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So You Want To Insure Your Plane...

by Lydia Wiff 15. October 2016 10:00
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Imagine yourself here: you’ve finally saved enough to buy that beauty of a Cessna 172. You have got your pre-buy done, the loan paperwork finished and the delivery to your home airport all arranged.  You suddenly remember that you need insurance, but realize you have no clue if aircraft insurance works the same as car insurance.  Today’s post is designed to give readers an idea of how aviation insurance works – you’ll see that aviation insurance is similar to your car, but also very different. Before I give you the low-down on aircraft insurance works, it’s important to get a little history.

A Brief History 

After World War I, we begin to see the emergence of the civil aviation industry which goes hand in hand with the aviation insurance industry.  Post-war brought a surplus of war aircraft which were then either dumped into the market for pennies on the dollar.  An aircraft which had previously cost the government, such as $17,000 for a Curtiss Jenny, was being sold in the open market for as little as $50 – I don’t know about you but I’d buy an airplane right now if a Cessna was that cheap!

Former military pilots all over the country were buying these cheap planes up using them for a variety of civil aviation activities such as barnstorming (trick flying), crop dusting, mail delivery, passenger transport, and more.  As one can imagine, these new civil aviation activities added a whole new risk for insurance companies and often resulted in crashes for a variety of reasons.  Companies were ill-equipped to handle this new risk and many saw a significant loss as a result.

However, one company rose to the occasion, despite an almost certain loss, and Travelers Insurance Company became the first to announce a comprehensive program specifically for air risks in 1919.  Travelers wrote lines of insurance primarily for maintenance, operation, and the use of an aircraft for private and commercial operations.  Several lines were included in the program including: life insurance, accident insurance for owners and pilots, trip accident ticket insurance, Workers’ Compensation insurance, and public liability and property damage insurance.  While Travelers was the first to offer these lines of insurance, it’s important to note that they did not include lines for damage to the actual aircraft (this is referred to as hull coverage). 

Over the next few years, which Travelers anticipated to be a period of profit, the company ceased to exist in 1931 after being in business for 12 years.  Several other companies sprung up during those first years after Travelers made their foray into aviation insurance.  As the aviation insurance industry stabilized, companies that exist still today started to appear such as United Sates Aircraft Insurance Group (USAIG), the Associated Aviation underwriters (AAU), and the Aero Insurance Underwriters (AIU).  With several new companies in the U.S. market and an abundance of accidents during the early years, companies began to look for ways to spread the risk so that losses were not so significant. 

Group Approach, the Law of Large Numbers, & Reinsurance

As many new companies were entering the aviation insurance industry, it was discovered there was a more economical way to do business in addition to spreading the risk.  Individual companies were taking huge losses when a claim was filed because of the damage to aircraft and property as well as the deaths of those involved.

The “Group Approach” was created with the intent not only to spread the risk between many companies but also to spread the profit between those same companies.  The founders of the group approach did considerable research in Europe (a country with a more developed aviation insurance industry) and found that indemnification (making a party whole after a loss) could be handled safely only by employing the group approach.  This new method of the group approach also brought about the synonymous concept of the “Law of Large Numbers” – the risk and profit are spread over a large number of companies which allows for a much more stable aviation insurance industry.

Another approach used to stabilize the insurance industry was the approach of “reinsurance”.  In the early days of insurance, a devastating fire threatened to bankrupt several of the local insurers and it was quickly discovered that insurance companies themselves needed to be insured against such catastrophic losses.  What began as a way to protect insurance companies became the essential element of aviation market supporting major airlines, airports, and even space risks.  Aviation insurance can be similar to auto insurance (premiums, liability, etc.), however there are some key differences that are important to know about. 

Direct Writers, Brokers, Underwriters & Policy Term Length

Recently I bought a new car.  To add it to my insurance, all I did was call up my insurance agent at State Farm® and give the Vehicle Identification Number (VIN), make, model, year, and the accident history.  I opted for full coverage since it was a much newer car than I had owned previously and in a matter of minutes I had a binder (temporary insurance policy) ready for me at the office to pick up so that I could use my new car.

