Miles Bailey, AVIAÂ Supply Chain
Insurance – everyone needs it, but no one wants to have to use it. For a group purchasing organization like AVIAÂ, it is probably the single most effective area to provide savings. It’s also the most proven area. GPO’s have driven efficiencies in health insurance, and those principals can easily be applied to Business Jet Insurance.
Back to Basics on Aircraft Insurance:
Let’s look at the basics first – your annual insurance premium is typically made up of three components:
- Aircraft Hull Insurance
- Third Party Liability Insurance
- War Risk Insurance
At its simplest, your annual insurance premium is a percentage of the value (known as the “risk”) insured in each category. Whilst there is no legal minimum for aircraft hull insurance (it is seldom advantageous to artificially depress the value of the aircraft), the reverse is also true. In theory, there is also no maximum. You can choose to insure your aircraft for any value; though it’s important to consider that if you significantly over-insure your aircraft, in the event of a claim arising with serious damage to repair, you may well find yourself with a repaired aircraft with damage history that has a much lower asset value than a comparable, undamaged aircraft. This could lead to financing issues further down the line.
How can I get the best rate?
There are three primary factors which influence the total premium due:
- The values insured – for hull value, this is normally a percentage, which decreases as the total value increases. For third party & war risks, this is normally a set figure depending on the level of insurance required.
- Previous loss history – A broker/underwriter may offer a discount if no claims have been made in the previous 12 months, or may decline the policy completely if the policy holder has made claims exceeding the value of the premium.
- The number of aircraft insured on the policy – the more the better. Brokers often give major discounts for larger numbers of planes insured, driving down prices on each individual plane.
And how does a GPO help with this?
This is where we can look to principals applied in the Health Insurance industry. Larger risk pools are often considered more stable, thereby lowering the rates for each individual plan.
In business aviation, it is generally acknowledged that the chance of any claim arising is reasonably low. But this risk can only be spread over the total number of the aircraft insured on the policy. For example, let’s say a company bought an aircraft valued at $5m, and the Insurance premium was calculated to 0.2% of hull value, or $10,000. After three months, they buy an identical aircraft and add it to the same policy. Again, the premium due was 0.2% of hull value, so the total premium for both aircraft was $20,000.
The company bought the second aircraft as a “back up.“ Their flying profile had not changed, nor had the total amount of flying time. So why were they charged the same amount? In this example, the risk of a claim could only be spread over two aircraft, even though it was rare that they were both in use at the same time. Whilst the risk of a claim occurring was low, the fact that it could only be spread over two aircraft was a significant factor in the price of the policy.
At AVIAÂ, we can spread the risk of a claim over an entire network of aircraft, resulting in significantly lower premiums for each individual. For the example shown above, our rates would save them over 20% on their existing premium.
AVIAÂ partners with insurance industry leaders, RKH Specialty and Allianz Insurance, to offer bespoke policies that guarantee not only your next renewal premium, but also a midyear premium, so members can start to see savings immediately. We insure up to $75m in hull value and up to $750m of third party liability. Through our subsidiary company AVIAÂ Insurance Services, we are able to cover any aircraft, worldwide, at a minimum 10% discount on your latest hull renewal.
Click here to get an instant quote now and see how much you could be saving.