Selecting an Aircraft Insurance Agent
Why can't an aircraft owner shop among two or three different brokers to get the best quote? What's the scoop on
What is it?..
Who Requires it?...
Should you sign one?
Aviation Insurance can be purchased in two ways: (1) from a "direct writing" company where the insured contacts the company direct; or (2) through an independent insurance agent who represents several companies.
Occasionally, an insurance buyer is asked by an independent insurance agent to sign a "BROKER-OF-RECORD LETTER" (BOR), sometimes called an "AGENT-OF-RECORD LETTER" (AOR). Often there is much confusion about what such a letter is and why it may be necessary. We have seen a BOR issued only to be rescinded later when its meaning and effect was fully understood. We have heard comments such as "unfair trade practices", "restraint of trade", "communist plot", "I don't have to do this with my auto and homeowners insurance", etc.
Our intent in this article is to clear some of the confusion.
First, a few terms as used in this article:
Aviation insurance is a highly specialized field because of the complex nature of the risks involved, and the relatively small statistical base upon which rates are calculated. Risks are largely "judgment rated" in accordance with a company's overall underwriting standards and philosophy. An individual underwriter usually has a broad range of rating latitude on a given risk and can be influenced by his personal evaluation of a risk.
A knowledgeable agent who has done his homework can, in many cases, negotiate improved terms with an underwriter by clarifying information or offering additional details. For example, if the pilot has marginal experience for the aircraft involved a discussion of the training and checkout procedures planned can be very helpful.
"Exclusive" Quote Basis
With rare exceptions, aviation insurers have traditionally chosen to deal with only one agent on a given risk. They quote on an exclusive basis. The first agent to contact the insurer becomes the exclusive agent of the risk. In the case of a renewal, the agent presently handling the account with the Insurer remains the exclusive agent. Any other agent who subsequently contacts that insurer is precluded from discussing it.
Without this rule, it would be possible for two different agents to contact two different underwriters with the same aviation insurance underwriting company and be given two different quotes on the same risk. Such differences can create confusion with an insured. The agent with the higher quote may accuse the insurer of showing favoritism to the agent with the lower quote. The difference in premiums could be justified by the differences in coverages requested by each agent and the varying extent and accuracy of the underwriting information developed. The details of coverages requested (limits, pilots, uses, geographical areas, etc.) could result in varied quotes on the same risk.
Examples of Confusion
For example, imagine a quote request on a Beechcraft Bonanza, a fairly complex single engine aircraft (six place, variable pitch prop, retractable landing gear, 230 h.p. engine). Imagine one agent aware of the significance of an instrument rating held by the pilot and the other agent not. The instrument rating would be considered a very important factor by underwriters for this type aircraft and the agent confirming this bit of information stands to get a better quote.
On the other hand, an agent who provides underwriters with details of previous losses may get a higher quote, or even a declination, than the agent who fails to provide the information. Any agent who would omit such critical information stands to have the quote withdrawn when the underwriter receives a completed application. If the loss details are not furnished to the underwriters, serious problems could arise in the event of a claim.
Another area which can cause confusing differences in premium quotations is the specific liability coverages being offered, whether from a direct writing company or through an independent agent. Sometimes major differences in coverage are stated with subtle differences in their description. For example:
$1,000,000 Combined Single Limit (CSL) Bodily Injury (BI) and Property Damage (PD)
$1,000,000 CSL BI & PD with passenger BI limited to $100,000 per passenger
$1,000,000 CSL BI & PD with BI limited to $100,000 per person.
A non-aviation insurance professional may not realize that:
Coverage #1 provides a full $1,000,000 "level" limit of BI and PD without a restriction on the amount available for any bodily injury claims.
Coverage #2 restricts the amount of protection available for bodily injury to passengers to $100,000 each, but with no further restrictions for persons outside the aircraft who may be injured.
Coverage #3 applies a restriction of $100,000 for any person injured, passenger or not.
