Tackling the


HIGH COST of Aviation Insurance


By Christine Knauer A


FTER A DECADE OF LOW INSURANCE RATES, rotorcraft operators are feeling the gut punch of soaring premiums. Te painful truth is that rates aren’t going down soon, if ever. While several factors have converged over the past few years to spur high


insurance costs, understanding the aviation insurance ecosystem offers important clues for how operators can reduce the hurt.


Market Size Matters One factor affecting costs is the small size of the aviation insurance market. Some 1,500 insurance companies in the United States serve automobile owners, but just 15 underwriters insure aviation operators. Each insurer has its own appetite for liability limits, risk, and types


of operations. Some handle helicopter operations better than others. Some won’t insure them at all. Some only work with private operators. Others prefer the commercial sector. Moreover, with today’s higher liability and hull values, insurance


companies sometimes spread the risk by requiring a quota share where two or three providers come together to insure one operator, further reducing the pool of insurers competing for your business. “Te market gets very small fast. Te more specialized you are, the


34 ROTOR SEPTEMBER 2022


smaller it gets. So many times, helicopter operators have only one option, maybe two at the most,” says Jim Gardner, who has 20 years of experience in the insurance industry, including as owner and president of the James A Gardner Co., an aviation insurance broker based in Marietta, Georgia. “Te general aviation industry is also not large. Tere may be $5 billion


to $6 billion in total revenue worldwide, with about $2 billion to $3 billion in the United States. If you look at the rest of the property and casualty world, that’s a very small fraction. Tere may be $3 billion worth of property and casualty premiums in Atlanta alone,” he says. In an industry built on acquiring a large group of customers whose


premiums subsidize the payout for those with claims, the relatively small size of the helicopter industry works to keep premiums high. “Te insurance world works on the law of large numbers of homo-


geneous units putting money into a pool,” says Gardner. “Tat money goes to pay the claims in aggregate of everybody. In aviation, the law of large numbers doesn’t work. Te industry just isn’t large enough.”


The Insurers’ Perspective Turns out, those gloriously lower insurance rates that began in the late aughts and lasted through 2018 were destined to climb. Operators today are feeling the impact of that unreasonably soft insurance market.


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