State Farm® is a great example of what is known as a Direct Writer.  A direct writer gives a you an aircraft policy option through their company, just like an auto insurance agent.  There is actually only one company that currently issues policies this way –  the Avemco Insurance Company.   This company is actually very popular with private owners of aircraft in general aviation, airports and Fixed-Base Operators (FBOs).  It can be argued that Avemco gives the best deal as they directly write their own polices, which brings me to the concept of insurance brokers.

Insurance brokers (as well as agents) are the middle men between insurance companies and people looking for insurance.  Brokers work for a commission (percentage) of the premium and work with certain companies to find the best policy for their client much like aircraft brokers look for the best buyer for their clients’ aircraft.  When they gather a list of different policies, they take them back to their client for comparison and selection.  Agents are a representative of an insurer and have delegated authority to act on behalf of their company.  Insurance agents, however, are often certified as both an agent and a broker.

An important item for novice plane owners to know is that the policy term is much different than that of auto insurance.  For instance, if you have auto insurance, you are probably set up for auto-renewal.  You pay your bill every month, every 6 months, etc., and your coverage continues along.  However, when it comes to aircraft insurance, a policy must be reviewed every year – this means that Avemco, your agent, or broker will be giving you a call to re-write your policy contract.  While this may be slightly annoying to you, it is actually in your best interest as it allows the company to revisit you and the aircraft and see what has changed in the last year.  The assumption is that risk has changed at some point whether that relate to you as the pilot or the aircraft itself.

Closing Thoughts

Prior to a few months ago, I actually could not have told you the differences between auto and aviation insurance.  Since then I have been taking a class about aviation insurance and learning that it is a lot more complex that I originally thought.  I’m not sure when I’ll be able to insure an aircraft at this point, but just learning about it will only help me to become a more informed consumer.  Hopefully that is the case for my readers as well!

Works Cited

Brandon Wild, Assistant Professor, University of North Dakota, Aviation Insurance, Lecture, Fall 2016.

Wells, A., & Chadbourne, B. (2007). Introduction to aviation insurance and risk management. Malabar, Fla: Krieger.

Images courtesy of Google Images.

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GlobalAir.com | Aircraft For Sale | Lydia Wiff | UND

Consultants Can't Make Your Decision

by David Wyndham 5. October 2016 14:32
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A consultant is just that—a consultant, not a decision maker. When we work with people on an analysis of their aircraft needs, acquisition or tax strategy, we give them options. Its up to the decision-maker to make the decisions. 

Recently a client asked, "If it were your money, which aircraft would you purchase?" I replied, "It is not my money, so you need to be happy with what you choose. All three aircraft under consideration will do the job. Take the demo flights and go from there."  If I really thought there was a clear best answer, I'd of pointed her in that direction, but since it is not my money, the final call is always the client’s to make. 

Consultants can be (more) objective. We all have preconceived concepts and ideas, and sometimes those ingrained opinions blind us to what is going on. Especially when the choice of outcome is important to us. A consultant should be objective. They don’t have a vested interest in any one outcome.  A good consultant looks at the issue from different angles and may offer fresh insights to a situation. Getting the complete picture and exploring competing points of view are reasons to work with consultants.

In a typical scenario, an Aviation Manager recommends to the CEO that they replace their current aircraft.  “Great,” said the CEO.  “Get me a report making the case for your recommendation, and do so as soon as you can.” The Aviation Manager had all the data—in his head, not in a document! He knew that with his busy schedule, he did not have the time to prepare a thorough report outlining the follow-on aircraft that was addressed all the concerns of the CEO and the Board of Directors. Furthermore, he felt that a second opinion from an independent third party added credibility to the recommendation./span>

He called us in, we asked the questions, listened intently and talked with the boss. Then we did the analysis, and in the end we delivered a report stating that the company indeed needed a new aircraft and confirmed that the selection the Aviation Manager suggested indeed was the best option. 

