Most of us probably assume having a tooth pulled is easier than spending time reviewing yet another insurance policy. When an aircraft manager recommends that you put your aircraft on their fleet policy, it is a tempting path and likely a path of least resistance. It can easily be accepted as the best option due to the cost savings normally obtained by taking advantage of the management company’s economy of scale. Unfortunately, this is not always a win-win when you consider the implications of the following:
Policy ownership is a very important aspect of insuring an aircraft. On a fleet policy, all changes must go through the policy holder and unless the Owner is named and insured, policy changes can be made without notification to the Owner. Understand that the Manager will notify all Owners of changes made though they may not want to make the changes an individual Owner wants.
Control Over Claim Process
This is a critical part of the process that is unlikely due to the safe nature of most management companies. Claims do happen and when they do, Owners on a fleet policy will understand they don’t have as much control as most would prefer. In our experience, one Owner’s aircraft was damaged on the ground and the Owner was notified and the Manager took care of everything. When the Owner tried to secure the work order performed on the Owner’s aircraft, the maintenance facility refused to provide the work order to the aircraft Owner without the written permission of the Manager. Though this was a relatively small claim, it did affect the residual value of the aircraft and should have been provided to the Owner. This situation would be magnified if there was a loss that included injured persons. The Owner should have control over their own claims and the Owner can delegate the responsibility to the Manager for small claims. However, in a major claim with significant losses, the Owner with an individual policy would have control where the Owner on the fleet policy would not have any control.
Insurance Broker Representation
While on a fleet policy, the Manager is the policy holder and therefore the Insurance Broker has a fiduciary duty to look after the policy holder but no duty to the Owners on a fleet policy. This means that the Owners would not benefit from the Insurance Broker’s efforts. If the Owner was on an individual policy, they would benefit from an Insurance Broker’s efforts because the Broker would have a duty to act on their behalf.
The fleet policy would likely have a couple of advantages. The overall pricing is usually slightly better than an individual policy. The savings may be as little as $1,000 per year to be on a fleet policy. There may be a benefit to being on the fleet policy if there is a claim on the Owner’s aircraft and an increase is assessed by the insurance company in subsequent years for having made a claim. The opposite argument or downside to a fleet policy is that there may be a claim on a different aircraft in the fleet which causes the entire fleet policy to have an increase for all aircraft on the fleet policy, including the aircraft that didn’t have a claim.
Overall, the slight price difference to have an individual policy is well worth the advantages and the control gained by the Owner over the policy. In the case of a serious claim, it will benefit the Owner to have the Insurance Broker working on their behalf and not the Manager who may have different goals from the claims process.