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Wischful Thinking
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Airplane Insurance
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by Jay Wischkaemper
Like everyone who owns an airplane, one of my least favorite times of the year is when the insurance renews. Being in the insurance industry (but not that kind), I have a more sympathetic attitude toward all types of insurance than most people, but even I get a bit miffed at the logic, or lack thereof, of aviation insurance underwriters. During each of the last two years, we have experienced increases in our premium of about 25 percent. The first year, we were able to lower the premium by switching companies. The second year, we had to eat it.
Ours is a somewhat unique situation, having five pilots involved in an LLC owning a high performance single. I understand that insurance companies look at that situation differently, although I fail to understand why they should. It would appear to me that whether there is one pilot or five owning a plane, only one at a time is going to be flying it, and the cost of the coverage should be based on the qualifications of the pilots, not the number of them.
Of course, I hear the same sort of logic being thrown at me when my client’s health insurance premiums increase 30 percent. "But I’ve never had a claim," they protest. "It’s a good thing you haven’t," I explain. If everybody had a claim, the cost would be even higher. I then explain how health costs are increasing, and that the role of the insurance company is that of conduit. There’s an easy way to cut costs on health insurance, or any insurance for that matter. Just don’t pay claims. But if you want your claims paid, you’d better pay your premiums. If you don’t like the cost, go talk to your doctor or your lawyer.
You could put a similar spin on aircraft repair costs. Things aren’t getting any cheaper. I realize that. But I don’t think the cost of aircraft repair is going up by 25 percent per year. Besides, you have another factor at work in aircraft insurance that isn’t there in your health coverage. While a health insurance policy is an open checkbook for doctors and hospitals, I purchase a limited amount of coverage on my plane. The most the company is going to be out is $70,000, at least on the hull portion. There are also limits on liability — much too small in my estimation — that limit exposure for the liability claim as well.
This would naturally lead one to believe that more airplanes are being wrecked. Why else would underwriters be more restrictive and costs increase?
While surfing the web, I happened across the NTSB web site. As I searched my way through it, I came across table 10, which gives general aviation accident statistics. They are interesting. It seems that in 1982, there were a total of 3,233 general aviation accidents, 591 of which involved fatalities. There were a total of 1,187 fatalities in that year. As I recall, our premium ran about $1,200 during that period. Contrast that with 2001, when there were 1,721 accidents, 321 of which involved a total of 553 fatalities. This last year, our premium ran in the neighborhood of $3,500.
Over that 20 year period, accidents went down by half and premiums went up three-fold.
Obviously, the value of aircraft went up during that period, which would account for part of the increase, but the value of our plane did not increase 25 percent last year, or the year before. Shop rates have increased over that period. We used to pay $35 an hour for labor and now we pay $50, but that doesn’t account for all the increase either. Parts have gone up, but again, not by as much as premiums. So what does account for the increase?
The obvious answer would be that the insurance companies are getting rich at the expense of the poor pilot. I’d like to believe that, but unfortunately, reality points to a thing called competition. Unless you want to believe that price fixing is occurring in the aviation insurance industry, you have to accept the fact that if cheaper premiums were possible, competition would demand them. If there were enough profit that one particular company (and there aren’t that many companies in the aviation field anyway) could lower its premiums by 20 percent, they would own the market. There’s a reason that isn’t happening. The profits aren’t there.
That isn’t to say that insurance companies are always rational about risk. I find that irrationality a lot in assessing aviation risks on my life insurance clients. For example, I was trying to find life coverage on a former Air Force fighter pilot with about 10,000 hours who now flies a Taylorcraft for fun. The companies wanted to charge him an extra premium. The reason? Because his airplane didn’t have an electrical system, he might get into clouds and crash. A newly minted instrument pilot with the ink still wet on his ticket can shoot an approach to minimums in his Bonanza, and that’s not risky, but an experienced military pilot is penalized because he might fly into clouds in a plane not equipped to do so? So goes the logic, or lack thereof. I’m sure aviation underwriters are at least as intelligent and rational as life insurance underwriters are.
So what is going on with aircraft insurance? If you believe the NTSB statistics, prices are not going up because the number of accidents is increasing. There is no way the increases can be explained by repair bills alone.
One suspicion I would propose is that with the recently enacted federal law prohibiting lawyers to go after aircraft manufacturers in the event of an accident in many cases, our friends the trial lawyers are now turning toward the pilot as the deep pockets to sustain their trade. The non-coincidental timing of significant premium increases occurring at about the same time the law protecting manufacturers took effect would support my theory. The federal law protecting the manufacturers was needed, but rather than eliminate the problem, it has, to some extent, shifted the liability burden from a few companies to a larger number of pilots.
So what is the solution? Short of killing all the lawyers, I don’t know. Where there are deep pockets, they will congregate, like vultures around a dead carcass, and anyone with assets cannot afford to not avail themselves of the protection afforded by insurance companies, regardless of the price. High insurance costs have already driven many flight schools out of existence. The future seems cloudy at best.
About the only consolation we can take is that an attorney’s malpractice insurance costs more than our airplane insurance. Now that’s justice.
Texas native Jay Wischkaemper is a successful MassMutual life insurance agent based in Lubbock, Texas. He is a long-time partner in a Bellanca Super Viking, which he uses for both business and pleasure. Jay is a Texas Tech alumni, where he earned a degree in public address and group communication. |
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