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The Future of Aviation Insurance
Table of Contents
1.0 Introduction
Introduction
This report will discuss the future of the aviation industry and the effects of high insurance cost. As the industry enters into the millennium, the insurance industry must look at several problems that also face the aviation industry. Survival for the small FBO's is getting harder each day; the threat of financial devastation is real when it comes to lawsuits. General aviation may be forced to change its way of doing business and become more like the military and commercial airlines. One can only hope that society will change their attitude towards the aviation industry and the litigation that surrounds the industry. We all hope for a positive future for the community.
Insurance and the Future of Aviation
The aviation industry, as it is known today, has grown into a set of definable industries. Modern aircraft range from military to commercial airlines to the most diverse group, general aviation. Aviation has come a long way the last 100 years. The industry is still developing, with growth comes problems that must be solved before the industry can go to the next level. As the industry enters into the millennium, the insurance industry must look at several problems that face the aviation industry.
Problems
Legal concerns, in many cases, they're influenced by our society. The court system plays a big part by their decisions that are passed down. It's rare when an aviation case goes to court, because insurance agencies know they'll lose when the jury hears the case. It's just too easy to prove pilot negligence; most aviation accidents result from pilot error. Also, when they do go to court, they very seldom mount a defense due to the unreasonable verdicts, and ridiculous awards. These practices have forced aircraft owners to stay away from new policies and let their insurance coverage lapse. Aircraft owners pay three to five times the amount for adequate liability coverage than their counter parts else where in the world.
Survival for the small business operators is getting harder each day due to the General Aviation Revitalization Act (GARA); the threat of financial devastation is real when it comes to lawsuits. The (GARA) defects lawsuits from manufacturers to aviation service providers. FBOs' insurance rates are skyrocketing because of this, which contributes to the cycle by causing higher repair cost. Many small business operators really don't want to take the chance and can't afford the rising cost that's associated with liability insurance.
"As of February 000 at least three aviation insurance under writers ceased writing coverage for the small business operators, saying it's a major risk" (Chappell, T. 000, p.). One of the main reasons is the cost to the underwriters. Aviation insurance companies have paid out a dollar and quarter for ever dollar they've taking in, for each of the last several years. No wonder so many are closing down, merging, or getting out of the historically riskier aviation activities (Chappell, T. 000, P.). General aviation may be forced to change its way of doing business and become more like the military and commercial airlines. Maintenance problems may be identified by computers, and then repaired by the manufacturers. The industry is coping with the mounting cost associated with liability insurance. "Remove and replace maintenance" is the attitude the industry must lean towards. The manufacturers would set up new factory service centers and repair facilities for the general aviation customers.
This system wouldn't help the rising cost of insurance, but maintenance and ground liabilities would rest on the shoulders of the manufacture. The market itself is shrinking, we've had a generation of pilots from WWII, Korea, and Vietnam that was introduced to aviation and trained at the government's expense. Because of modern technology, we'll never again have the numbers that we once had. The aging fleet and pilots can't help the situation that the industry is facing; the average aircraft age is 15 to 0 years, and the post Vietnam pilot is now 50 to 60 years of age. The underwriters are very worried about the age of both the pilots and the aircraft.
During a telephone interview with Darrel Hyde of CS&A Insurance, he stated; "Aircraft hull and liability insurance for the senior pilot has become such a concern that CS&A has developed a special task force to help deal with this problem. Darrel added that CS&A is looking into the future, as the baby boomers age, the pilot force will follow and that's a concern".
