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We are all looking to see if we are getting value for our insurance, whether it is for our cars, homes or our business. We are also doing all we can to get that next, better rate. With the coming of next generation flight safety courses in the cockpit and monitoring equipment and training, will this have an effect on how high insurance premiums will be? Many underwriters feel that the FDRs are terrific to determine what happened, after the fact. They have not seen where the installation of these items has led to a distinguishable change in the losses that occur. What they do is increase the value of the ship that the companies have to take into account as part of the insured value.
Let’s take a look at insured value. The underwriters will use a value you choose for your helicopter, but they have a range of acceptable values. The normal range is between 90% and 125% of the current retail price. This is a fluid value and depends on the source used to determine the current retail price. Items that affect the acceptable value would be recent paint, interior, any major upgrade of avionics, a fresh overhaul or hot section of the engine or replacement of other time restricted major components. Some of these are considered by an underwriter as normal maintenance items and do not add to the aircraft’s insurable value. A part of this would be an insured adding a new piece of equipment such as an FDR or CVR. If it is a sizeable expense, an owner would want to add that value to an insured value. As an example, I have a classic 1975 Mercedes that needs some upgrades, like paint, seat covers, new dashboard cover, powder coat wheels and lots of work on the electrical and vacuum system. I know I could spend $10-12,000 but the insurable value would only change by $2-5,000 and I could never sell it for what I would have invested even though it is worth that much to me. Thus, the investment would not be considered high value insurance. The same holds for any major equipment you have owned for a while. The additional expense you have spent on your ship may not be able to be completely covered by the insurance. If the insurance company will consider increased investment, they will ask for a detailed list of changes made with actual costs paid. Some underwriters will not take the cost of labor in the valuation. Another way is to get an appraisal from an independent third party who is a professional appraiser. You cannot use an “in-house” employee to develop an appraisal.
Insurance premiums are based on the insured value. It is a calculated value that is a factor multiplied by the value, so that any increased in value will directly correlate to an increase in premium. So as an example, if the value is $250,000 and the hull rate is 10 percent, the premium would be $25,000. An increase to $275,000 insured value would increase the premium to $27,500. The 90% mentioned earlier is to make sure the helicopter is not under-insured. Keep one other thing in mind; the insured value you and the company agree to at the beginning of the policy year is basically a price you are willing to sell the ship to the insurance company for in the event of a total loss. In other words, the company is buying all of the ship. You cannot go in and remove undamaged items.
Helicopters are truly amazing and wonderful machines when you look at what they are capable of doing. Landing on roof tops while transporting executives and celebrities; carrying 6-10 workers to an oil platform 100 miles off shore; lifting HVAC units and towers assemblies to the tops of buildings that no crane could possible get to; logging support; law enforcement support duties – all things that cannot be done by any fixed-wing flying machines. However, with these unique abilities comes the need for unique pilots with unique training. After all is said and done, the largest percentage of helicopter losses is due to pilots and their “go-no go” decision choices. Most pilots will eventually into tricky situations presenting tough decisions that must be made in order for them to be able to survive. Sometimes surviving these ordeals gives them a false sense of security during future close calls, leading to preventable errors.
How do insurance agencies get past this? How can high insurance value exist in the face of such extreme error? It is by sticking to the old – albeit hackneyed – phrase: “proper pre-flight planning prevents poor performance.” We all know that pre-flight is more than the pilot being ready, both physically and psychologically. It also includes the intangibles – the wind, rain and weather forecast. There is a real urgency in that pilots have a contract that must be met; a client will not pay unless the trip is made, regardless of outside forces or the ship’s maintenance condition.
So what does this have to do with high value insurance? It is actually one of the simplest principles of the insurance business. The general effect that losses have – no matter why the loss is paid or how small – affect changes in the loss ratio for all of the clients. It takes a lot of $15,000 to $30,000 policy premiums to pay for one multi-million dollar claim.
The feeling of the underwriters about the SMS and FDR’s is that there will be a place for them to reduce the cost of insurance at some time in the future – when they have become a part of the fabric and standard operational attitude of the majority of operations. As they see it now, only a small percentage of operations have made the investment in these additional safety systems and equipment. There are a lot of the smaller operations that have not seen the return on investment as it affects their business or simply cannot afford to implement them. In other words, it is not of high enough value to them. It is most likely that there are plenty of operations that find the expenses of business to be at a point where additional investment needs to lead directly to additional income – this is where the position of the underwriters makes sense involving high value insurance claims.
If you have questions or comments, please call your agent or you can contact me directly. I would appreciate getting your direct input and reaction. You can email me at jefleming@aviationinsurors.com.
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