As deliveries of very light jets (VLJs) begin, concerns that they might be difficult to insure have almost evaporated. Manufacturers have had the chance to brief underwriters in depth about their models’ designs, performance characteristics and systems. As underwriters’ understanding of VLJs has improved, the companies have become reasonably comfortable with a class of aircraft whose insurability was an industry-wide concern three years ago.
Now that the basic VLJ insurability question is all but settled, underwriters are focusing on an area they see as crucial to determining the coverage to provide for a given aircraft, its operator and its manufacturer: the levels of experience and proficiency present in the cockpit. Single-pilot owner-operators probably will represent a major market for VLJs, so underwriters will look particularly at the level and quality of pilot training each manufacturer provides in pricing hull and liability coverage for such buyers.
“The difficulty of insuring VLJs has probably been over-estimated,” said Tim Bonnell Sr., owner and president of Wichita-based agency PIM Aviation Insurance. “It’s probably going to be a simple thing. Just about all of the major [underwriters] will be involved. All are anxious to pick up this market. The large players are getting hungry for business and the entrance of this business is attractive.”
The underwriters view VLJs as a new class of aircraft, which means they will pay claims out of the pool of VLJ premiums they collect rather than from their overall aviation premium income. The delivery delays affecting some manufacturers and the initially limited premium pool have made some underwriters adopt a wait-and-see attitude before deciding to insure the new class of business jets.
But AIG Aviation’s November 2004 decision to participate in VLJ insurance and quote a scale of pilot experience-dependent rates for the Eclipse EA-500 demonstrated that VLJs and their operators would be insurable. Also, the entry last year of Allianz and C V Starr into the U.S. aviation market–increasing total underwriting capacity by up to 30 percent–has benefited the budding VLJ insurance business. Allianz has already positioned itself as a major underwriter of Cessna Citation Mustangs and their operators.
Assuming a particular model doesn’t demonstrate a pattern of related losses after certification, which could make underwriters nervous about the type, hull insurance shouldn’t be a problem. This is particularly true for established manufacturers’ aircraft, said Tom Chappell, president and CEO of Nashville-based agency CS&A Aviation. “Are underwriters going to be concerned about writing [for such] VLJs? The answer is no; it’s just a smaller version of an existing product.” But some underwriters might decide to wait two or three years as a new manufacturer’s aircraft builds an operating history before quoting on it.
Hull deductibles will not be a concern for any VLJ operator, insurers agree. For the lowest-time, single-pilot operator, the deductible for a VLJ in motion “might be as high as $25,000, but [if] you spill your coffee in a jet, it’ll cost you $25,000,” said Chappell. Many VLJs might even be insured with zero deductibles– unless a fleet operator wants to reduce its insurance premiums and specifically asks for a much higher hull deductible.
But underwriters will be vitally interested in the number of pilots in the cockpit and the multi-engine, turbine and high-altitude time each has accumulated. Since VLJs have been designed to allow single-pilot operation and most are affordable enough to attract wealthy private pilots who want to step up from piston or turbine twins or singles, the insurer will be keenly interested in how much and where it is flown.
Sources agree underwriters will provide higher liability limits to an aircraft and its operator if it is flown by professional pilots as much as 800 hours a year for an air-taxi or corporate operator rather than by a non-professional owner-operator flying as a single pilot and accumulating less than half as many hours annually.
Training Procedures Paramount
The training program the manufacturer provides will also be key to the underwriter’s analysis. “The big concern [for insurers] is that [VLJs] are relatively hot aircraft,” said Wayne Wignes, president of Chicago-based Aon Aviation, which includes Cessna parent Textron among its clients. “Owner-operators for the most part are non-professional pilots. Usually, there is a pretty direct relationship between the training and quality of pilots,” particularly where underwriters’ insurance ratings for aircraft and their operators are concerned.
Consequently, “There will be a great focus on the infrastructure supporting the operation of each VLJ,” said Wignes. Different manufacturers “are providing different levels of training infrastructure…it’s fair to say that the existing dozen or so manufacturers are inconsistent” as a group in terms of the training programs they have in place or have detailed to date.
As long as a manufacturer has a robust training program in place–such as the proficiency- and mentor pilot-based program Cessna has designed in partnership with FlightSafety International for the Citation Mustang–underwriters can decide quickly to insure its VLJ model.
“It doesn’t take much” to get underwriters on board with the Mustang, said Mike Fuhrman, director of marketing support for Cessna. “If we can get an underwriter in for a day, they walk away pretty impressed” with the aircraft and the level-D simulator-based training that Flight- Safety has in place to provide type-rating conversion for the Mustang.
In consultation with underwriters, Cessna and Eclipse have made mentor piloting central to their VLJ training programs. Mentoring arrangements existed previously–for example, for the CitationJet series–but on an informal, individual-case basis, said Bonnell. “It was much more of a negotiated deal with the insurer. Now it’s more formal, in writing.”
Regardless of pilot mentor programs, underwriters will take a sharply different view of single-pilot owner-operators with limited multi-engine and turbine experience compared with fleet operators staffing each cockpit with two professional pilots, said Jim Anderson, a senior v-p with AIG Aviation. Insurers recognize that owner-operators of low-utilization VLJs might be under less pressure to perform flights in marginal weather conditions than would on-demand charter operators, but “the trade-off is that [under-writers] have to deal with lower-time pilots.”
Pilot experience will be crucial to determining liability coverage, which insurers say is the biggest issue for VLJs. For fleet operators with two professional pilots in the cockpit, attractively priced coverage of at least $50 million per occurrence shouldn’t be a problem. The outlook is different for low-time owner-operators, who won’t be able to buy high liability limits at rates they will find attractive.
Typically, limits for single-pilot operators with little turbine time will be as low as $800,000 plus $100,000 per cabin seat. But when such a pilot has accumulated 350 hours of jet time, “all of a sudden we can get him $3 to $5 million” of economically priced coverage, said Chappell. Experienced owner- operators should be able to obtain $10 to $25 million limits.
Cessna’s Fuhrman notes that, since many VLJ owner-operators will be wealthy individuals whose assets total $50 million or more, low liability limits present a problem because owners do not want litigants targeting all their assets in the event of a claim. To obtain higher limits such owners might find it less expensive to hire pilots fresh out of school to fly right seat, he said, since underwriters will provide higher limits for dual-pilot operation.
A major problem for VLJ manufacturers is the likelihood that operators will purchase inadequate liability limits. “This is going to be the real challenge for VLJ manufacturers,” said Wignes. “There is going to be great pressure on manufacturers, [based] on a deep-pocket theory, not a negligence theory.”