Did our client waste his money? The Aviation Manager saved himself a few weeks of his time, got a third party review of his requirements, and had all the documentation needed to secure the CFO’s and Board’s support for the new aircraft.  I think that was a good value.

When selecting a consultant, beyond the technical qualifications, remember it is a relationship.  Consultants need to relate to you and be able to understand what you and your company executives are really asking. In some ways, the consultant is your “aircraft therapist—one who listens, asks questions and keeps your best interests (and that of the company) in mind.  How far do you want the consultant to go in the analysis? Is it just an advisory consult or will this relationship extend all the way through contract negotiation and aircraft delivery?  You decide.

A consultant’s recommendations should be objective and focused on the choices you need to make. A consultant who also sells aircraft can be very knowledgeable and a source of valuable insight, but there is at the very least the appearance of conflict of interest in the relationship. If the consultant is also brokering a great mid-size business jet and your company’s need might be met by such a jet, maintaining objectivity is paramount.  Be sure the aircraft being offered is right for your firm.  Trust is the key issue in a successful engagement with a consultant, whether independent or part of a brokerage.    

When dealing with the Aviation Department and Executive team, the consultant must be “bilingual”.  They need to be able to talk with the pilots and discuss operational issues like runway lengths and range. Just as important as the “plane talk” is the need to speak the language of business to address the financial concerns and the business management decisions needed in making the aircraft decision. 

Consultants can add value in the acquisition process, but also can add value to the staffing, training, operations and safety of the operation. When done well, relationships with consultants give an impartial perspective, add value and save time.

 

 

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Aircraft Sales | David Wyndham | Flight Department

As Long As You Hold An Airman Certificate You Must Report Motor Vehicle Actions To The FAA

by Greg Reigel 4. October 2016 09:29
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If you hold an airman certificate you know, or at least you should know, that you are subject to the reporting requirements of 14 C.F.R. §61.15. That is, §61.15(e) requires an airman to report a motor vehicle action ("MVA") to the FAA Civil Aviation Security Division within 60 days. The written report must include: “(1) The person's name, address, date of birth, and airman certificate number; (2) The type of violation that resulted in the conviction or the administrative action; (3) The date of the conviction or administrative action; (4) The State that holds the record of conviction or administrative action; and (5) A statement of whether the motor vehicle action resulted from the same incident or arose out of the same factual circumstances related to a previously reported motor vehicle action.”

What is an MVA? According to the regulation an MVA is (1) a violation of any Federal or State statute relating to the operation of a motor vehicle while intoxicated by alcohol or a drug, while impaired by alcohol or a drug, or while under the influence of alcohol or a drug; (2) the cancellation, suspension, or revocation of a license to operate a motor vehicle, for a cause related to the operation of a motor vehicle while intoxicated by alcohol or a drug, while impaired by alcohol or a drug, or while under the influence of alcohol or a drug; or (3) the denial of an application for a license to operate a motor vehicle for a cause related to the operation of a motor vehicle while intoxicated by alcohol or a drug, while impaired by alcohol or a drug, or while under the influence of alcohol or a drug.

It is important to realize that this definition includes more than just being arrested for or convicted of a DWI, OWI etc. A civil action that often accompanies a DWI arrest in most states and that results in suspension of the driver's license is also considered an MVA. Thus, an arrest for DWI could create the obligation for an airman to provide multiple reports to the FAA depending upon how the civil and criminal cases proceed. And if an airman fails to report an MVA, §61.15(f) states that he or she could be subject to (1) Denial of an application for any certificate or rating for a period of up to 1 year after the date of the arrest; or (2) Suspension or revocation of any certificate or rating.

But what happens if you hold an airman certificate but you no longer hold a medical certificate, or you have "retired" from flying? Are you still subject to this reporting requirement? The short answer is "yes", as a recent NTSB decision explains. In Administrator v. Street, the airman was an experienced airline pilot who failed to report four MVAs arising from two DWIs. When the FAA found out, it issued an order suspending the airman's ATP certificate for 240 days. On appeal, the administrative law judge ("ALJ") agreed that the airman had violated sections 61.15(d) and (e) but determined that the sanction should only be a thirty day suspension.

