As a broker I see things differently. Unlike the flight attendants organizing outside parliament, I’m still at work, watching my clients suffer. Businesses are closing, revenues are down, and I am left frequently feeling like part of the problem when I present the, often times, considerable renewal increases to clients who barely have enough business to keep the doors open.
A recent renewal hit hard in particular. It was for a client I’ve known almost thirty years and when I gave him his renewal premium he promptly asked, “has the insurance company heard of covid?”
Other clients have had their work reduced by as much as 70 percent and still faced increases, and one wasn’t even offered renewal terms. We had to search across Canada to get them coverage so they could continue working and the price was higher still!
As a global industry, aviation has been forced to deal with new challenges unlike any it has seen since World War II. Borders are closed, skilled pilots have been furloughed, fired, or forced to retire, aircraft are being retired earlier, and insurers are becoming more unwilling to write aviation risks.
In the past, insurance companies were sometimes thought of as dinosaurs, carefully awaiting safety data and loss ratios before reacting. That gave their clients time to recover before facing increasing costs. Now, the days of those dinosaurs are over. Insurers now are able to, and have to, react quickly in order for them to keep their doors open.
At the end of 2019, Canadian insurance companies as a whole were changing – going through a phase known as a ‘hard market’, meaning higher rates and fewer options. Aviation insurance was hit by the loss of several insurers leaving the remaining companies with less competition and the ability to increase their prices to make up for past losses.
When covid hit and airlines were grounded, some of that premium dried up and suddenly insurers were looking at the potential for unmanageable financial loss. Then businesses started closing and downsizing and that loss seemed all the more certain.
The simple truth of insurance is that when you buy a policy, an insurance company is contractually obligated to respond to claims (with certain exceptions). And with not enough premium they won’t be able to pay.
Any risk, no matter how good the pilot or the operation, is now being scrutinized more critically in the event it could result in a future claim.
For a while now older pilots (no matter how experienced and qualified) were having trouble finding coverage, often being required to get extra checkouts or being subject to dual operations. Now they are being declined outright, and the age at which a pilot might be considered a higher risk has dropped by a decade.
Younger and new pilots too are frequently being considered too risky. Often student pilots nearing the end of their instruction will look at buying a little Cessna 150 for themselves. This didn’t used to be a problem, because insurance companies have clauses that require them to fly with instructors until they’re licensed and then fly solo for a while after that. Now, anyone with less than 100 hours is likely going to be a straight decline.
The same is being seen for pilots who haven’t flown for a while and are looking to get back into private aviation because airlines may be deemed to be less safe or not available, but without enough time on type, can be stuck with either a straight “no” or a high premium.
Emerging technologies, while necessary to increase the safety of an operation or aircraft, are driving up the agreed value of what is covered and fewer and fewer (not just aviation insurers) can be unwilling to take the risk.
I recently had a half a million-dollar helicopter brought to me, with a good and experienced pilot getting declined outright due to the aircraft’s value as being too high!
Another problem is that virtual training or simulators still aren’t being considered enough for some insurance companies, but there has been little chance to get the required aircraft training due to the training facilities being across the border or the Canadian company unable to do it to adhere to social distancing requirements.
Covid’s closing of businesses is also making it difficult to accurately predict loss ratios – we don’t know what’s going to happen, what a fair premium will be, how long the industry is going to take to recover, if vaccines are going to help, or even if we can depend on the Canadian government to step in with financial aid (at the time of writing they have made vague promises in the Crown speech but have yet to act, hopefully at the time of publication they’ll have done something). So, what can we do? What’s my advice for those of you buying insurance?
Well, the first is the most important, but also the hardest to swallow – if you get a renewal quote, buy it even with a high increase.
Insurers are more likely to offer renewal terms than write new business right now. If you let your coverage lapse for even a few days while you look for something better, your quote may not stand and you might get something even higher back.
Second, I’d recommend asking your broker to look around with plenty of time in advance. Certain risks, like older pilots, experimental aircraft, and businesses with high revenues may not have any chance of receiving alternate quotations, but brokers can still look on your behalf. At the very least, your broker should have seen enough accounts similar to yours that they can assess the situation and explain your options.
If you’re not happy with what you’ve heard, you can always reach out to another broker, but remember that there are fewer options and a different broker may have no more resources than your current one. At the very least, they can provide a different pair of eyes on your situation.
Third, I advise you to read your policies and quotations and ask questions. Make sure you know what you are paying for and that all information your price is based on is accurate. You can, and should, ask for alternate quotations. If you can’t afford higher limits this year, as your business operations have reduced, you may wish to lower your coverage for the year.
Also, take a look at your payment options. Monthly installments may be subject to a fee, but the scheduled payments can be worth it. Credit card payments are usually an option for most brokers and insurers and shouldn’t be overlooked.
Lastly, I urge you not to cancel your insurance if it can be helped.
Insurance was created as a response to provide a safety net against fire losses in London, England. It spread to aviation and became a solid option in the 1910s. Since then, it has grown into a necessity for anyone in Canada wanting to fly legally or operate their business with confidence.
Covid has accelerated the growth of freight aviation, giving older aircraft and furloughed pilots new options. Airshows have become digital and drive-in affairs. Private and business aviation is reshaping as a more convenient alternate to airlines.
It may take a little while, but aviation insurance will adapt too.