Arresting a Dangerous Descent for Insurers Continued from page 49 number of underwriting markets crash and burn would have a significant negative impact on general aviation pilots, operators and business owners across the industry. So, how might such a situation be prevented? Simple. Rate stabilization for aviation premi- ums, along with discipline amongst insurers. The aviation insurance industry lacks the pricing regu- latory controls that are present in automobile, property, workers compensation and many other lines of insurance. Therefore, insurers are left to their own free will when it comes to establishing pricing. Among aviation insurers, annual premium renewals have been in a bit of a free fall for the past several years, which seems counter-intuitive when you consider the high values of the equipment being insured. For example, have a look at the chart below, which compares the average cost of insurance from 2006 to 2017 for some popular general aviation aircraft in opera- tion today, and you’ll see the decline in average air- craft premium cost customers have experienced. Aircraft Cirrus SR22 Cessna 182 Beech Baron Pilatus PC-12 Beech 350 Citation X Challenger Gulfstream V Gulfstream 650 Bell 407 Airbus 145 Sikorsky S-76 Hull Value $350,000 $450,000 $1,000,000 $4,000,000 $6,000,000 $7,000,000 Liability Limit $2,000,000 $2,000,000 $10,000,000 $10,000,000 $50,000,000 2006 Premium $5,950 $5,400 $24,000 $40,500 $48,500 $100,000,000 $74,000 $20,000,000 $150,000,000 $37,600 Global 6000 $50,000,000 $200,000,000 $130,200 $45,000,000 $250,000,000 $124,600 $60,000,000 $500,000,000 $153,000 $3,500,000 $5,000,000 $25,000,000 $152,200 $50,000,000 $150,000 $12,000,000 $100,000,000 $270,000 2017 Premium $3,975 $3,350 $12,000 $15,000 $17,300 $21,000 $14,500 $53,300 $27,800 $31,000 $41,500 $52,700 $98,500 For the insurers, this cycle has meant negative growth and minimal profitability, which is why many could well choose to abandon the GA market and move their resources elsewhere. As mentioned earlier, this would 50 not be favorable for aircraft owners or aviation busi- nesses, as it could cause pricing momentum to shift in the opposite direction—driving premiums higher due to fewer available markets for coverage. However, stabilization of premiums will allow insurers to arrest this descent. And, though it will most likely mean annual pricing reductions becoming fewer or even nonexis- tent, as well as more attention being paid to loss control, it will help ensure the health of the aviation insurance mar- kets themselves. And, in so doing, ensure the availability of general aviation coverage at fair prices for years to come. Why now? There have been other insurance industry attempts in the past decade to slow the market from its steady descent. But given the abundance of underwrit- ing capacity over the past 12 years, competition simply hasn’t allowed that to occur. However, the race to the bottom in terms of rates may have now reached a hard deck—and there’s very little altitude left below it. While we certainly don’t expect to see the double-digit rate increases experienced in the mid-80’s, early 90’s or post 9-11, we could foresee a shift of, perhaps, five percent or so above 2017 premium levels if the insur- ance market is to level off and begin to stabilize itself. It will be interesting to watch, and there is no way to predict whether or not insurers have the discipline and the wherewithal to arrest their 12-year descent. For consumers, we’re hoping they do because all of us need a healthy, vibrant underwriting commu- nity if we are to continue to fly, and to prosper. About AirSure Limited AirSure Limited, an AssuredPartners Aerospace company, is one of the nation’s largest aviation insurance brokerage firms. Specializing in risk management solutions specifically for the aviation industry, the company’s expertise includes business and general aviation, fixed base operations, aviation universi- ties, airports, aircraft management companies, aircraft mainte- nance facilities and aircraft owners. In addition to serving many well-known businesses and individuals worldwide, AirSure Limited is also program administrator for the National Air Transportation Association’s, and the Independent Fixed Base Operator Association’s, very successful Workers Compensation programs. The company was founded in 1984, and serves cus- tomers through offices in Golden, Colorado and Dallas, Texas. Aviation Business Journal | 4th Quarter 2017
