Insurance companies <???>

[Let'sgoflying!]

I never really understood the insurance company shell game; that which we have all come to accept now as normal activity within the industry (and in fact if you even want to discuss it, some seem put out by your questions as if you are unfairly challenging this system or otherwise wrong to ask about it) however I received this info from my agency which is so confusing it makes the non-existent nerve endings in my cerebral cortex hurt ...well here is a direct quotation:

(I asked "who insures my airplane?" because of conflicting info I'd received.)

"Xxxx is the issuing company, entity which publishes the paper the insurance policy is written on. Yyyy is the Underwriting company providing the coverage.
Please let us know if you have any additional questions."

I want to say, 'hm, I was told an underwriter only assesses the risk and decides how big or small that is - are you saying they also insure me?'
And, wth is 'an entity which publishes paper the policy is written on' lol ???

Anyway, looking for non-judgmental non-partisan non-Covid-exposed person to explain this to me!

 

[Ravioli]

AOPA and other companies who you phone up and pay premiums to are the "brokers" and the policy is issued by the "insurer."

This is true in auto insurance as well.

For example:
My plane policy is brokered by Gallagher (good company to work with BTW) and the policy is issued by Old Republic.
My cars are brokered by USAA (also a good company to work with) and the policies are issued by GARRISON PROP AND CAS INS CO.

Hope that helps.

 

[smv]

Is your "Xxxx" USAA?

They have distanced themselves from "high risk" policies quite a bit over the years. You can still get a policy that is technically from USAA and that comes with all of the membership perks, but it is written, serviced, and paid out by a different compant entirely. There was a time I could get my motorcycle insurance through them. Now my bikes, my commercial vehicle, and my "Non-Owned CFI" insurance is all underwritten by a third-party.

 

[Let'sgoflying!]

AOPA and other companies who you phone up and pay premiums to are the "brokers" and the policy is issued by the "insurer."

This is true in auto insurance as well.

For example:
My plane policy is brokered by Gallagher (good company to work with BTW) and the policy is issued by Old Republic.
My cars are brokered by USAA (also a good company to work with) and the policies are issued by GARRISON PROP AND CAS INS CO.

No - I have a broker as well and I think highly of them as you do of yours.
So that would be a 4th party including myself!
My broker is the one telling me about Xxxx and Yyyy.

no, @smv not USAA although it could just as well be

 

[Ted]

It sounds like your aircraft insurance is getting farmer out by the issuer to a different underwriter, an extra step from what I’ve normally seen. I’ve always had a broker who then farms out to an underwriter, and that’s it. Each year I get a report of what the different underwriters are offering when it’s time to renew.

 

[CharlieD3]

With all the fluctuating (mostly upward) costs for insurance... I wonder why we as pilots don't form a "mutual" insurance company of our own.

Some medical specialties do this, and one specialist MD I know of is a part of a mutual. It saved him 30-60% over commercial lines.

A mutual is owned by the policy holders. Some are "reinsured" by big outfits that only rein them in if they suffer widespread catastrophic losses.

Maybe it's too hard to do... Maybe pilot's egos are even bigger than specialist MDs, and they couldn't cooperate in an endeavor like this. I dunno why it hasn't been done... But it oughta be...

fly to the scene of the incident, or be recovered at the scene of the tragedy

 

[flyingron]

USAA has not issued aircraft policies (at least since 1995). They've always been a broker for others. For a while, they had an exclusive arrangement with USAIG which was pretty nice until USAIG refused to insure everything. Unfortunately, USAA's aviation agency is a pretty crappy brokerage (compared to how well they do other things). I jumped ship from them on that a long time ago.

Most everything else I've had with them is pretty much in house except for a few things (my higher value home insurance, liability policy, and for a while when i needed it short term major medical).
Fortunately, their customer service on those is pretty good.

 

[NHWannabe]

I never really understood the insurance company shell game; that which we have all come to accept now as normal activity within the industry (and in fact if you even want to discuss it, some seem put out by your questions as if you are unfairly challenging this system or otherwise wrong to ask about it) however I received this info from my agency which is so confusing it makes the non-existent nerve endings in my cerebral cortex hurt ...well here is a direct quotation:

(I asked "who insures my airplane?" because of conflicting info I'd received.)

"Xxxx is the issuing company, entity which publishes the paper the insurance policy is written on. Yyyy is the Underwriting company providing the coverage.
Please let us know if you have any additional questions."

I want to say, 'hm, I was told an underwriter only assesses the risk and decides how big or small that is - are you saying they also insure me?'
And, wth is 'an entity which publishes paper the policy is written on' lol ???

