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

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Part I
“Broker-Of-Record Letter”

What is it?..
Who Requires it?…
Should you sign one?

InsuranceAviation Insurance can be purchased in two ways: (1) from a “direct writing”company where the insured contacts the company direct; or (2) through an independentinsurance 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-RECORDLETTER” (AOR). Often there is much confusion about what such a letter is and why itmay be necessary. We have seen a BOR issued only to be rescinded later when its meaningand effect was fully understood. We have heard comments such as “unfair tradepractices”, “restraint of trade”, “communist plot”, “I don’thave 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:

Insured:the insurance buyer.
Risk:the aircraft and the insurance details pertaining to it.
Insurer:an insurance company or the aviation managers for a group of insurance companies.
Agent/Broker:a person licensed by the State to transact insurance business, who may place business with several Insurers. The Agent / Broker discusses the risk with the Insured to develop the details of the risk and the needed coverage, then presents the risk to an Insurer(s).
Underwriter:an employee of and Insurer who will negotiate coverage terms with the Agent, provide a coverage proposal, and issue the insurance policy.

Specialized Field

Aviation insurance is a highly specialized field because of the complex nature of therisks involved, and the relatively small statistical base upon which rates are calculated.Risks are largely “judgment rated” in accordance with a company’s overallunderwriting standards and philosophy. An individual underwriter usually has a broad rangeof rating latitude on a given risk and can be influenced by his personal evaluation of arisk.

A knowledgeable agent who has done his homework can, in many cases, negotiate improvedterms with an underwriter by clarifying information or offering additional details. Forexample, if the pilot has marginal experience for the aircraft involved a discussion ofthe training and checkout procedures planned can be very helpful.

“Exclusive” Quote Basis

With rare exceptions, aviation insurers have traditionally chosen to deal with only oneagent on a given risk. They quote on an exclusive basis. The first agent to contact theinsurer becomes the exclusive agent of the risk. In the case of a renewal, the agentpresently handling the account with the Insurer remains the exclusive agent. Any otheragent who subsequently contacts that insurer is precluded from discussing it.

Without this rule, it would be possible for two different agents to contact twodifferent underwriters with the same aviation insurance underwriting company and be giventwo different quotes on the same risk. Such differences can create confusion with aninsured. The agent with the higher quote may accuse the insurer of showing favoritism tothe agent with the lower quote. The difference in premiums could be justified by thedifferences in coverages requested by each agent and the varying extent and accuracy ofthe 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 singleengine 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 thepilot and the other agent not. The instrument rating would be considered a very importantfactor by underwriters for this type aircraft and the agent confirming this bit ofinformation stands to get a better quote.

On the other hand, an agent who provides underwriters with details of previous lossesmay get a higher quote, or even a declination, than the agent who fails to provide theinformation. Any agent who would omit such critical information stands to have the quotewithdrawn when the underwriter receives a completed application. If the loss details arenot 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 thespecific liability coverages being offered, whether from a direct writing company orthrough an independent agent. Sometimes major differences in coverage are stated withsubtle differences in their description. For example:

  1. $1,000,000 Combined Single Limit (CSL) Bodily Injury (BI) and Property Damage (PD)

  2. $1,000,000 CSL BI & PD with passenger BI limited to $100,000 per passenger

  3. $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 putout several differing and confusing quotes on a risk, underwriters prefer to invoke the”exclusive” quoting basis.

The BOR

A BOR is a written authorization from the insured to an insurer designating a specificagent as the one who is to deal with that insurer on the risk. It is not required of thefirst agent who contacts the insurer – only subsequent ones. If an insured is dealing withonly one agent, the subject may never come up.

When the insurer receives the letter, the first agent is advised that the second agentis now the “exclusive” agent and that no more discussions can be had with thefirst agent. In fact, if the insurer has quoted the risk to the first agent, the quote iswithdrawn 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 atthe agent of record. This gives the first agent an opportunity to persuade the insured tochange his mind When a rescinding letter is written, it usually indicates that the insureddidn’t fully understand the effects of the BOR in the first place. Insurers don’t like toget caught in the crossfire between two agents competing on an account, and tend to loseinterest in it if there seems to be confusion as to who is to represent the risk. Mostunderwriters are reluctant to honor a BOR mid-term.

