Aviation Insurance 101: The Basics

By Sandy Odebunmi of Sound Insurance Services

I have been an aviation insurance broker for over 30 years now, and can admit that insurance can sometimes be a bit, well, dull. That being said, because insurance is fundamentally about providing financial stability, it is also extremely important to have and to understand. This is especially true for those of us in aviation because of our industry’s high severity of losses, and even occasional fatalities.

So, let’s break down the basics of aviation insurance, including insurance companies, different types of policies, and how standard insurance policies interact with aviation risks, or not.

Aviation Insurance Companies

Firstly, it’s important to understand that due to the specialty nature of aviation there are limited options in insurers and coverages available. In the best of economic times there are only about ten insurance companies in Canada who will write aviation policies.

In the worst of economic times there are much fewer options as insurers withdraw from the market due to the potential of high claim costs, leaving only the same stalwart few that have existed for nearly a century. And because they’ve been around so long, they may be prone to react slowly to change. They know when they can dictate higher premiums and less coverages and may not be quick to adapt to non-aviation insurance trends.

Please don’t mistake this as a bad thing, because the truth is after nearly 100 years in Canadian Aviation Insurance, these companies understand your risk in ways the newer, often cheaper companies just may not be able to. In addition, they have the capability to write the high limits that are offered globally by Lloyds of London without the London prices.

You may still see Lloyd’s of London listed as the insurance company on your insurance policies, but it’s usually when they are providing a domestic product to be underwritten by a Canadian MGA (Managing General Agent).

Right now, there is a shift in Aviation Insurers that is making for an optimistic future.
We’ve gotten a UK insurer extending their aviation product to their Canadian offices and hired an experienced underwriter to get it started. Additionally, a long-time smaller insurer has teemed up with a huge Commercial Canadian insurance company to provide stability as they expand their operation.

We’ve also seen the return of an insurer who is now connected to a non-aviation company who is offering access to commercial and specialty policies typically not available to aviation customers. This is especially important since last year it was looking like we were running out of companies who would write aviation property.
Despite the secure old names and insurers returning to more stability, there are still some risks that can be difficult to get coverage for. There are very few markets willing to look at older pilots (no matter how experienced), float configured aircraft, or experimental start-ups.

Aviation General Liability Policies

Liability Insurance is protection for bodily injury or property damage for which you may be held responsible for regardless of actual fault.

An Aviation General Liability (AGL) policy provides coverage for a wide variety of policy holders. Anyone from a hangar owner or an aircraft maintenance engineer contractor all the way to a manufacturer or airport. There are three main coverages on a AGL policy that can be customized to suit every policyholder.

The first coverage is Premises and Operations Liability. This covers you for everyday exposures in the course of your business whether you’re on an airport or not. Think slips and falls, fires started in your hangar that spreads to your neighbours, or accidently clipping an aircraft with your car. Most airports will want their tenants to carry this, and I recommend everyone on an airport do so.

The second coverage is Hangarkeepers Liability, and it perhaps has the worst, most misleading name. This is specifically for those who work on or store the aircraft of others on their property (hangared, moored, tied down, or parked) and may be held responsible for damage to them. If you have tenants in your hangar, are an AME or AMO, or operate as an airport or aerodrome this coverage is a must have.

The third core coverage is Products and Completed Operations Liability. This is for anyone providing a service (including instruction), manufacturing, or distributing within the aviation industry. This covers you and your business and employees for harm resulting from a damaged aircraft and legal and adjuster fees.

Not every policy will have all three coverages, some will be for premises only and some with products only, and they can be further customized with endorsements for spares coverage, tenant’s legal liability, and more.

Aircraft Insurance Policy

Luckily, aircraft policies are pretty self-explanatory. There are two main sections of coverage: hull and liability.

Hull coverage is for physical damage to your aircraft, either in motion or not, subject a deductible. This is also the optional coverage on an aircraft policy as it’s not required to fly legally. Choosing not to carry hull coverage is usually referred to as self-insuring the value of your aircraft.

Liability is the second main coverage and unlike the liability coverages on a AGL policy, Aircraft Liability also extends to protect you for passenger injury in addition to third party property damage resulting from the operation of your aircraft.
There are a host of additional coverages that can be included in a policy wording, including coverage for handheld equipment, flying clothes, medical expenses, and emergency costs like fire fighting or runway foaming.

If you don’t own an aircraft but still rent or borrow an aircraft to fly regularly you may want a Non-Owned Aircraft Hull and Liability policy. These are mostly the same as a normal aircraft insurance policy as far as coverages go, except it specifically covers you for other people’s aircraft.

All aircraft policies also have the option to add Premises Liability (see above) if it’s not automatically included in the wording. This is so aircraft owners don’t have to buy a second policy to cover potential bodily or property damage while on an airport. For hangar owners who also one an aircraft in the same legal name, this coverage will also extend to their hangar ownership. If your airport requests to be added to your aircraft insurance policy, Premises Liability may be most likely what they are asking to be listed as Additional Insured on.

Property Insurance Policies

Property insurance is not an aviation insurance policy but rather a commercial policy and provides coverage for property you own such as your hangar or building, equipment, tools, or stock.

Since this is a non-aviation policy it will almost certainly contain exclusions for aviation and aviation related activities. The most common exclusions are for aircraft (and their parts), damage from parts falling from aircraft (yes, really), and any claims resulting from aviation operations (including falling parts again).

Even with the exclusions, which can often result in policy holders paying for insurance that’s functionally useless, the biggest problem with property insurance is that most insurers simply just decline to every quote aviation companies and hangar owners. Aviation is known within the insurance industry as being “high-risk” and most insurers have treaties with government restrictions which prevents them from writing aviation related risks of any kind.

I may be able to obtain a quote for a fleet of helicopters without an issue, but sometimes insuring a $40,000 hangar can be almost impossible!

There are a few insurance companies who do understand or specialize in high-risk exposures like aviation who will write hangars or policies for buildings occupied by business involved in aviation. These tend to include endorsements eliminating the aviation exclusions or wordings that specifically don’t mention aviation in their exclusions. Unfortunately, these companies can often be more expensive.
All this is to say, if you have a property insurance policy for your business or hangar, my advice is KEEP IT!

Conclusion

One of my favourite sayings is that “all of us in the aviation industry have a higher duty of care”. Part of that, in my opinion, is ensuring the financial security of everyone by carrying adequate insurance.

Ultimately, it is up to you to decide where, if, and how much coverage you carry.
I always suggest that everyone in the aviation industry consult with an AVIATION insurance broker. That is someone who specializes in aviation, all aspects of aviation, whose customers are all aviation related. We may be hard to find, and we may not be close by but we do exist and can be tracked down.

Sandy Odebunmi has been an aviation insurance broker for over 30 years during which time she has specialized in General Aviation and creating affordable solutions for her clients and aviation associations across Canada. She is now the Vice President of Aviation at Sound Insurance Services in Toronto and can be reached at 416-642-6360 or sandyo@soundinsurance.ca.