Anyway, looking for non-judgmental non-partisan non-Covid-exposed person to explain this to me!

Underwriter (person) and Underwritten (company) the underwriter doesn't necessarily work for the company providing the coverage...I'll throw one more monkey wrench into the gears, the company providing the coverage typically has a Re-insurer for what is called stop-loss or catastrophic protection for the insurer. Lloyd's of London is the most recognizable name.

 

[Archer Jack]

USAA has not issued aircraft policies (at least since 1995). They've always been a broker for others. For a while, they had an exclusive arrangement with USAIG which was pretty nice until USAIG refused to insure everything. Unfortunately, USAA's aviation agency is a pretty crappy brokerage (compared to how well they do other things). I jumped ship from them on that a long time ago.

Most everything else I've had with them is pretty much in house except for a few things (my higher value home insurance, liability policy, and for a while when i needed it short term major medical).
Fortunately, their customer service on those is pretty good.

Many years ago I used USAA for both my house and auto policies. I grew up as an Air Force brat and my dad wouldn't have any insurance except USAA. This was back in the day when they insured only commissioned officers in all branches which tended to keep their risk and costs lower. I qualified to buy from USAA Casualty Insurance Co. (USAA for civilians) as a relative of a USAA member. However, several years ago USAA started transitioning to just another Allstate/State Farm/Lib.Mutual etc. and began selling to just about anybody. Their rates continued to increase and it seemed to me their service started to decline. I switched to another much cheaper company about 25 years ago and have been very happy with them. USAA has a good reputation but be careful about checking their prices.

 

[Jumpmaster]

USAA is simply not what it used to be. I joined in 1977 as an ROTC cadet and have been with them ever since. However, they have eliminated lines of insurance such as motorcycle and some RV’s (they have a “special relationship” with Progressive) and their aviation brokerage doesn’t respond to e-mails or return calls. Frankly, I am getting concerned that if I would ever have a large claim, it might be a difficult experience. I’ve also noticed over the years they have become a lot more litigious - just like State Farm and the rest of the industry.

 

[Geosync]

I’ll try to distill it down to some general definitions since I work for an aviation insurance company.

There are many ways to do it, and it gets confusing, but it’s not a shell game. It comes down to $$$ like any other industry. In general, there are specialists in certain industries- aviation, space, marine, etc. Maybe they are ex-B2 pilots, astronauts, etc. They are a group of people who don’t have the 10s of millions to get going. Let’s call them ACME. They go the Big Insurance to team up, aka get financial backing, with the idea that they will all make money(lie!) The big boys are the AIGs, CHUBBS, Liberty Mutuals of the word. Little guy gets the support and safety of the big companies and possibly big name cred, and Big Insurance Company hopefully gets another source of income with little to no work on their part, other than quarterly audits. They don’t underwrite, they don’t deal with the end user(the insured). They are simply the money behind it.

I don’t want to get too deep into the weeds, but the backing “member” companies can be many, 2, 3, 4, etc, and they all take a cut of the premiums, but also all spread the risk of the losses. Some member companies run the numbers after a bad year and decide to bail, and then another one will usually take their place. But on the face if it, it’s still ACME. ACME is the group of underwriters who know the difference between a Cessna and Cirrus, CFI between private pilot. Big Insurance are the faceless money people who don’t know and don’t care about a plane smaller than a G550 which they may ride on for corporate travel. So ACME can issue you the policy, but behind the scenes, ACME has backers whose money ends up in your pockets when you gear up your new Bonanza. It sounds like in this case, ACME is considered your “underwriter”, and Big Insurance is issuing the policy.

Terms like agents/brokers/underwriters can be loose, but this is how it works-
Silent Money- Big Insurance member companies
foot soldiers- underwriters assessing your risk
Brokers/agents- negotiating with the foot solders/underwriters and dealing with the public.

of course, all of these can be one huge company in certain setups but for our purposes, what I described is how it works.

 

[Chip Sylverne]

First, understand that aviation is but a pimple on the ass of the insurance business overall in terms of premium as well as risk. It's also fairly loosely regulated from a state consumer protection point of view, so it's easy for underwriting companies and reinsurers (the insurance company's insurance company) to enter and exit the business depending on how much capital they have to put at risk. They call it excess capacity. If the risk pool shrinks due to catastrophic loss or poor investment returns, a company may want to pull in it's horns. Aviation is easy risk to shed.

