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Heavy competition continues to drive down general aviation insurance rates


General aviation insurance buyers are finding lower rates in a highly competitive market that is awash in capital in an industry that is growing slowly.

A bright spot for the generally middle market-size business is “unmanned aircraft systems,” better known as drones, which are expected to be a significant growth area once U.S. Federal Aviation Administration regulations are issued (see related story).

General aviation encompasses the manufacture and operation of any type of aircraft that has been issued a certificate of airworthiness by the FAA, other than aircraft used for scheduled commercial air service or operated by the U.S. military, according to the Washington-based General Aviation Manufacturers Association.

There are 360,000 general aviation aircraft worldwide, 209,000 of the total in the United States, according to the association, which forecasts an annual growth rate of 0.5% through 2033 led by 3.5% growth in the business jet segment, according to the 2013 General Aviation Statistical Databook & 2014 Industry Outlook.

U.S. shipments of new aircraft increased 4.3% in 2013 to 2,256, according to the association, still well below the 2007 peak of 4,276 in the industry which has been hampered by the Great Recession, according to the databook.

Observers say the insurance market for general aviation, which has a strong safety record (see chart below), is soft to flat with some signs of stabilization.


“The market has been extraordinarily soft since at least 2007, and we've seen several carriers either withdraw or announced withdrawal from the market,” said Michael J. Kerwin, vice president of analytics at Frederick, Maryland-based Avemco Insurance Co., a subsidiary of HCC Insurance Holdings Inc.

“It is probably the craziest we have seen it in a long time,” said Dean Anderson, Atlanta-based aviation national practice leader for Wells Fargo Insurance Services USA Inc. “We are still in a very depressed market going into our eighth year, where prices have continued to go down because of so much capacity available in the marketplace, with about six or seven new markets that got into the aviation business over the last three, four years.”

Some general aviation insurers are trying to keep their rates stable, “but then you've got other markets that continue to fight to increase their portfolio and are continuing to draw the market down,” he said.

The general aviation insurance market has “lots of competition, lots of new capacity in the marketplace and it's a buyers' market,” said Michael P. Kriebel, New York-based U.S. general aviation head at Allianz Global Corporate & Specialty in the Americas.

Bradley A. Meinhardt, area president and managing director of aviation at Arthur J. Gallagher Risk Management Services in Las Vegas, said some underwriters are trying to get 2% or 3% increases, but “there's so much competition that reductions are still the norm.”

Peter Schmitz, New York-based head of Aon Risk Services' U.S. national aviation practice in New York, said overcapacity means general aviation rates continue to decline, although “we're seeing smaller reductions than we've seen in the past.”


Underwriters “are coming up with innovative coverages to separate themselves from their competitors,” he said.

There are distinctions among various market segments, said Joseph Braunstein, general aviation practice leader at Marsh L.L.C. in New York.

For example, the market for corporate jets is relatively flat, while the loss experience for aircraft put out for hire has historically “been a little bit more”, and underwriters are starting to seek increases in this segment, he said.

Bill Snead, president of Wichita, Kansas-based AOPA Insurance Services, a unit of the Aircraft Owners and Pilots Association, said there are about 15 general aviation insurers, but “the bulk of the insurance that is written is by a half dozen companies and they have remained very stable.”

“Those underwriters that have significant new-business plans are really trying to make their managers happy,” and in many cases are trying to attract accounts from other underwriters, including adding coverage as prices go down and offering higher limits, Gallagher's Mr. Meinhardt said.

Most general aviation insurers have indicated they expect premiums to go up in small increments over the next year or two, but “I'm not quite as optimistic as they are,” said Ty Carter, Kansas City, Missouri-based aviation producer at Lockton Cos. L.L.C.

“There's just an abundance of capacity and, until it goes away” through mergers or as a result of higher loss ratios, there will not be a change, he said.