Page 17 - January 2022

there were in 2002. The competition for your business sent rates plummeting. This cycle lasted for over a decade as carriers entered the aviation sector and earned business by offering the lowest quote. Many of these companies ended up incurring substantial losses and abruptly left the aviation sector. But as one carrier left, another was entering, keeping your premiums low. However, by mid-2019 the market changed. As one insurance company exited the aviation market, there wasn’t one lined up to replace it. Essentially where supply had once been abundant, it was now suppressed.
The discussions about what was, or is, driving the premium increases vary. While in the FBO at my local airport I overheard a group of pilots discussing their insurance rates and one gentleman said, “The insurance company told me they are in the business to make money so they had to raise their rates to offset the losses.” While everyone understood the logic, the group still smelled greed from the carriers. But when you look at the news headlines over the past three years it’s difficult to argue their point. Consider all of the factors that trickle down to affect your rates: The Boeing 737 MAX, multiple
hurricanes with massive losses, the tornado that ripped through Nashville and the hangar collapse in Dulles from a massive snowstorm. Additionally, there were several rotor wing fatalities with large losses, including the crash that killed Kobe Bryant and eight others. In 2021, we also witnessed Citation, Challenger and Gulfstream crashes, just to name a few. While the hulls will be paid quickly, the reserves for liability won’t be paid out for quite some time and will most likely result in tens of millions of dollars, if not over $100 million for each of those business jet losses when they eventually settle.
Multimillion dollar lawsuits, followed by significant jury awards, have a meaningful impact on the aviation insurance industry. The insurance companies invest the premium dollars they collect. When $1 billion of premiums are paid into the system and investments turn it into $1.2 billion, but third party liability payouts, in addition to totaled aircraft hulls, equate to $1.4 billion, the deficit determines that premiums must increase.
Our aviation insurance industry is a tough puzzle to solve. We have attritional losses nearly every day and, unfortunately, the occasional catastrophic loss.
JANUARY 2022
KING AIR MAGAZINE • 15