The Importance of a Thorough Insurance Policy Review
What Appears To Be “Apples-to-Apples” On the Surface May Not Always Be
Given the competitive and soft nature of the aviation insurance marketplace, it is very likely you have seen reductions in your aviation insurance policy premiums over the past few years. Price is obviously an important consideration of an insurance program, but should not be the only driving factor behind your insurance purchasing decision. What you are purchasing at the end of the day is a promise to pay, and a focus on price alone without taking into account coverage differences could leave you footing some of the bill in the event of a claim.
If you haven’t had a thorough coverage review recently, I recommend working with a broker who can not only advise you whether your insurance costs make sense, but can also analyze coverage adequacy and identify any coverage gaps. In addition to experience and reputation in the aviation insurance marketplace, look for brokers who have obtained insurance credentials above and beyond the standard statutory licensing requirements, such as the Chartered Property Casualty Underwriter (CPCU), Associate in Risk Management (ARM), or Certified Aviation Insurance Professional (CAIP) designations. Such brokers will generally be technical experts in their field, and have a solid grasp of the subtleties of insurance contract language.
Some of the more common coverage gaps I’ve identified when tasked to review a potential new client’s aviation insurance program include the following:
-Lay-Up Credit: This endorsement provides a premium refund if your aircraft is grounded for more than a short period of time. Generally, the endorsement can offer up to a 70% pro rata refund on hull and liability premiums if your aircraft is grounded for any reason for at least 30 consecutive days. I’ve seen some policies without a lay-up credit endorsement, or with a lower premium refund percentage that doesn’t adequately reflect the reduced exposure.
-Spare Engines & Parts Coverage: If you maintain any sort of inventory of spare parts or a spare engine, you will want to make sure your policy provides an adequate coverage limit. Many policies provide some coverage, but the coverage limit may be too low.
-Extra Expense: This provides coverage for a replacement aircraft (i.e. rented aircraft or replacement charter) up to a specified limit if your aircraft is being repaired due to a covered loss. Often there is a waiting period before coverage kicks in, but it is possible to negotiate with the underwriter to waive a waiting period provision. It is also important to make sure the stated limit is sufficient.
-Baggage & Personal Effects of passengers and crew: Most policies have some coverage for baggage and personal effects of passengers, but some exclude the crew. Also, the limits may be insufficient. If you have guests or charter customers that may carry high value items in their luggage, you will want to ensure you have a sufficient limit to make them whole in the event of a loss.
The coverages discussed above are just a few of the ancillary coverages in which I have identified common deficiencies. An adequate policy review should go far beyond a simple price comparison. Even with “apples-to-apples” limits for hull coverage and aircraft liability, the less expensive proposal may very well be lacking in a number of important coverage areas that are not considered until a claim occurs. Additionally, the least expensive competitor may not provide the same level of claims service, but that is a topic for a future article.
David Hampson is Managing Partner of Jet Advisors Insurance, LLC and Schrager Hampson Aviation Insurance Agency, LLC, both based at Hanscom Field in Bedford, MA. He is a Chartered Property Casualty Underwriter, Associate in Risk Management, and instrument rated private pilot. He can be reached at: firstname.lastname@example.org .