Dennis Jankelow

An aircraft owner called his insurance broker, furious at hearing that his insurance premium was to be increased for his next renewal. “I need to save money!” he bellowed down the phone. “Certainly, Sir”, replied the broker, “and when would you like to save it…now, or later?”

Buying insurance is not as simple as it might at first appear, and aviation insurance can be particularly complex. Whether viewed as a “necessary evil”, or a “grudge purchase”, any aircraft owner owes it to himself to ensure he gets proper protection and the best “bang for his buck”.

Anyone involved in aviation knows the importance of maintaining perfect balance. The simplest example is the blades of a propeller, which need to be balanced with each other to ensure the best performance.

Aviation insurance is much the same. A balance needs to be struck between the main elements of any insurance programme. And what are those elements? There are four:

Cost how competitive is the premium?

Coverage does the insurance cover the right risks in the right way?

Service is the broker sufficiently expert to provide on-going service of an appropriate standard, particularly following a loss?

Security is the Insurer financially strong enough to meet my claim?

A competitive premium is not necessarily the lowest offer on the table. It is so important to consider the Cost in combination with Coverage, to ensure that what you’re being offered is what you really need and that the cost hasn’t been trimmed by virtue of restrictions on coverage, or the introduction of fineprint that is designed to limit coverage, or reduce the cost of claims. It’s all-too-easy to be seduced by what appears to be a low Hull rate, without taking an overall look at the proposed insurance programme. Comparing Hull rates is a bit similar to that other pastime which preoccupies a lot of men, and it’s about as useful!

One aspect of any aviation insurance coverage which is fundamental is an extension known as the “unauthorised use” extension. This ensures that the owner remains protected if the aircraft is operated outside its coverage envelope without the owner’s knowledge or consent. Pretty basic stuff, you’ll agree. However, many Insurers will quote on the basis that this extension is limited to circumstances where the aircraft has been stolen! Since “theft” is covered anyway, the effect is a “Now you it, now you don’t” sort of illusion. All designed, unfortunately, to give the owner the impression that his insurance is better than it actually is. Any broker who puts such a proposal forward is either part of the deception, or doesn’t have the required level of knowledge to be entrusted with handling the insurance in the first place.

In considering the right sort of Coverage, a careful analysis is needed. Again, it’s not difficult to get a quote for a basic insurance programme (Hull and Liability coverage) and to overlook other types of protection which are available and which may be appropriate. There’s no point in looking for alternatives unless you have a very clear idea of what you’re buying. Time spent establishing your needs, before you start looking for quotes, will save a lot of time and aggravation in the long run.

“All Insurers are the same: all they want is to take your money and they never pay claims”. Anyone heard that sort of generalisation before? Happily (for those of us whose livelihoods depend on the insurance industry!), it’s simply not true. All Insurers are certainly NOT the same and you need to be careful to select the right one for you. In the post 9/11 era, the issue of Insurer security has become paramount. Insurers do go bust from time to time and you need to make as sure as you can be that your money is not riding on one of them. Insurers who have very little to show by way of service, security or coverage, will often offer a cheap premium, because it’s the only thing left. So, buy your policy from an obscure Insurer based in Ukraine and it had better be really cheap….to compensate you for the other risks you’re running! Sounds like a joke? Think again. A number of fringe markets (and, in some cases, downright fraudulent Insurers) have been offered to the South Africa aviation public in recent years, with the resultant losses in unpaid claims, lost premiums, etc., that inevitably come with the package.

Someone once said that buying cheaply to save money is like stopping a clock to save time. He could have been talking about aviation insurance. Another over-used expression is equally appropriate: if something appears too good to be true…it usually is. And how about this one: buy something for nothing…and you’ll probably get value for your money!

So what’s the answer? I subscribe to the Bean Theory. Here’s how it works.

Imagine that the completed insurance programme represents 100 beans. Now take those 100 beans and allocate them to the four elements (Cost, Coverage, Service and Security) in your personal order of importance.

For example, if Cost is all-important, you might give it an allocation of 50 beans. But that means you only have 50 beans left to share amongst Coverage, Service and Security. Presumably, you want to make sure the insurance covers the right things (otherwise why bother?), so perhaps 30 out of your remaining beans go towards Coverage. But now you’ve only got 20 beans left for Service and Security.

Security is important, isn’t it? After all, there’s no point in getting the right coverage, and the cheapest price, if the Insurer doesn’t have the financial strength to deal with your claim. So you allocate the remaining 20 beans to Security, leaving nothing left for Service. Hmmm…..

So you start again.

Pretty soon, you have learned one of the most fundamental rules of insurance. Everything comes at a price and you cannot get a perfect score in every category. There needs to be a balance, just as with the blades of our propeller.

So how does an aircraft owner go about securing a balanced insurance programme? As in flying, it is often the first decision that is the most critical. Get that wrong, and every subsequent decision will be a compromiser of one sort or another.

Perhaps the first and most fundamental decision to be made should be the selection of an insurance broker who has expert experience in the field of aviation insurance and who can sit down with you to analyse your particular needs and wants and who, thereafter, can negotiate on your behalf in the insurance industry to ensure that you achieve the balance that you wanted.

It sounds so simple, but so often that decision is the one that is either not made at all or is made in haste, without proper thought and consideration. After all, you wouldn’t go to your GP for physiotherapy, nor would you ask your dentist to carry out your child’s orthodontic treatment. Insurance is not entirely dissimilar. There are general insurance brokers who do a fine job and then there are specialist brokers who handle the specialist areas, of which aviation is just one: there are many others.

And you don’t want to discover your mistake when it’s too late. A photographer was called by his editor and told there was a forest fire raging, which he needed to cover. “Get to the airport right now. There’s plane waiting for you. Get the pictures and get back here before the deadline”. The photographer raced to the airfield, where a single-engined plane was waiting with the engine running. He leapt into the passenger seat and yelled to the pilot:”Let’s go, let’s go!” After take-off, the photographer said “When we get to the fire, I want you to carry out two or three slow fly-bys”. “Why?” asked the pilot. “Because I need to take pictures. I’m a photographer. That’s what I do!” replied the photographer, a little sarcastically. The young pilot turned to him and said, with a slight quaver in this voice: “You mean you’re not my instructor?”.

With any luck, the owner of that aircraft had allocated his beans correctly!