I spent many years as an aviation insurance exec. It is a bit of a shell game, but not necessarily in a bad way, it just allows the spreading of risk. The originator of the contract may accept risk up to x dollars, and insure themselves by entering into an agreement with a reinsurer for anything over that. Lloyd's is but one, there are many.

Pretty much the only direct writer I know, that is the salesman you talk to also works for the company that writes the contract, is AVEMCO. Ultimately I believe they are owned by Tokio Fire and Marine, a HUGE insurance Company.

 

[Chip Sylverne]

With all the fluctuating (mostly upward) costs for insurance... I wonder why we as pilots don't form a "mutual" insurance company of our own.

Some medical specialties do this, and one specialist MD I know of is a part of a mutual. It saved him 30-60% over commercial lines.

A mutual is owned by the policy holders. Some are "reinsured" by big outfits that only rein them in if they suffer widespread catastrophic losses.

Maybe it's too hard to do... Maybe pilot's egos are even bigger than specialist MDs, and they couldn't cooperate in an endeavor like this. I dunno why it hasn't been done... But it oughta be...

fly to the scene of the incident, or be recovered at the scene of the tragedy

It's been done. At one time National Aviation Underwriters was a mutual exchange. Not enough overall premium available in the pool to make it worthwhile.

 

[CharlieD3]

It's been done. At one time National Aviation Underwriters was a mutual exchange. Not enough overall premium available in the pool to make it worthwhile.

Well the group I was referring to was oral surgeons. There are 9,000 of them in the US. I don't know how many belong to the mutual, but prolly not all of 'em.

There were an estimated ~150,000 single engine aircraft ACTIVE in 2017.

Seems to me the pool is large enough, even if that number were halved.

Now, halve it again. Seems that 35,000 aircraft having some 50,000 ppl pilots distributed amongst them (50K arrived at by halving the number of active PPL twice) would be a big enough pool to create a substantial mutual.

If each would pay average $1,000 monthly, you would have $50 million in the pool for each month sans claims. You're gonna have claims, of course.

Might require pilots to have some sort of umbrella liability policy (that did not exclude aviation) in addition to their mutual policy.

fly to the scene of the incident, or be recovered at the scene of the tragedy

 

[TCABM]

...If each would pay average $1,000 monthly, you would have $50 million in the pool for each month sans claims...

That’s a $12K annual premium, unless I’m misunderstanding something.

 

[455 Bravo Uniform]

Ok, so to continue the education, @Geosync and @Chip Sylverne :

What happens when an incident occurs and the underwriter might have to provide cash to the insured? What does that process look like? I imagine a discussion ensuing between the silent money, underwriter, reinsurers, and broker to determine if to pay out. Is it as messy as it sounds?

 

[Chip Sylverne]

Ok, so to continue the education, @Geosync and @Chip Sylverne :

What happens when an incident occurs and the underwriter might have to provide cash to the insured? What does that process look like? I imagine a discussion ensuing between the silent money, underwriter, reinsurers, and broker to determine if to pay out. Is it as messy as it sounds?

That's why they have legal departments .

Seriously though, a lot depends on the claim, the excess coverage written by the reinsurer, etc. For 99% of GA claims, the lead underwriter writes the checks.
Salesmen and brokers are out of the picture entirely when it comes to claims. Payouts are determined by either in-house or contracted loss managements and the lead underwriter. The loss manager either writes the check, or authorizes the payment.

Reinsurance is generally a treaty written to cover aggregate losses over a certain limit based on book of business. Fr, instance Company A u underwriter covers the first $50 million in losses, and has a treaty with reinsurer B that kicks in after that up to whatever the reinsurer is comfortable with. There can be layers on up after that as well. That is between those companies, and is transparent to the claimant.

And last but not least, the legal system, if fair settlement can't be reached under the policy limits and terms of the insurance contract, the courts have final say. To be honest, then the cost of an insurance policy is cheap, because if there is an incident, it comes with a lawyer attached.

 

[PPC1052]

I never really understood the insurance company shell game; that which we have all come to accept now as normal activity within the industry (and in fact if you even want to discuss it, some seem put out by your questions as if you are unfairly challenging this system or otherwise wrong to ask about it) however I received this info from my agency which is so confusing it makes the non-existent nerve endings in my cerebral cortex hurt ...well here is a direct quotation:

(I asked "who insures my airplane?" because of conflicting info I'd received.)

"Xxxx is the issuing company, entity which publishes the paper the insurance policy is written on. Yyyy is the Underwriting company providing the coverage.
Please let us know if you have any additional questions."

