Mar 15, 2012
TEAM.Aero recently got together with Barry Wolf
, Partner and AviationPractice Leader of Palmer & Cay for a general discussion about commercial jet aviation insurance. For further questions or inquiries, the link to Barry’s profile with his contact information can be found at the bottom of the article.
Q: I am purchasing some aircraft that will be available for onward sale or lease. What insurance coverage would you recommend and why?
There are a number of insurance coverages to consider for this exposure. The obvious coverages are Aviation Hull, Hull War, Hull Deductible and Liability insurance. Each coverage has a specific purpose and language of its own, so it is important to understand what the insured is required and seeking to cover for their aircraft ownership.
First-time aircraft owners will not have these coverages included in their existing commercial insurance program; therefore, most new owners enter the insurance market attempting to fill an immediate and specific need. However, before I begin the insurance placement process, I always ask the question: What is your long term business plan? Understanding the client’s business plan is critical to obtaining the most appropriate insurance program for their specific need. Looking beyond the initial request helps us identify future and potential risks, thereby allowing us to provide underwriters with a bigger picture and ultimately, better protection for the client.
Most aviation insurance underwriters don't want the one-off short term deal…at least not without a big price tag. Purchasing coverage for an annual program always provides more favorable terms and pricing than attempting to cover a single transaction/risk exposure. An annual program includes multiple coverages addressing the entire range of risk exposures aircraft owners/operators face throughout the year. These coverages include Aviation Hull, Hull War, Liability, Spares/Transit, and Premises & Products. Also, the Products coverage should include the buying, selling and/or leasing of aircraft, engines and parts.
Q: Why would I need these different coverages - - Aviation Hull, Hull War, Liability and Hull Deductible - - to insure one asset?
Aviation Hull coverage is the core “property” insurance coverage providing protection against losses due to physical damage of the aircraft. Aviation Liability is the core “casualty” insurance coverage for passengers or third parties for bodily injury. The Hull War coverage will fill in the gaps created by exclusions in the Aviation Hull policy. Hull Deductible will reduce the deductible exposure to protect the balance sheet. All these coverages are purchased at the asset owner’s discretion or, in many cases, per lender and sellers contractual requirements.
Aviation Hull coverage excludes coverage for war and war-related risks; thus Hull War coverage fills in these gaps. Fortunately, Hull War coverage is relatively inexpensive and as such, is recommended in many situations.
Hull Deductible is a different story. This coverage is designed to reduce your financial exposure from a partial loss (including engine FOD). For example, a B747 aircraft would have a $1 million deductible in the event of a partial loss (including FOD). Purchasing Hull Deductible coverage essentially reduces the deductible in the event of partial losses.
Q: I have been told that ferry flights require a high limit of liability, why is this the case?
When it comes to ferry flight operations, the entities seeking high limits of liability include the seller, lender or government. Sellers of aircraft will seek protection for themselves by including contractual obligations requiring higher liability limits if the aircraft will perform a ferry flight or go into revenue service. Certain countries will seek protection for their citizens (and government assets) by dictating liability limits based on the aircraft MTOW. For example, the European Union countries have specific insurance requirements that must be met just to overfly or land in those countries.
Q: I have heard that the Aviation Parts Industry needs insurance for many different areas (for example: the teardown area and where parts are stored). Can you tell me a little more about that?
Aviation companies that specialize in "Parts" do have some unique risk exposures and the insurance industry has responded by creating a host of niche (and complex) coverages for this industry. The short list is Aviation Premises, Products, Hangarkeepers, Spares & Transit. Now, to define key components of these coverages:
Aviation Premises - This is General Liability coverage for your operating locations. Sometimes referred to as "slip and fall" coverage, Aviation Premises responds if someone gets injured at your locations/facility.
Aviation Products - This coverage is designed to protect you for claims due to the work you perform or the products you provide or sell. For example, if a parts reseller sells a component which is later involved in a loss (bodily injury / property damage), this coverage would provide funds for the defense coverage and settlement if a judgment is assessed. This coverage is commonly included as a contractual obligation from a consignor, prior owner of the asset, or to be an authorized vendor.
Aviation Hangarkeepers – This coverage is critical for those involved in aircraft disassembly. Aviation Hangarkeepers provides coverage for loss or damage to an aircraft, or the parts being removed, while being disassembled as part of your operations.
Aviation Spares & Transit - This coverage is designed as “all risks” insurance coverage for loss or damage of aviation spare parts / engines. Coverage is designed to cover the parts at a specific location or while in transit by any means on a worldwide basis.
Q: How would someone find the right aviation insurance company/broker for their needs?
This is always an interesting question. Due to the nature of the risks and high limits involved, aviation insurance programs require the use of multiple underwriters to create a comprehensive and coordinated insurance program. Unfortunately, the aviation insurance underwriting community is relatively small, which means if you have two brokers seeking quotes from this limited pool of underwriters, they will inevitably run into each other. Underwriters will not quote against themselves, therefore the use of multiple brokers for aviation insurance placement provides zero benefit to you, the client.
The real key is to have a single authorized broker, one that specializes in the aviation industry, to properly coordinate the information flow between the owner/operator and underwriters. By working through a single broker, underwriters will have the necessary information to provide competitive terms and pricing for your account. As the intermediary, your broker serves as the mechanism to create competition in the marketplace for your account.
Q: What would you like people to know about Palmer & Cay?
Palmer & Cay is a 144 year old specialty insurance brokerage firm based out of Atlanta, GA. We focus on complex niche sectors, such as the aviation, private equity, and timber, where our expertise and experience creates significant competitive advantages for our firm as well as clients. Our status as a “boutique” firm means we customize our services to meet each client’s specific needs, which is especially important for the aviation industry.
This article was contributed by Barry Wolf of Palmer & Cay.
About Barry Wolf:
Barry began his aviation career in 1981 working for a privately owned FAA 121 air carrier, commercial aircraft leasing company and FAA 145 repair shop located in South Florida (owned by George Batchelor). In 1986 Barry was promoted to Director of Corporate Insurance for the firm, handling all aspects of insurance and risk management for more than 200 aircraft on lease or operated directly. Additional responsibilities included contract administration of the aircraft leases.
In 1994 Barry entered the insurance brokerage side of the business specializing in aviation insurance and risk management for commercial airlines, repair and overhaul facilities, and commercial aircraft leasing companies.
Barry joined Palmer & Cay in 2000 to start an aviation practice for the privately-held firm. In 2004, Barry was named aviation practice leader for Palmer & Cay's Southeast Region where he was responsible for the leadership, direction and technical expertise of the firm's specialty practice. Under Barry's tenure, the firm's client base grew to include corporate aircraft for Fortune 500 companies in addition to its core commercial aviation clients. In 2005 Palmer & Cay was acquired by Wachovia Corporation and Barry was subsequently recruited by a Boston-based insurance brokerage firm to establish an aviation practice.
In 2011 Barry joined the re-launched Palmer & Cay to once again build an aviation practice for the firm. With more than 30 years experience as a risk manager on the client side and as an aviation insurance specialist on the brokerage side, Barry is delivering solutions for clients in the complex world of aviation risks.
Barry has his BSBA degree from the University of Florida with a major in management and finance.
Barry Wolf s also a Member of the TEAM.Aero Business Community and TEAM.Aero Members can view his profile and contact details by clicking here