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“Where Aviation Insurance
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A FEW HINTS ABOUT AVIATION
INSURANCE AND WHAT WE HAVE AVAILABLE …
Operators who are renewing their fixed wing hull and liability insurance policies should find that this year premiums should be maintained at present levels. Should you have had a claim during currency this may possibly result in slight increases but nothing too dramatic. In the last couple of years premiums have been up and down like a yoyo, but at the moment things are fairly stable and we are not expecting to see much change over the next year. Aviation insurers give a number of reasons for this favourable outlook. On one hand we have more underwriters vying for business and often it is competition that determines the level of rates, not necessarily strict underwriting. On the other hand, the frequency of accidents and the number of claims are looking better, particularly with fixed wing and thus we are able to maintain current trends. Apart from the local NZ premium/claims ratio, and let’s face it we are only a drop in the ocean, crash losses world-wide and the cost of reinsurance will also remain the major factor in rate increases or reductions. Lloyds of London is maintaining its strength after some devastating losses a few years ago, and as the world’s major re-insurers, this will reflect substantially on market terms. The main aspect you the consumer needs to be mindful of is the quality of the insurance you buy rather than the bottom line cost. We strongly recommend that you read through the accompanying page about analysing your existing cover to ensure that you are getting what you think you are paying for.
Aircraft owners should be aware that there are disadvantages in both understating and overstating aircraft values. Generally, aviation policies are written on the basis of "agreed values" but you should check your policy on this point. In the case of an "agreed value" policy the amount of hull coverage you purchase is agreed and accepted by the underwriters at the time of taking out the insurance and that is the amount you will receive (less the deductible) in the case of a total loss as opposed to say motor vehicle insurers which routinely adjust losses on the basis of the "appraised" or "indemnity" value after the event which can be significantly lower than the value you think the car is worth and paid your premium on. Be alert, that under an aircraft policy, the insurance company at their option may pay for, (possibly replace) or repair the damage. If you are light on value, the insurers have the option to pay out the total sum insured, less the deductible, and take possession of the aircraft (wreckage) which they can then put up for tender and sell off. As opposed to this, if you over-insure and you have a big bang, the insurers may decide to enter into a long, expensive rebuild and you could lose the use of your aircraft (and the income!) for months. Best idea is to insure your aircraft for its true market value so that in the case of a total or constructive total loss, the sum insured will adequately enable you to replace the aircraft with a similar model in like condition. The reason we highlight this is that the USA is still the main source of used aircraft and the price of used aircraft continue to appreciate. From a New Zealander’s point of view, this is further aggravated by the fluctuations of the NZ dollar against the US dollar. The higher USA aircraft values has not caught up yet with NZ and Australian values, but it eventually will which will certainly reflect in dramatic price increases to purchase an equivalent aircraft in the USA and get it up and running in New Zealand. Avsure is the only NZ insurance broker utilising the computerised Aircraft Bluebook Digest® which is to a large degree the benchmark of used aircraft and helicopter prices worldwide. Bluebook values are provided free to Avsure clients. The information is completely confidential and will be used only for the purpose of arriving at the fair market insurable value of your aircraft. Please e-mail us if you would like to avail yourself of this service. We will need the model, year, type and model, TT on airframe and engine TSOH.
Commercial operators with higher valued aircraft on finance are exposed to a potential loss of earnings that may accompany the grounding of an aircraft for repair following an accident. It is however possible to arrange Loss of Use insurance under which the Hull Insurers will pay the insured a certain amount to offset loss of earnings arising from the Insured being denied income as a result of accidental damage. Cover is normally arranged to a maximum of 90 days following the first 14 days grounded and a daily indemnity is then payable for each day the aircraft is grounded up to a maximum of three months. This coverage is not expensive and provides comfort to the owner that insurance will pay a fixed daily allowance which can contribute towards financial payments and other fixed commitments including insurance premiums and the like in the case of valid claims other than in the case of a Total or Constructive Total Loss. Unfortunately, this cover is not available from all Insurers.