I want to say, 'hm, I was told an underwriter only assesses the risk and decides how big or small that is - are you saying they also insure me?'
And, wth is 'an entity which publishes paper the policy is written on' lol ???

Anyway, looking for non-judgmental non-partisan non-Covid-exposed person to explain this to me!

Ok, so I have experience in the industry as a lawyer that does work for insurance companies, including those in the aviation industry. This situation can definitely be confusing. Geosync pretty well covers it, and why it happens. (The MGU has experience and knowledge in the field; the insurance company has the size and reserves to comply with insurance regulatory requirements.) What it sounds like is your broker went to an entity known as an MGU (Managing General Underwriter), or an MGA (Managing General Agent). That entity enters into an agreement with the insurance company to issue insurance policies "on the paper" of the insurance company. This means that the MGU is issuing the insurance policy with the contract language that belongs to or at least has been agreed to by the insurance company. Provided that the MGU follows the contract form agreed to by the insurance company, and stays within certain underwriting guidelines and limits agreed to between the MGU and the insurance company, the MGU has the authority to issue the insurance policy on behalf of the insurance company. In other words, they have the authority on behalf of the insurance company to evaluate the prospective risk (perform the task of underwriting) and accept it on behalf of the insurance company. I have also seen situations in which the MGU can even adjust and pay the claims of the carrier up to a certain amount. I ran into that in a large claim that I was involved in when I went to a mediation involving a large hangar fire and the MGU had failed to tell the insurance company that there was a claim that was in excess of their adjusting authority limits. Needless to say, the mediation ground to a halt. I have also seen this in the self-funded health insurance field for stop loss coverage.

This coverage differs from reinsurance in that with reinsurance, the insurance carrier who is accepting the risk of the insurance policy is then placing it with other carriers to help spread the risk around.

 

[CharlieD3]

That’s a $12K annual premium, unless I’m misunderstanding something.

You're right, but you shouldn't need $50MM a month to cover the pool. You might need that much a year.... Give or take. As a mutual, "profits" are returned (at LEAST in lower rates) to the policy holders.

If you did it as a co-op... "Profit" could be returned more directly. You will have admin. costs but they needn't be exorbitant... And, of course, the cost of reinsurance.

And, hey, we're pilots... AMUs aren't supposed to mean anything to us.

There was a low time vfr pilot who bought a Bo A36, was paying about $9,600 annually who just got dropped. Lotta plane for a low time pilot. But he was okay with the premium, and, no claims. Shouldn't his "vig" be lowered a bit after a year, instead of being dropped?

fly to the scene of the incident, or be recovered at the scene of the tragedy

 

[Geosync]

Ok, so I have experience in the industry as a lawyer that does work for insurance companies, including those in the aviation industry. This situation can definitely be confusing. Geosync pretty well covers it, and why it happens. (The MGU has experience and knowledge in the field; the insurance company has the size and reserves to comply with insurance regulatory requirements.) What it sounds like is your broker went to an entity known as an MGU (Managing General Underwriter), or an MGA (Managing General Agent). That entity enters into an agreement with the insurance company to issue insurance policies "on the paper" of the insurance company. This means that the MGU is issuing the insurance policy with the contract language that belongs to or at least has been agreed to by the insurance company. Provided that the MGU follows the contract form agreed to by the insurance company, and stays within certain underwriting guidelines and limits agreed to between the MGU and the insurance company, the MGU has the authority to issue the insurance policy on behalf of the insurance company. In other words, they have the authority on behalf of the insurance company to evaluate the prospective risk (perform the task of underwriting) and accept it on behalf of the insurance company. I have also seen situations in which the MGU can even adjust and pay the claims of the carrier up to a certain amount. I ran into that in a large claim that I was involved in when I went to a mediation involving a large hangar fire and the MGU had failed to tell the insurance company that there was a claim that was in excess of their adjusting authority limits. Needless to say, the mediation ground to a halt. I have also seen this in the self-funded health insurance field for stop loss coverage.

This coverage differs from reinsurance in that with reinsurance, the insurance carrier who is accepting the risk of the insurance policy is then placing it with other carriers to help spread the risk around.

This is correct. "ACME" in my example is an MGU. There is one other piece in terms of "paper". Sometimes insurance companies simply sell their name to a group of underwriters, similar to how Trump sells "Trump" to certain properties. For the underwriters, it adds name recognition, and A+ rating, but unlike a "member company", the named insurance company whose "paper" the policy is issued on, has no skin in the game. They don't back them financially, they just sell the name. After thinking about it, this may be what is happening in your situation.