Insurance will not quote: hull value too low

schmookeeg

schmookeeg

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Alameda, CA
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Display name:
Mike Brannigan
...what? o_O

In fact, this guy too:

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It's been two weeks of my trying to get an insurance quote. I have an active policy, so they know my deets and they know that my checks clear. I've wanted to move on an airplane but will not do so without understanding the current insurance landscape for the thing. It's another Beech, it's even another Baron. I ooze time in type and am a BPPP Instructor and they know these too.

My requested hull value quote is for 100K. Current ask from the selling broker is 105K. The plane is probably in the lower 50% of equipage for the type, but not a roach. Nice paint, reasonable interior, middle class avionics with autopilot and waas gps. Engines at 3/4 TBO, neither one over.

What are these underwriters worried about? I thought the moral hazard was with OVER-insuring an aircraft then dunking it into the ocean and enjoying a fraudulent little payday. You'd think they would love someone under-insuring and then they pocket the salvage to boot after a weak payout.

I'm sort of gobsmacked that my broker didn't throw it in the underwriter's face before presenting it to me as a reasonable statement. I sent a terse but patient reply, however... my first draft was the equivalent of a Howler in the JK Rowling universe.

I'm missing something here, or someone is on crack. Ideas?

Plane is likely sold by now due to insurance bungling. Sigh.
 
My friend and I also tried to insure an airplane with a low claimed hull value and had the same thing happen. Insurance is getting strange.

I suspect it has to do with relatively minor claims being able to total out an airplane when the hull value is set too low. It didn’t seem like they cared about things like that 5 years ago but they sure seem to now.
 
it’s amazing, but Losses in the lower tier are proportionately higher than in the MFD equipped IFR set, and if you’re low time, and thus high risk all you can get is liability.....
 
I don’t understand it, but too-low hull values have been considered a high risk for a long time. It’s nothing new.
 
I've never had that problem with my insurance broker — he's a GA pilot himself, and will try to find a policy for anything (and will happily spend a half hour on the phone swapping flying stories).

In general, though, it probably takes as the same amount of work to arrange a $50K hull policy as it does to arrange a $500K hull policy, but the broker gets only 1/10 of the commission, and the underwriter gets only 1/10 of the policy cost. Perhaps some aviation-insurance brokers and underwriters have enough work at the higher end that they don't want to take nickle-and-dime jobs.

It's a common problem. I work with one client in aid who will no longer apply for grants <=$100K, because it's just as much work as a $1M grant (if not more), and they end up wasting most of the grant on extra staff time arranging and managing the grant itself. :(

For the OP, COPA here in Canada works with an insurance underwriter who is motivated to try to provide a policy for any COPA member because of their partnership with the organisation. Does AOPA also have an insurance partner? Have you tried there?
 
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David Megginson said:
I've never had that problem with my insurance broker — he's a GA pilot himself, and will try to find a policy for anything (and will happily spend a half hour on the phone swapping flying stories).

In general, though, it probably takes as the same amount of work to arrange a $50K hull policy as it does to arrange a $500K hull policy, but the broker gets only 1/10 of the commission, and the underwriter gets only 1/10 of the policy cost. Perhaps some aviation-insurance brokers and underwriters have enough work at the higher end that they don't want to take nickle-and-dime jobs.

It's a common problem. I work with one client in aid who will no longer apply for grants <=$100K, because it's just as much work as a $1M grant (if not more), and they end up wasting most of the grant on extra staff time arranging and managing the grant itself. :(

For the OP, COPA here in Canada works with an insurance underwriter who is motivated to try to provide a policy for any COPA member because of their partnership with the organisation. Does AOPA also have an insurance partner? Have you tried there?
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Have you ever tried to insure an aircraft for a hull value that is significantly less than the value of the aircraft?
 
Tarheelpilot said:
Have you ever tried to insure an aircraft for a hull value that is significantly less than the value of the aircraft?
Click to expand...
My broker didn't say no, but he advised against it:
  • If you insure for too low a hull value, the claims adjuster might write off your plane for relatively minor damage, because it's cheaper than repairing (plus paperwork, etc).
  • If you insure for too high a hull value, the claims adjuster might insist on repairing major damage that should have resulted in a write-off, leaving you with a plane that has major damage history and will be hard to sell (and possibly also never fly quite right again).
Because the insurance company has the power to decide whether to repair or write-off, it's in the owner's interest to have the hull value as accurate as possible.
 
David Megginson said:
My broker didn't say no, but he advised against it:
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Your broker isn’t the one who makes the decision whether or not to provide coverage...he’s just trying to get you in the ballpark so the underwriter will accept it, which, apparently the OP’s broker didn’t adequately do.
 
MauleSkinner said:
Your broker isn’t the one who makes the decision whether or not to provide coverage...he’s just trying to get you in the ballpark so the underwriter will accept it, which, apparently the OP’s broker didn’t adequately do.
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True, but my broker has decades long relationships with the few insurance underwriters in Canada, and he's never had a problem getting me multiple quotes for any the hull value I've asked for.

It's especially wild in Canada, because our airplanes are valued in US dollars but insured in Canadian. When I first bought my Piper PA-28-161 for about US $50K 19 years ago, I insured it for CA$75K. Then a few years later the Canadian dollar shot up above the US, so I lowered the insured hull value to CA $50K. Then the CAD fell again, so I raised the hull to CA $65K. Then I did some major upgrades (and noticed changes in the market) and raised the insured value to $85K.I might have to go to CA $100K this year because of the hot used-plane market (I'm always trying to get to close to the cost of replacement).

