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Aviation Insurance Association meets a challenging market insuring against hazards of flight

There seems to be no recession in the aviation insurance industry- thanks to a variety of factors; among them the continuing need for exposure mitigation among all players in the community.

Even the declines among all the traditional activity indicators failed to depress the market for aviation related insurance: owners and operators – both hull and liability – as well as liability coverage for service providers such as maintenance and avionics shop owners and FBOs- plus the producer segment.

That said- tremendous competition among underwriters vying for the insured’s business worked to keep down profits; while not exactly a buyer’s market- the competition- nonetheless- worked to constrain rates- which remain relatively low.

Whether continued depressed flying- fuel flows and shop work will ultimately be reflected in rate changes for insurance remains to be seen. Insurers generally report a continuation of insuring for hull valuations in effect before prices began to tumble. And they’ve been advising owners to hold on to those higher valuations where possible citing higher costs for replacing older aircraft in the event of a loss.

Whether the underwriting segment of the aviation insurance business experiences some consolidation and a concomitant reduction in competition is also a question – one with the prospect of higher premiums for customers and improved bottom lines for the insurance business remains in question- as well.

The continued growth of the Aviation Insurance Association seems to indicate ongoing steady growth in the aviation-insurance community. Founded as Association of Independent Aviation Insurers in 1976- the group’s primary membership was underwriters during its formative years. But the insurance business involves so much more than simply the underwriters with brokers and agents. It also includes within its ranks attorneys- who work in the service of the insured and the policy issuers- and claims agents or adjusters. And with such diverse players involved- it’s understandable that ongoing cross pollination and inter-industry exchanges of information and business would lead to the original group feeling some demand from parties outside the underwriter community.

So in 1988 the organization underwent a metamorphosis that embraced all the elements of the aviation insurance community and- in the process- was renamed the Aviation Insurance Association. With membership now expanded to include the agency/broker- claims and legal sections of the aviation-insurance industry- as well as the original underwriters- the AIA embarked on a long period of growth that continues still today with almost 900 members and with the annual conference drawing more than 550 AIA attendees.

Heading up AIA is Todd McCredie- a long-time member of the aviation community as an officer (company treasurer)- the marketing director for Piper-McCredie Insurance in Flint- Michigan- and also an active pilot. After serving as vice president of the trade group McCredie ascended to the post of AIA president in April 2009 at the insurance industry trade group’s annual meeting in San Francisco.

McCredie’s background in both the aviation and insurance communities merge in his new posting. With his background and industry responsibilities World Aircraft Sales Magazine turned to him to answer some pertinent questions in a ‘Ten Questions Interview’.

WAS: How has the downturn in general and business aviation in particular most impacted the business of insuring the aviation community’s operators and their aircraft?

McCredie: The biggest impact on the aviation community is in the drastic decrease in the annual usage of aircraft. It is extremely rare to hear that someone- or a flight department is increasing their hours flown. The buying and selling of aircraft has become very slow. It appears every segment in the aviation industry is waiting to see improvement in the economy and increase of aircraft usage.

WAS: Has the larger-than-usual pool of unsold aircraft had an impact on insurance rates?

McCredie: Yes. Because so many aircraft are for sale values have also decreased sharply. This has allowed owners to reduce the hull values of their aircraft and in return see hull premiums drop considerably.

WAS: Have loss claims tracked with the declines in flight hours and aircraft use?

McCredie: Yes. Most insurance companies have better loss ratios because of the fewer hours flown.

WAS: Does the growth in owner-flown business turbine aircraft impose any special conditions or considerations those owner-pilots should take into account – special training- for example – when shopping for insurance and selecting coverage?

McCredie: Owner flown turbine aircraft or large pressurized twins will require annual training. If they are transitioning into the aircraft they may have to fly with a safety pilot for a number of hours.

WAS: Are underwriters in a glut to the point that their numbers undercut their ability to charge profitable premiums for their coverage?

McCredie: I don't know if I would say there is a ‘glut’ of underwriters. I think there were some insurance companies that established themselves when it appeared nothing would stop the growth in aviation. Once the competition in the market place arrived we saw insurance rates decreasing. Then the economy began to slip and then drop. This has squeezed some reinsures and caused some underwriting companies to exit the aviation market.

WAS: Some materials published earlier this year suggested the likelihood of a wave of consolidations among underwriters… Has such a consolidation begun- and what would it mean for the consumers of those insurance products?

McCredie: I have not heard of any consolidations. In the late 1990s there were consolidations but we then saw new markets appear. Unless you are part of the negotiations we won't find out until something has already occurred.

WAS: What can aircraft owners do for themselves to best assure they are buying the best protection for their needs?

McCredie: It is important that owners are comfortable with their agent/broker and that they are placing the business with a financially stable company. Don't be afraid to ask questions about the agent/broker and the Insurance Company.

WAS: Are there steps operators can take to improve their pilots’ training or skills that might be reflected in lowered premiums for those pilots and the aircraft they fly?

McCredie: Insurance companies require annual training in most complex aircraft. They see that as adequate training. If the owner attends aircraft owners’ meetings and other safety-related programs it is a good idea to pass those along to the agent/broker. Insurance companies like to know that pilots are continuing to learn about flying and their aircraft.

WAS: How does your company handle making sure its pilots are current and competent for the missions they fly?

McCredie: Both (in-house) pilots attend annual flight training. Most of our trips include both pilots- although it is not required. As owner-operators we try and fly at least once a month- but most months that is not a problem.

WAS: How does your company’s aircraft help contribute to its success?

McCredie: By having access to the aircraft we have been able to use our aircraft to expand the area in which we do business. It also helps us when talking with clients that own and operate their aircraft – we understand their concerns.

More information from www.aiaweb.org

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