Not a Legal Requirement

There is no legal requirement for the traditional position taken by insurers regardinga BOR. Ethically, they are bound to follow the desires of the insured as to who willrepresent the risk. Even if an underwriter prefers one agent to another, he will followthe insured’s instructions to deal with the designated agent. The underwriter is alsoethically bound to make the same premiums available to the designated agent if the riskhas already been quoted. This assumes, of course, the same terms and coverages andunderwriting information.

There are times when an agent may ask for a BOR from an insured even though no otheragent has become involved in the account. This is especially true of larger, more complexaccounts. The proper handling of such an account can require a good amount of the agent’stime and efforts. The signing of the letter by an insured usually indicates that he hasconfidence in the agent. The agent’s time and effort won’t go unrewarded since he willultimately place the insurance. The letter indicates to the insurer that they are dealingwith 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 theinsured. This kind of contact results in sketchy or assumed underwriting information sincethe agent hasn’t even spoken with the insured. This may occur when an agent learns of apending aircraft sale and wants to write the business. Although blocking markets withoutthe insureds authority may not be illegal, it certainly is unethical. Because of theunauthorized contact a BOR would be required in such cases if the insured wanted to choosehis own agent.

Limited Number of Markets

There are only about twelve sources for aviation insurance in the U.S. today and allare not candidates for every risk. Most risks would be presented to only about half ofthese markets and, with larger and more complex risks, even fewer than that. When aninsured asks two or more agents to get aviation insurance quotes, most often the sameinsurers will be contacted by each agent. The first one making contact would become thatinsurers “exclusive” agent.

Appointment Not Irrevocable

A BOR should be treated by an insured as a serious commitment to an agent. He is hiringa new agent. An insured should also realize that the first agent will be advised by theinsurer of the change. However, it is not an irrevocable arrangement. In the aviationinsurance marketplace, the insured has the final say as to who his agent will be. If hechooses 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. Therequesting agent may be “blocked” from an insurer because another agentcontacted them first. The insured can then decide who he wants to represent him to thatinsurer, 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.]

Yours truly,

SIGNED: ________________________________

(Print Name):_____________________________

Title [If Corporation]: ______________________

Date Signed:______________


Part II
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 agentwrite my policy?

Pick your aviation insurance agent carefully and steer clear of amateurs. There arevery few aviation insurance specialists compared to the total number of general insuranceagents. A general practitioner (agent) usually will know only a few aviation underwritingcompanies at best and will have such a small volume of aviation business that he will notbe able to match the client with the most appropriate company.

Unlike many other lines of insurance, aviation insurance policies vary greatly incontent and coverage. It is very important that your agent understands the broad formsfrom 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 workingrelationship with the underwriters and the claims departments of the companies from whichhe 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 youhave selected a strong agent who specializes in aviation insurance, he can approach theentire group for you. Pitting two or more agents against each other is usuallycounter-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 anysubsequent agent you appoint. Your selection process should be that of choosing youragent. If only one agent is presenting your risk, the underwriter will know that this isthe person with whom he must deal. You eliminate the confusion of multiple agentscontacting the same underwriter and keep your insurance marketing at a most professionallevel.

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 anew agent and give him the authority to represent you by “Broker of RecordLetter.” 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, thisis one of the most important aspects of the insurance placement process. The better youand your agent present your risks to the underwriting community, the better response youwill have. This is reflected in broader coverages and premiums savings. Keep in mind, onlyyou can do the proper job in preparing your resume. Your agent does not know your historyas well as you. So, a word of advice – help the agent develop the underwriting submissionand 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 logbookup 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 submissiona requirement of the policy. If you overestimate your experience, you may find yourselfnot meeting the minimum standards set for you in your policy. If you employ a pilot, it isup to you to assure the information furnished by your pilot is accurate. Check hislogbooks.

I’m not very familiar with the make and model of my aircraft — am I at risk for beingrejected by the underwriter?

If the aircraft to be insured is of a make and model unfamiliar to you, work with youragent to develop a pilot training and transition plan before you or anyone approaches theunderwriter. A strong transition plan takes the burden off the underwriter and may turn anunderwriting 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 toextend 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 thecockpit. Some, however, don’t want to prepare, train, practice and pay the price to beamong the best. Remember, the underwriting community has heard all the bragging, theexcuses and the broken promises about pilot skills and training.

Don’t overlook the importance of recurrent training. Most underwriting companies arerequiring annual schools for all pilots flying turbine, jet or high performance pistonequipment. Underwriting statistics have long proven the school-trained pilot has fewerlosses. If we know annual training is required, we may as well make it a vital part of ourunderwriting submission. We look more professional and will be rewarded with a betterunderwriter response.