Aviation Insurance 102: Assessing Your Own Risk

In part one of our article on assessing your own risk we covered the potential risks facing Commercial Aviation Business and Airport Occupants and how insurance can be used as a way to protect yourself and your business. Now we’re going to look at potential risks for aircraft owners, both private and commercial.

Since aircraft owners/operators are the “end users” of the aviation industry there’s a lot that can go into the contributing factors of an accident/incident, but as aircraft losses represent one of the highest severity loss rates (and potential loss of life) in insurance, understanding risk factors is extremely important.

Private and Commercial Aircraft Owners and Operators

From an insurance perspective I tend to break aircraft owners’ risk down into three main categories: environmental factors, aircraft makes & models, and pilot qualifications.

Environmental is straight forward, think about where the aircraft is being stored and flown.

If the aircraft is based in Manitoba, Alberta, or Saskatchewan insurers see more hail damage losses and prefer to write aircraft located there that are being hangared or apply higher deductibles for tie downs. If the aircraft is based in Northern British Columbia or the Yukon, concerns arise due to the mountainous topography as well as the proximity to Alaska – where claims could be affected by US procedures and funds.
It’s also important to consider which airport (or private strip) the aircraft will be based at, if it will be hangared or tied, and if the airport requires insurance.

Full disclosure here, I’m not a pilot. I’ve talked to and insured thousands of them over the years, but I have no experience piloting an aircraft (with the delightful exception of a ride in a glider, but that is quite different). Most underwriters are also not pilots – though there have been a few.

Aviation Insurance professionals know that we don’t understand the real risks of piloting and everything that goes into operating an aircraft. Because of this we tend to look at the make & model as the whole descriptor of the aircraft. We don’t have the systems capacity to factor in the improvements and changes made to each aircraft that makes them unique.

We think about whether the type is common in Canada, and will replacement parts be easy to find? Is it manufactured or a kitplane/homebuilt? Is there retractable gear or multiple engines? Is it a tail wheel? Is there a history of the aircraft type being used for aerobatics? Is it a rotary wing? Is it on floats or it is amphibious?

From our perspective a Cessna 172N is less likely to crash than a Quad City Challenger II, and obviously much more goes into it than that.

Considering your limits – Aircraft Owner and Operators

Transport Canada has minimum liability requirements depending on the aircraft weight and use so we always know where to start. If you’re unsure if you should increase your Aircraft Liability limit or not, I’d suggest considering who you’re flying.
If you only fly your employees (who are covered by Workers Comp) or your spouse (who may not be likely to sue you) the minimum legal limits should be fine. If you’re flying business partners, friends, or for monetary gain (commercial operations) carrying a higher limit is recommended or required.

I also suggest increasing your limit if you have more than 3 passenger seats or share the ownership of your aircraft and aren’t certain who your partners will be flying with.
Lower time pilots (under 250 total time, and 30 hours on aircraft type) generally will have a harder time getting higher liability limits.

Hull Insurance is optional, and while I always recommend carrying the full coverage necessary to replace your aircraft in the event of a total loss, sometimes it’s not possible or reasonable. Rotary wing aircraft, for example, still have high hull rates making it hard to afford the coverage and for some ultralight aircraft this just isn’t available.

If you do not purchase hull coverage, brokers call that ‘self-insuring’ because in the event of damage to the aircraft you’ll be responsible for paying to repair it.
Increasing deductibles is way to reduce the cost of your hull coverage, so consider how much you could afford in the event of a loss and see if your deductibles can be adjusted to meet your needs. Sometimes the difference isn’t that great if you go $1,000 to $2,500 but going from $1,000 to $5,000 might be. Ask your broker for different options if that’s something you’re interested in.

Again, since insurance professionals are rarely experienced pilots, we can’t say what makes a safe pilot from an operational standpoint. We just look at the numbers and go forward with the assumption that pilots are taking all reasonable steps to fly as safe as possible.

The pilot experience you indicate on your application is the best way we have see if you are “qualified” (from an insurance perspective) to operate the listed aircraft. If the aircraft has a tailwheel configuration an insurer won’t quote without the pilot having corresponding experience. If the aircraft is on floats, you would require float time. There is student instruction coverage available from most insurers, but they aren’t keen on insuring an aircraft you intend to train on if it’s more than a basic fixed gear, single engine aircraft on wheels.

Pilot age is also starting to play a bigger factor in calculating pilot risk. A lot of insurers are hesitant to write coverage for older pilots – stating simply they have a higher risk of claims. I’ve often wondered about the validity of this argument since sometimes I’ll speak to a private pilot in his 70s who I’d absolutely trust to fly me while after talking to a commercial pilot much younger I may be left with concerns.

A few of the insurers I’ve spoken to seem to agree with this but have their hands tied by company mandates. Some other insurers have explained they can’t put too much faith in a valid medical for older pilots since they’ve seen instances where someone who possibly shouldn’t have had a valid medical did.

Licence type also plays an important role. Some companies won’t offer to quote recreational permit holders or ultralight pilots and require a minimum of a Private Pilot’s Licence.

It's also worth thinking about who will be flying your aircraft if you’re loaning it to a flying club or leasing it to a flight school. You won’t have nearly as much control over who pilots your plane, but you can request to be added as additional insured with a waiver of subrogation, cross liability, a hold harmless agreement, 30 days’ notice of changes, and loss payee and breach of warranty clauses to ensure coverage is fully extended to you in the event of a loss.

Conclusion

It can get to be a bit much thinking of every way something can go wrong – I once worked with someone who said they’d likely have stress dreams of aircraft flying without insurance.

Because so much can go wrong knowing what insurance to carry is so important. Very few people can afford to pay for these kinds of losses, and I can’t think of anyone who would want to. That’s why it is imperative to work with, rent to or from, and buy from those who are properly insured, it provides security for everyone involved.

I always recommend reading your own policy thoroughly. Have a conversation with your broker and ask questions about your insurance. Is your aircraft value high enough to replace it in the event of a total loss including tax? Are all your operations being covered? Are your contractual requirements being met? Are they too much? Is your liability limit too low? Or maybe too high? Should your claims history still be taken into account or is it past time for it to affect your premium?

Ask everything you can think of, send in renewal information when asked (the earlier the better) and leave lots of time for your broker to work on your account and remarket if necessary so you have the best possible coverage and price.