Each of these liability coverages would result in different premiums. Rather than put
out several differing and confusing quotes on a risk, underwriters prefer to invoke the
"exclusive" quoting basis.
A BOR is a written authorization from the insured to an insurer designating a specific agent as the one who is to deal with that insurer on the risk. It is not required of the first agent who contacts the insurer - only subsequent ones. If an insured is dealing with only one agent, the subject may never come up.
When the insurer receives the letter, the first agent is advised that the second agent is now the "exclusive" agent and that no more discussions can be had with the first agent. In fact, if the insurer has quoted the risk to the first agent, the quote is withdrawn and the same quote is then given, exclusively, to the second agent.
The first agent is usually given a few days before the second agent is recognized at the agent of record. This gives the first agent an opportunity to persuade the insured to change his mind When a rescinding letter is written, it usually indicates that the insured didn't fully understand the effects of the BOR in the first place. Insurers don't like to get caught in the crossfire between two agents competing on an account, and tend to lose interest in it if there seems to be confusion as to who is to represent the risk. Most underwriters are reluctant to honor a BOR mid-term.
Not a Legal Requirement
There is no legal requirement for the traditional position taken by insurers regarding a BOR. Ethically, they are bound to follow the desires of the insured as to who will represent the risk. Even if an underwriter prefers one agent to another, he will follow the insured's instructions to deal with the designated agent. The underwriter is also ethically bound to make the same premiums available to the designated agent if the risk has already been quoted. This assumes, of course, the same terms and coverages and underwriting information.
There are times when an agent may ask for a BOR from an insured even though no other agent has become involved in the account. This is especially true of larger, more complex accounts. The proper handling of such an account can require a good amount of the agent's time and efforts. The signing of the letter by an insured usually indicates that he has confidence in the agent. The agent's time and effort won't go unrewarded since he will ultimately place the insurance. The letter indicates to the insurer that they are dealing with the agent who has the insured's authority to represent him.
There are cases where an unauthorized agent will contact a company on behalf of the insured. This kind of contact results in sketchy or assumed underwriting information since the agent hasn't even spoken with the insured. This may occur when an agent learns of a pending aircraft sale and wants to write the business. Although blocking markets without the insureds authority may not be illegal, it certainly is unethical. Because of the unauthorized contact a BOR would be required in such cases if the insured wanted to choose his own agent.
Limited Number of Markets
There are only about twelve sources for aviation insurance in the U.S. today and all are not candidates for every risk. Most risks would be presented to only about half of these markets and, with larger and more complex risks, even fewer than that. When an insured asks two or more agents to get aviation insurance quotes, most often the same insurers will be contacted by each agent. The first one making contact would become that insurers "exclusive" agent.
Appointment Not Irrevocable
A BOR should be treated by an insured as a serious commitment to an agent. He is hiring a new agent. An insured should also realize that the first agent will be advised by the insurer of the change. However, it is not an irrevocable arrangement. In the aviation insurance marketplace, the insured has the final say as to who his agent will be. If he chooses to change his mind, he has the right to do so.
If asked to sign a BOR, an insured should consider the reasons for the request. The requesting agent may be "blocked" from an insurer because another agent contacted them first. The insured can then decide who he wants to represent him to that insurer, and make his decision accordingly.
Example of a typical "Broker-Of-Record Letter"
This one is used by CS&A Aviation Insurance:
|Mr. Darrell M. Hyde [May be addressed directly to the Insurer]
CS&A Aviation Insurance
327 Dahlonega Rd, Suite 1804-B
Cumming, GA 30040
This is to confirm, effectively immediately [or on a specific date], the appointment of CS&A Aviation Insurance, Inc. as the exclusive Agent of Record and the authorized representative for purposes of developing coverage proposals and placing aviation insurance coverages on my behalf.
I understand that aviation insurance companies will release a coverage quotation and proposal for insurance to only one agent. By signing this letter, I am terminating the ability of any other agent (including any agent currently involved) to obtain a quotation or to bind aviation insurance on my behalf.
