million of coverage. These quotes will vary based on the age of the aircraft and the extent to which the underwriter opts to place a greater premium on the hull insurance and less of a premium on the liability component of the coverage. There could also be rate surcharges of up to 25 percent depending upon how much or often the aircraft is used for charter flights.
Aircraft liability insurance is needed by everyone since it protects against the largest catastrophic loss exposure, such as accidents resulting in injury or property damage due to which you are most likely to be sued even if the suit is groundless.
Caveat: Buy as high a limit of coverage as you can afford since it is likely that you will not find out whether you have enough coverage until after you have experienced a loss. The liability claims generated by a crash while carrying one or more high-net-worth individuals or when flying over a populated area could easily exceed $100 million. So for that reason, carrying $200 million to $500 million liability limits can certainly provide additional peace of mind. As with hull insurance, carrying coverage for war-risk perils is recommended since it offers broader additional protection for a small additional premium.
Approved Pilot Clause
Approved pilot clause covers who is authorized under a policy to act as pilot-in-command or second-in-command on an aircraft.
There is no specific premium associated with this approved-pilot clause, but the overall policy premium directly correlates with the pilots’ experience level and their training protocol. Obviously, the better qualified the pilots and the more stringent their recurrent training and safety initiatives, the lower the premiums will be.
Approved pilot clause is included in all policies; however, a disproportionate number of claim denials are directly related to the fact that the pilots flying aircraft did not meet the exact criteria of their pilot clause. For example, a Falcon 900 that aborted a takeoff and exited the runway causing extensive damage to the aircraft was denied the claim by the insurer because the copilot that day, although well-qualified, had not completed the insurance-related training for the make and model of the aircraft.
Caveat: If only one section of the aircraft insurance policy is renewed each year, this should be the section and it should be negotiated by an aviation insurance broker as the broadest approved-pilot clause possible. The clause varies greatly among insurers so if the insured is not represented by an experienced broker, he or she will be at a distinct disadvantage. Be sure to provide the flight department and/or any other pertinent parties with a copy of this section combined with any evidence of required recurrent training when the insurance policy is received annually. Also, note that virtually without exception, the primary pilots of all turbine/jet aircraft must complete annual recurrent training at an insurer-approved facility whether or not such training is stipulated in the policy. In addition, this training is critical when statistics purport that 85% of aircraft accidents are a result of pilot error.
We will continue to explore additional aircraft insurance options in an upcoming Part 2 on this topic.