Aviation Market: ‘Underwriters Have Lost Their Sense of Humor’

A few years ago, it was nothing special for a single-pilot commercial aircraft to find an insurer willing to offer $50-100 million in liability limits.

Today, it’s hard for the same pilot to find $25-million limits—especially if the aircraft is older than 25 years.

“The market’s only going to put out $50 million if it’s a two-pilot crew or if the crew’s more experienced,” says Travis French, aviation practice leader at Arlington/Roe. “Companies are more aware now that in our current legal environment, they could essentially exhaust the entire limit on one claimant. That’s not a comfortable feeling for an insurer.”

The aviation market is finally hardening, and that’s translating into not only significant rate hikes but also much tighter underwriting requirements for insureds who have been accustomed to broad coverage terms at bafflingly low rates for over a decade.

“Underwriters have lost their sense of humor,” says Doug Johnson, president of JSL Aviation Insurance, a Marsh & McLennan Agency, LLC company. “They’re taking a harder look at what they write, what they’re willing to do and what concessions they’re willing to make.”

Tightening the Leash

During the soft market, French says many aviation underwriters had “marching orders to pretty much underwrite below the burn rate if needed, but retain the account. Until recently, they were relying heavily on back-end investing to make up for the shortfall in underwriting profit.”

The consequence is that today, those underwriters “have little experience in underwriting for profit on the front end,” French points out. “They know how to target underwrite and they know how to buy a business, but that’s sort of all they’ve had to know, even if they’ve been around a decade. It’s a shock to now be told, ‘Get the rates up or let the account go.’”

No surprise, then, that aviation insureds will face much stricter requirements for narrower coverage in the years ahead. “Pilots that would have been approved a year ago are all of a sudden being told no,” Johnson says. “Training requirements are changing—maybe now the pilot has to go to a motion-based simulator, whereas two years ago, the underwriters were OK with the pilot training in their own airplane. Or two years ago, they’d approve you to train every other year, but now it has to be every 12 months, no exceptions.”

“You’re seeing a lot more emphasis on training, even for the more experienced pilots,” French agrees. “Pilots aren’t used to hearing no, and I don’t blame them—they haven’t been told no in a long time. But money talks in the end. When the reinsurers start pulling the strings, that leash gets pretty tight. Underwriters are essentially painting the whole pilot pool with a broad brush, saying, ‘We’re not going to provide these types of concessions to anybody.’”

Note that it’s rare for a pilot to be denied aviation insurance altogether—“it’s just that the requirements to get where they want to be are much more stringent than they used to be,” Johnson points out. “If you want to move up in airplanes, it’s not as easy as it once was. It takes more work. It takes more qualifications to qualify for that bigger airplane, it takes more training and it takes more hours.”

And all of that’s coupled with “a lot more reluctance to put out higher limits,” French says. “You’re seeing it on the light aircraft too—more sublimits for passenger bodily injury.”

The owner-flown turbine sector, in particular, is the “flagship for the hard market,” according to French. “For a long time, the market treated owner pilots essentially the same as we would pro pilots. But if you’ve got a pilot who’s had a TBM or a Pilatus for the last five years with $20 million in limits, now they might get their renewal with five, or maybe they can get ten and then we’ve got to layer an excess of ten just to get them back to twenty.”

“And they’re not paying any less than they were,” French adds. “In fact, if they’re going to take the excess option, they’re probably paying about twice as much. This doesn’t even necessarily reflect the quality of the risk. The underwriter just won’t quote twenty. They’ll quote five.”

Breaking the News

All of this makes for an “unpleasant conversation” with your aviation insureds, French says. “In the most basic sense, get out in front of it. Talk to them 90 days out, tell them this is what the market’s doing. They appreciate honesty. They may not appreciate it right away, but you don’t want to shield them from what’s going to happen.”

Providing a bit of historical context could help put things in perspective. “I don’t expect an insured to have a historical perspective—most don’t care what they paid for insurance 10 years ago. But it matters what they paid 10 years ago,” French points out. “It’s a useful tool to remind them that yes, this part of the cycle is painful, but they’ve had the benefit of paying artificially low rates for the last several years. Framing it in that context can help get them to think of it as more of a historical average than on the basis of an individual year.”

If you have a client who’s highly price-sensitive, “beat them to the punch,” French suggests. “Tell them, ‘We’ve already got it out, we’re going to shop it.’ Let them know you’ve got their best interests in mind. We all want to support the changes in the market because they need to happen, but it’s a balancing act.”

In such a difficult market, is shopping really a good idea? It depends. Consider an account you wrote five years ago at a great rate that’s rolled over year after year and is now seeing a 20% increase. “I generally wouldn’t shop it, because where they’re at right now is still well below historical norms,” French says. “Until they get out of that range, I wouldn’t sever a five-year relationship if they’re otherwise happy with the company.”

But if the underwriter informs you that the insurer is looking to shed business in a particular segment and is planning on coming in at 40% over expiring, “in that case, it’s a mutual feeling,” French says. “Obviously the insured doesn’t want a 40% increase, and the underwriter’s orders are to move away from that type of risk. In those cases, I would absolutely try to shop it.”

Overall, Johnson believes many aviation insureds are currently in “pretty good stead,” because they’re with a “good company and they’ve got a good program in place,” he says. “If they just stick with it, sure, they’ll probably see an increase, but that’s OK. Now is not the time to go shopping for a new program if you don’t have to. To try to shop around for a better price—that’s just unlikely to happen in this market.”

Jacquelyn Connelly is IA senior editor.