Limiting Insurance Costs – Don’t be Penny-wise and Pound-foolish

For some aircraft owners, a “tough” insurance market is something they have never experienced. If they purchased their first aircraft anytime in the past 3-4 years, all they know is that rates tumble every year.

The more experienced insurance buyers know that the insurance industry is a market, just like any other, and it is largely governed by the law for supply and demand.

So, as supply reduces, prices increase and, equally, as supply increases, prices reduce.

Sure, there are any number of factors that create price differentials within the general trend, such as loss record, pilot experience, and so forth, but the general principle is as I have described it.

Early indications are, as I have already mentioned, that the insurance market is starting to “firm”. In other words, it is moving into the next cycle and this brings its own threats and opportunities.

If premium rates increase, there is an immediate temptation to look for something cheaper. That’s as it should be but it is vital that you ensure that you are not being penny-wise and pound foolish.

Your insurance broker – and you should ONLY arrange aviation insurance through a specialist firm of brokers – will seek alternatives for you and will make recommendations. These recommendations will be based on a number of factors, not only the price. Firstly, there is the question f coverage: do both offerings provide the coverage that you need, or is one something of a compromise? Be careful to evaluate this before you give up valuable protection for the sake of a few Rands in premium saving.

Then, take a look at the alternative Insurer(s) being offered. How do they compare in terms of financial strength and claims-paying ability? If the alternative being offered to you is foreign-based, be careful to ask your broker about its location, current Standard & Poor’s rating, experience in aviation insurance, track record, etc. As a rule, if the Insurer is rated “A-” or better by S&P, it’s worth consideration, subject to all the other factors being acceptable. Anything below that should be avoided at all costs.

Service levels are next. Can the alternative Insurer provide you with the service you need? Is it located in a different time zone so that day-to-day requirements are going to be nightmarish to administer?

It is also well worth looking at your own experience with your existing Insurer. How long have you been insured with it/them? What has your experience been in terms of, in particular, claims-handling? A long-term relationship with an Insurer is very important when market conditions become tougher. Insurers value long-term support from their clients and this can often be the difference between a good claims settlement and a great one. Or the difference between getting paid and not getting paid.

Finally, by all means, compare prices. Don’t look at the total cost, however. Look at the difference. Take the difference in premium and weigh it up against any changes in coverage, the financial strength of the Insurers, the service levels offered, your past experience, etc. Don’t be fooled by promises of up-front discounts that have to be repaid in the event of a loss. Those sorts of gimmick have no place in the deadly serious world of aviation insurance.

And then make your decision.