The need to extend the insurable age of the senior pilots, and to introduce new blood in to the cockpits will only help matters with the attempt to lower insurance cost for the industry. Insurance cost for the industry remains high, with the shrinking fleet of aircraft, means that the training cost will increase. The value of airplanes is soaring, the high cost of new replacement aircraft for training isn't feasible. The FBOs' are facing insurance that's inadequate and expensive, and it's forcing companies to reduce their operations or even cut them all together. Owners of flight schools are having a hard time just staying in business. The shortage of qualified instructors has slowed the flow of new pilots, which in turn is putting a hardship on the industry. The future of the industry could hold a brighter out-look. One can only hope that society will change their attitude towards litigation, this would hopefully drive down cost of liability coverage insurance. The industry hopes that with the use of simulators at all levels of training will increase the number of bettertrained pilots and hopefully lower insurance cost at the same time. Insurance can be one of the most expensive elements in the fix cost of owning an aircraft. To keep insurance cost under control in this difficult environment, aircraft and aviation business owners are going to have to make some changes in the way they purchase and think about insurance. There are ways to reduce your insurance cost, remember buying cheap insurance isn't always the best way to go, and it's not heavily regulated by our government. Companies can write policies pretty much the way they want to, you must pick the right company for you and your aircraft. When shopping you can ask your friends who they do business with and ask them their feelings on that company, and are they treated well. Looking in one of the aviation trade magazines for information dealing with aviation insurance companies is a great source, get a phone number or a web address so you can make contact. Saving money is the key when shopping for insurance. Only buy the needed coverage; if you don't fly passengers, why pay for the protection against them? You can always change your coverage when the need arises. Most people pay for coverage in the winter even if they're not flying. In the winter paying for in flight liability insurance can be a waist. Why not store the aircraft in the winter, and change to storage coverage for that period of time. In most places flying without heater would be very uncomfortable. Get extra training from the FAA and other workshops, and prove to the insurance company that you're safe and deserve a break on you insurance. Self-insure whenever possible. Choose the highest liability limits you can qualify for and afford, to guard against the catastrophic loss, and only as much hull protection that you can afford. Match your equipment to your needs. FBOs' must require their students and rental cliental to self-insure. Never skimp on maintenance to keep your cost down. Maximize your flying dollar. Combine trips whenever possible. Take along an instructor and log a few approaches, stalls or hood time on the way to a business meeting. Share the rental expense with a friend, you might log less flight time, but what you do log is affordability. All these little tricks can help you save money on your aviation insurance. Conclusion The aviation industry, as it is known today, has grown into a set of definable industries. Modern aircraft range from military to commercial airlines to the most diverse group, general aviation. The industry is still developing, with growth comes problems that must be solved before the industry can go to the next level. As the industry enters into the millennium, the insurance industry must look at several problems that also face the aviation industry. Legal concerns, in many cases, they're influenced by our society. The court system plays a big part by their decisions that are passed down, and also by their unreasonable verdicts, and ridiculous awards. This behavior has forced aircraft owners to stay away from new policies and let their insurance coverage lapse. Survival for the small FBO's is getting harder each day; the threat of financial devastation is real when it comes to lawsuits. General aviation may be forced to change its way of doing business and become more like the military and commercial airlines. The manufacturers would set up new factory service centers and repair facilities for the general aviation customers. This system wouldn't help with increasing cost of insurance, but maintenance and ground liabilities would rest on the shoulders of the manufacture. Aviation has come a long way the last 100 years, and the future could hold a brighter out-look for the industry. One can only hope that society will change their attitude towards the aviation industry and the litigation that surrounds the industry. In the future, this could drive cost down and make liability insurance affordable to the private owners, and to the FBO's.
Bibliography References AIR TRANSPORT ASSOCIATION (000). BETTER TIMES AHEAD FOR THE AIRLINE INDUSTRY [Brochure]. Washington Author. Briggs, J. (000). LEARN to FLY. Retrieved May 18, 000 from the World Wide Web http//avweb.com Chappell, T. (000). Insurance and the future of aviation. Retrieved August 4, 000 from the World Wide Web http//www.avweb.com/artical/insfuture/index.html Fiorino, F. (000, February). ATA Service Expansion. Aviation Week and Space Technology, 15, 5. Kaps, R. (15). FISCAL ASPECTS OF AVIATION MANAGEMENT. Carbondale, Ill Southern Illinois University Press. Lawler, E. (16). FROM THE GROUND UP. San Francisco, CA Jossey-Bass. Lee, R. (000, March). TRANSPORTATION MANAGEMENT. AVIATION MONTHLY, 18, -7. Maurice, C. (1). MANAGERIAL ECONOMICS (6th ed.). San Francisco, CA Irwin/McGraw-Hill. Tega, V. (15). MANAGEMENT and ECONOMICS. MANAMENT and Economics Journal, , 0-1. Wood, R. (11). AVIATION SAFETY PROGRAMS (nd ed.). Englewood, Colorado Jeppesen Sanderson.
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