GST AND AVIATION INSURANCE PREMIUMS Clients of ours will notice that we clearly note on our invoices and premium statements that with regard to nearly all Full Flight Risk Hull and Liability Policies arranged with offshore insurance facilities the following:- "GST is zero rated and not applicable in any respect" No exceptions. Whether the insured person is GST registered or not, GST is not applicable on aircraft policies we arrange offshore and accordingly it is not technically or legally correct for GST registered policy holders to claim any GST recovery.
This is a little more complex and we need to consider it in two categories:-
Repair Claims New Zealand repairers are liable to charge GST for repairs undertaken in New Zealand for New Zealand resident insured persons/policy holders. In the case of a GST registered insured person, the offshore insurer will pay the nett repair costs (less GST), and less the applicable deductible. The policy holder will be responsible to the repairer for payment of the deductible and the GST content which is recoverable on their next GST return. In the case of a policy holder that is not registered for GST purposes, the GST amount of the repair bill is included and paid by the offshore underwriter less the deductible. In such cases the unregistered (GST) policy holder will then only need to pay the hull deductible directly to the repairer. Total Loss Claims In the case of total loss, constructive or arranged total loss including cash settlements in lieu of repairs, such settlements involve a direct supply between the offshore insurer and the insured policy holder. As the underlying policy of insurance is not subject to GST then GST is not payable by GST registered persons on cash settlements from offshore insurers. In calculating the agreed value therefore, the non-GST registered policy holder should insure their aircraft including the GST content as this will be the amount needed to replace the aircraft in case of total loss. On the other hand, the GST registered policy holder insures for an agreed value excluding GST content as the GST would already have been recovered or be in the process thereof.
Under the provisions of the War, Hijacking and Other Perils Exclusion Clause embodied in all aviation policies, amongst other things it excludes any and all claims arising from malicious damage, sabotage, riots and the like. Obviously this not intended to apply to generally peaceful communities such as ours. Protection against such occurrences however is covered by the "Extended Coverage Endorsement (Hulls) Clause Section II" which Avsure incorporates into all policies which nullifies the impact of the general policy exclusion which would possibly exclude malicious damage claims. Rest easy. All policies we arrange covers malicious damage and vandalism, but always subject to the applicable policy deductible which usually applies to each and every claim.
When an incident occurs that is likely to give rise to a claim under the policy, the policy holder should in the first instance advise the broker and we (they) will in turn formally advise the insurance company brief details of the occurrence. The insurer (underwriter) then appoints a qualified claims adjustor who is familiar with aviation matters to investigate the circumstances and evaluate the extent of damage, repair options, etc, etc. At this point the broker to some degree is out of the loop with the adjustor (representing the underwriter) dealing directly with the insured party. We as brokers however, will monitor progress with the adjustor and underwriter (as required) and provide advice and direction to the insured client as and when required. Some Important Aspects Regarding Claims to Bear in Mind
Turbine operators often enquire as to "hot start insurance". There is no such animal! The occurrence of a hot start which is defined as a fire or explosion inside the engine casing is technically not excluded under the aircraft policy. It has been argued in the past by underwriters that hot starts come under progressive or accumulative damage (there is an exclusion in the policy about that) but if the engine is withdrawn from service after a single recorded incident of a hot start, then it is our opinion that the policy should cover any damage to the engine (in excess of the deductible of course). Any subsequent damage to the aircraft itself resulting from a violent hot start and subsequent fire is automatically covered anyway. Subject that the hot start was caused by a pilot induced "error or mistake" then we argue this is an "accident". If however, a start is initiated with a pilot knowing that he has a low battery situation, a faulty battery, starter motor or FCU or the like, then this could be argued as not being an accident and under those circumstances a claim may not be successful. The main thing to remember is following a suspected hot start, the turbine engine must be withdrawn immediately from service for inspection otherwise we will have no defence against the "progressive and accumulative effect" argument. |
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