I've never been asked to justify any of those changes to the underwriters, and my broker has always had multiple quotes for me every November near renewal time.
 
David Megginson said:
True, but my broker has decades long relationships with the few insurance underwriters in Canada, and he's never had a problem getting me multiple quotes for any the hull value I've asked for.

It's especially wild in Canada, because our airplanes are valued in US dollars but insured in Canadian. When I first bought my Piper PA-28-161 for about US $50K 19 years ago, I insured it for CA$75K. Then a few years later the Canadian dollar shot up above the US, so I lowered the insured hull value to CA $50K. Then the CAD fell again, so I raised the hull to CA $65K. Then I did some major upgrades (and noticed changes in the market) and raised the insured to $85K.

I've never been asked to justify any of those changes to the underwriters, and my broker has always had multiple quotes for me every November near renewal time.
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So your hull value requests have always been within the limits hat the underwriters will cover.
 
This is not limited to airplane insurance. There are more partial-value claims than total-value claims. For example, on any given day, my house insurance is much more likely to see a $15,000 claim (hail and wind destroyed the roof shingles) than a $300,000 claim (fire burned it to the ground). They probably get something like 100 claims for 5% of the value for every claim they see for 100% of the value. The actuaries determine your premium based on the statistical distribution of those claims.

If I and 100 other people insure our $300,000 houses for a declared value of $15,000 because we are willing to accept the low risk of a total loss but not the high risk of having to re-shingle it, our premiums will be based on the statistics, such as 100 claims for 5% ($750) for every claim for 100%, total risk of $90,000 for 101 claims. But we will actually be filing 101 claims for 100%, for a total risk of $1,515,000, which is about 17 times what they based our premiums on.

Other than refusing to insure something for less than its market value, insurance policies can contain provisions that reduce your coverage proportionately to the amount you are underinsured, to even out the risk profile back to what they based your premiums on. For example, if I insure my $300,000 house for $15,000 and I make a $15,000 claim, they will appraise my house, see that I have 5% of its value insured, and then pay me 5% of my claim ($750).

I don't know how much of that problem has informed aviation insurance, as compared with what I would expect to see which is more like declared-value insurance for classic cars. I should probably spend some of my spare time reading my policy more closely. At any rate, that is the problem they are probably trying to avoid.
 
Is your deductible a fixed $ amount, or a %? Insurance companies that have a % deductible want the insured value to be as high as possible and not undervalued. This is because the deductible is not a % of the loss, but rather a % of the whole value. I see this a lot in homeowner's insurance. A typical 2% deductible on a $500k home policy = $10k deductible. If that same home was underinsured at $200k, then the deductible would only be $4k and this increases the likelihood that insurance would actually have to pay something for minor incidents. I only had to make 1 insurance claim in my entire life. It was on my house's roof after a hurricane. I had the home value declared at the price I paid years earlier which was much lower then the appreciated value at time of loss. My insurance agent was shocked because my deductible was so low. If I had updated the home's value before the loss, my deductible would have been higher then the cost of a new roof.
 
Tarheelpilot said:
Have you ever tried to insure an aircraft for a hull value that is significantly less than the value of the aircraft?
Click to expand...

Who said anything about significantly lower than the value?

The OP is trying to insure the airplane for within $5k of the selling price.

That’s the part that boggles my mind.
 
Fearless Tower said:
Who said anything about significantly lower than the value?

The OP is trying to insure the airplane for within $5k of the selling price.

That’s the part that boggles my mind.
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Yes, but insurance companies don't differentiate by how much. It simply checks the box that hull is underinsured and renders it uninsurable for that simple reason. Insurance companies don't care what the owner paid because it doesn't necessarily equate to its actual value.
 
Fearless Tower said:
Who said anything about significantly lower than the value?

The OP is trying to insure the airplane for within $5k of the selling price.

That’s the part that boggles my mind.
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The insurance company doesn't care about the selling price. As far as they're concerned, he could be getting a great deal. That doesn't change the risk though.
 
Regardless, after chewing on my broker, the insurer agreed to quote at 115k. So we were 15k apart. That seems like an even more ridiculous and tiny variance to quibble over.

I am no more enlightened about wtf happened in this quote process, though. Luckily, the quote was high enough ($3700 -- about 2x my current baron :eek:) to stop the conversation in its tracks.

My own plane renews in 3 months. I am worried that "the tight market" will close the gap between the two quotes, but that's a problem for July Mike to deal with, leaving March Mike to keep daydreaming. :D
 
schmookeeg said:
Regardless, after chewing on my broker, the insurer agreed to quote at 115k. So we were 15k apart. That seems like an even more ridiculous and tiny variance to quibble over.

I am no more enlightened about wtf happened in this quote process, though. Luckily, the quote was high enough ($3700 -- about 2x my current baron :eek:) to stop the conversation in its tracks.

My own plane renews in 3 months. I am worried that "the tight market" will close the gap between the two quotes, but that's a problem for July Mike to deal with, leaving March Mike to keep daydreaming. :D
Click to expand...
That would be high by Canadian standards, too. Up north, I'm paying CA $1,900 (US $1,500) for a hull value of CA $75K (US $60K) and liability of CA $1m (US $790K). That's excluding sales tax, which varies from province to province (just like it would from state to state in the US).

Strangely, my liability portion has a note "Incl. war" — which I hadn't noticed before — so if Canada and the US decide to restart the War of 1812, I guess I'm still covered. :-/
 
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