Buying a Jet in 2023? Insurance Considerations

It has been a “hard market” for business jet insurance in recent years, according to Brint Smith, First Vice President, Aviation for US-based Alliant Insurance Services. While premiums are actually not as high as they were in the years following the 9/11 terrorist attacks, several broad factors have combined to make this a relatively expensive time to take out insurance.

For example, the past few years have seen several fatal accidents involving popular fixed- and rotor-wing turbine aircraft models pushing up costs for operators, and thus the cost of taking out insurance.

Moreover, Russia’s invasion of Ukraine impacted the market, with Russia’s airlines holding hundreds of leased Western jets, leading to the potential for billions of dollars in insurance claims. The war has had a direct impact on cost and availability of ‘war risk’ insurance, which Smith says is essential when flying overseas for all aircraft owners.

“My opinion is that all my clients should buy this package of coverage that includes insurance for risk of terrorism, whether or not they leave US borders,” he says. “I don’t really give them the option – if they ask me what it costs, I’ll tell them.”

Smith estimates that before the Russia-Ukraine war the average business jet owner probably spent about 5-15% of their annual premium on war risk coverage.

Because of the Russian invasion, war risk rates have risen (in some cases by 100-150%), he says. Today it can stand at 15-20% of the total annual premium. “As a component of an aviation policy, it’s become a much larger chunk.”

A range of other factors have contributed to the hard market, according to Smith, including Covid-19. A huge number of aircraft were effectively grounded due to positive Covid-19 tests, closed borders, lack of tourism and a general lack of ability to travel, he elaborates, which brings a range of costs that helps push up premiums overall, including pilot currency, aircraft airworthiness and missed or postponed pilot training.

The pilot shortage has led to constant turnover among flight departments, leading to the need for fill-in pilots; consideration of less experienced/qualified pilots; and exceptions for – or extensions of – training events. Smith highlights that this has several impacts on insurance, including underwriting review of rate adequacy and overall insurer fit, which could lead to higher premiums or even declination, as insurers calculate potential risk factors.

The various elements are, of course, interconnected. Fatalities have led to more stringent demands over training, which is harder to provide because the pilot shortage has also taken instructor pilots away from the training providers themselves.

The type of aircraft involved will also impact insurance premiums, Smith adds. “For example, a single-pilot airplane is believed to be a higher risk than a two-crew plane”, he notes. “Even with technological advances, you’re really struggling with weighing the benefits of paying for one pilot with the perceived danger (to underwriters) of that single pilot. For example, [that single pilot] having a cardiac event, or being unable to handle an emergency on their own.”

Increasing Aviation Insurance Demands

When the market is hard, insurer demands tend to increase, Smith says. “The fact that underwriting losses, already large due to the prevalence of bent metal claims, started increasing with fatalities and injuries [in recent years], insurers and reinsurers are looking at ways to button things up.

“They require the training on an annual basis, and they stipulate that in their policy contracts. And they also really want to see two pilots.”

Colin Bruno, Senior Vice President & Senior Underwriting Manager at Global Aerospace, Inc., agrees. “Single pilot aircraft rate higher than similar aircraft flown by two paid, professionally trained pilots,” he says, adding that insurers are usually less inclined to accept older makes and models, too, especially those that lack OEM support, training, or parts availability.

“Repair costs of certain makes and models are also a factor,” he notes. “But, in general, higher airframe hours are not a factor.”

The Changing Face of Aviation Insurance

Tom Fadden, Global Head of Aviation at Allianz Global Corporate & Specialty (AGCS), says the insurance scene has changed in recent years, which has placed significant pressure on insurers. “We are now facing high inflation, an energy crisis (especially in Europe), the impact of the Ukraine conflict, and potentially the largest single loss ever to hit parts of the aviation insurance market,” he summarizes.

“In such an unstable global environment, there is no doubt that aviation insurers are in the eye of a mighty storm.”

Nevertheless, Fadden said AGCS looks at each risk individually as there are various factors that could influence the premium.

“Older aircraft usually have lower hull values than newer aircraft,” he illustrates. “Larger aircraft require higher liability limits than smaller ones. Some operators operate into less benign territories than others, hence their potential claims scenarios are different. “And of course, two pilots in a cockpit increase the operational safety compared to a single-pilot.”

The majority of aircraft AGCS insures are of course pre-owned, because of the typical lifecycle of an aircraft (more than 20 years) and the fact that “aircraft seldomly remain in one and the same fleet during their lifecycle as they are sold and replaced just like any other mobile asset.”

Picking the Right Aircraft Insurer in a Hard Market

Regardless of whether an aircraft is pre-owned or factory new, though, there are several steps owners should take when they assess insurance options, Fadden adds. It is important to look at the service level of the insurer, he says.

“You can judge good insurers by their responsiveness during the entire policy period. For example, when you need to add an engine manufacturer to your current policy for a loaner-engine that the manufacturer leases to you during the overhaul of a detached engine, you would expect the insurer to cover the additional value of the loaner engine and confirm this with the engine manufacturer.”

Additionally, and most importantly, insurers exist because they are needed in the event of a claim, Fadden says.

“It is human nature to not consider the worst-case scenario when looking for insurance, but how fast and frictionless an insurer settles a claim – no matter in which country the loss event takes place – distinguishes one insurer from another.

“The insurer that manages to demonstrate such capabilities best should be your choice,” he concludes.

More information from:
Alliant Insurance Services: www.alliant.com
Allianz Global Corporate & Specialty: www.agcs.allianz.com
Global Aerospace Inc.: www.global-aero.com