A copy of this letter including my signature below will authorize any aviation insurance market to provide CS&A Aviation Insurance, Inc. with all of the pertinent information or documents required.
This appointment supersedes any previous such appointment and shall remain valid unless superseded in writing by me. [Since time is of the essence I request that any waiting period be waived.]
Frequently Asked Questions Related To
Selecting An Insurance Agent
And Developing Underwriting Information
Why should I use an Aviation Insurance Specialist? Can't my regular insurance agent write my policy?
Pick your aviation insurance agent carefully and steer clear of amateurs. There are very few aviation insurance specialists compared to the total number of general insurance agents. A general practitioner (agent) usually will know only a few aviation underwriting companies at best and will have such a small volume of aviation business that he will not be able to match the client with the most appropriate company.
Unlike many other lines of insurance, aviation insurance policies vary greatly in content and coverage. It is very important that your agent understands the broad forms from the limited forms. Although you may qualify or want a restricted form of coverage, your agent should have the knowledge and ability to counsel you on the differences.
This is a relationship business. It is important that your agent has a good working relationship with the underwriters and the claims departments of the companies from which he is requesting quotes.
Should I shop around for the best prices?
There are only a small number of underwriters capable of writing your coverage. If you have selected a strong agent who specializes in aviation insurance, he can approach the entire group for you. Pitting two or more agents against each other is usually counter-productive because an underwriter will only extend terms to one agent at a time.
The first quote or declination given by a company must remain the same for any subsequent agent you appoint. Your selection process should be that of choosing your agent. If only one agent is presenting your risk, the underwriter will know that this is the person with whom he must deal. You eliminate the confusion of multiple agents contacting the same underwriter and keep your insurance marketing at a most professional level.
What if I do not like my agent?
If you do not like your agent or are not confident in his service or ability, select a new agent and give him the authority to represent you by "Broker of Record Letter." Your new agent will be glad to provide you a copy of the desired wording.
I don't have time to deal with the application; can't my agent do it for me?
We see many clients treat the application process as a necessary evil. In reality, this is one of the most important aspects of the insurance placement process. The better you and your agent present your risks to the underwriting community, the better response you will have. This is reflected in broader coverages and premiums savings. Keep in mind, only you can do the proper job in preparing your resume. Your agent does not know your history as well as you. So, a word of advice - help the agent develop the underwriting submission and give this task priority.
How critical is correct information? Can I just estimate my pilot hours?
It is important to give accurate information to underwriters. Keep your pilot logbook up to date. If you must estimate on such things as pilot hours, it is important that you underestimate. Many policies will make the hours and ratings given on the pilot's underwriting submission a requirement of the policy. If you overestimate your experience, you may find yourself not meeting the minimum standards set for you in your policy. If you employ a pilot, it is up to you to assure the information furnished by your pilot is accurate. Check his logbooks.
I'm not very familiar with the make and model of my aircraft — am I at risk for being rejected by the underwriter?
If the aircraft to be insured is of a make and model unfamiliar to you, work with your agent to develop a pilot training and transition plan before you or anyone approaches the underwriter. A strong transition plan takes the burden off the underwriter and may turn an underwriting rejection into a good quotation.
Keep in mind, the underwriter is paid to accept or reject the risks as it is presented. If accepted, it is his job to price the policy and outline the coverage's he is willing to extend for that price. It is not his job to engineer the risk to make it more acceptable. That is up to the client and the agent.
How important is it for me to continue pilot training?
All pilots, professional or pleasure, want to be thought of as highly qualified in the cockpit. Some, however, don't want to prepare, train, practice and pay the price to be among the best. Remember, the underwriting community has heard all the bragging, the excuses and the broken promises about pilot skills and training.
Don't overlook the importance of recurrent training. Most underwriting companies are requiring annual schools for all pilots flying turbine, jet or high performance piston equipment. Underwriting statistics have long proven the school-trained pilot has fewer losses. If we know annual training is required, we may as well make it a vital part of our underwriting submission. We look more professional and will be rewarded with a better underwriter response.