Not surprisingly, the FAA was unhappy with that decision and appealed to the full Board. The FAA argued that the 240 days should stick and, of course, the airman argued that the ALJ's decision should stand. Specifically, the airman argued that at the time of the violations he did not have a medical certificate and was not actively flying, which should serve as mitigating factors in support of the lower sanction. However, the Board rejected that argument stating the reporting requirements of §61.15(e) are applicable to an airman who temporarily “retires” from flying. The Board explained that "[w]hile respondent testified that he did not plan to return to flying, his obligation to comply with the FARs continued regardless of whether he was actively flying at the time the MVAs occurred. Sections 61.15(d) and (e) are exclusively concerned with conduct outside the scope of an airman’s certificate. It is immaterial whether respondent was actively flying or had a medical certificate at the time the MVAs occurred because his status as an ATP certificate holder rendered the requirements of §§ 61.15(d) and (e) applicable to him."

So, the moral of the story is: If you hold an airman certificate, you need to be familiar with, and comply with, the requirements of §61.15. Until you no longer hold your airman certificate (whether the certificate has been surrendered, suspended or revoked) you will need to report any MVA to the FAA.

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Greg Reigel

Top Airport Stress-Relief Upgrades

by Tori Williams 2. October 2016 00:41
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To the majority of passengers on commercial flights, traveling can be a stressful and sometimes uncomfortable experience. Long lines to check in, confusing security rules, and having to rush to your gate after all is said and done can drive even the most understanding person crazy. On top of all that, several airports have puzzling signage and unclear instructions for moving between terminals. This can leave the passenger with a sense of dismay and dread when trying to navigate through to their flight. Thankfully, several airports have recently begun revitalizing their interiors and amenities in an effort to reduce passenger stress and create an overall ambiance of ease. I found several examples online and I picked my top 4 to share with you here.

1. Narita Airport Running Lanes

Well in advance of the 2020 Olympics in Tokyo, Narita International Airport decided to redesign the interior of their airport with a minimalist and easily navigated layout. Inspired by running tracks, these blue and red lanes show passengers exactly where they are heading. Blue represents departures and red represents arrivals. The designers chose these colors with purpose, too. Blue, the color of the sky, uplifts passengers and excites them for the travels ahead. Red, a more earthy tone, is there for arriving passengers as they conclude their travels and return to the ground.

2. San Francisco Yoga Room

No, you have not been transported to a peaceful yoga studio. You are in fact in Terminal 2 of San Francisco International Airport, just on the other side of the TSA checkpoint. A few years ago the airport converted a storage closet into a fully functioning yoga room, featuring dim lights, a mirrored wall, complementary mats and blocks. This free service has helped many a weary passenger feel at ease during their stressful layovers. In fact, it has rave reviews on its Yelp page. Quite an interesting and helpful addition to the amenities offered at SFO.

3. Canine Therapy in Denver

One of the latest trends in airport stress-relief is to bring in certified therapy dogs for the guests to pet and play with in the terminal. This is not exclusive to Denver airport, as I found many articles where airports around America had brought in special dogs to soothe customers. This usually happens during the busy holiday season, where travel seems very high-stakes and travelers just want to hurry past to visit family. Many passengers who visited with the dogs reported that their stress levels had decreased by a substantial amount and they were very glad to play with a pooch during their stressful trip.

4. Butterfly Garden in Singapore

You read that right! The Changi airport in Singapore boasts a very luscious garden in Terminal 3 that houses more than 1,000 tropical butterflies and as many as 40 species during different seasons of the year. This unique space of tranquility is open to passengers who are traveling through their airport at no cost. The natural light, water features, and beautiful nature on display in this garden help passengers feel an instant sense of relaxation.

Airports are focusing more every year on making the passenger experience less stressful and more luxurious. I hope that in your future travels you are able to find a peaceful release from all of the stress!

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Airlines | Tori Williams

Hindsight is 20/20

by Lydia Wiff 1. October 2016 08:00
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The title for this week’s blog post I’m sure applies to many areas of our lives.  However, today I’ll just be focusing on three ways I wish I had done my flight training differently.  Perhaps, as you read this article, you too might think of bits of wisdom from the past to carry forward to future flight training.

I Wish I Had Started Earlier

Now, I realize that many of us probably cannot change the timing, the availability of funds, etc., but I do wish I had started younger.  When I started flight training in 2011, I was out of high school and already feeling behind the curve.  I’m sure many of us know about the rule that allows kids to get their pilots license after barely being legal to drive a car (which in retrospect, that’s actually pretty scary!).  I felt like I was late to the game and had to prove I could catch up – looking back, I was probably in the best position because I didn’t have college to worry about.

I only wish I had started earlier because once I was out of high school for a year, I started working part-time, and then eventually enrolled in a local community college.  I commuted every day a fair, had long days, and worked on campus during the week and then at a local airport on the weekends.  I found myself struggling to keep flying even once a week and, therefore, spent a lot of time re-learning maneuvers while balancing work, life, and school on top of flying.  Then there was the weather changing as the seasons changed – living in the Midwest meant that it wasn’t always great weather during the winter either.

Of course, looking back, that was good preparation for where I am currently.  I work more than one job, I’m involved with an industry student group, I have many classes, I write, I manage a scholarship program, and more.  Maybe learning to juggle wasn’t such a bad thing after all…

I Wish I Had Started Ground School After I Started College

The University of North Dakota (UND) has almost all flight courses set up to include a flight lab during the same semester you are taking Ground School for a particular rating.  For instance, if you are working on your Instrument Flight Rules (IFR) rating, you are taking ground school for IFR at the same time.  Doing the ground school first, and then the flying is one way to do it, but sometimes it helps to be able to connect concepts from the textbook to flight lessons.

In college, I find that I benefit from the face-to-face lectures along with the interaction of students.  I also learned to develop different ways of studying depending on the different professors I had and knowing what my learning styles are.  When I went through the Private Pilot License (PPL) Ground School at my local airport, I had several different “professors” that all had different teaching styles all trying to cram all the information from that giant textbook into 7 weeks.  Needless to say, I wasn’t as experienced at handling accelerated courses as well then as I am now.

A few years later, I have several accelerated classes under my belt, including a semester-long version of the PPL Ground School I was required to retake when I transferred.  The second time around the class went much better - this was due to the experience I had in applying solid study habits that really only could have come from experiences in several classes.  Additionally, from having one professor who was very thorough, I learned so much more that second time and while it was a stressful 5-credit class, it was a class that still sticks with me.

I Wish I Had Gotten Beyond My PPL

I want to preface this section by saying that we can’t plan for every situation in life – we also have to navigate around whatever comes our way and sometimes goals take a backseat for awhile.  Now, had I known I’d end up in the Airport Management program after switching from Commercial Aviation and Aviation Management, I would have started and finished my IFR rating instead of just waiting until I transferred to UND.

Something like this inevitability happens to everyone in life I suspect.  We decide that we make Decision B since Decision A isn’t always feasible at the time, for one reason or another.  It’s not a bad decision or even the worst decision – it’s simply the best decision at that particular time.  While I wish I had completed my IFR rating, looking back I really did make the best decision for the long run.  Plus, I now get to look forward to having a goal when I am back to flying on a regular basis – I love having goals to work towards.

Hindsight Is Better Left Behind

We all wish we could have done lots of things differently, not just flight training.  We all think “had I known that, I would have done something different”.  While that is very true, we wouldn’t have actually learned from the decisions we made.  We would probably find ourselves in a much different place than we are today.

I admit, sometimes I get really hung up on how I went about my flight training.  However, when it comes right down to it, I wouldn’t change a single thing.  I know for a fact that I wouldn’t be where I am today had I changed those decisions along the way and I certainly wouldn’t have all the experiences in flying, education, or in life that I now have today.

So, my advice is: learn from the past, but keep looking forward.

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Flying | Lydia Wiff



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