But like a good salesman, I didn't take a hike and I didn't take "no" for an answer. After some badgering, they finally agreed to talk to me, and in the spring of 1995 I joined that agency's aviation insurance team.
I was hired to get out on the road and produce business. That suited me, since at heart I'm a door-to-door insurance salesman–I have a natural knack for gab and enjoy meeting people. The two partners gave me a map of the Northwest, the keys to the company plane, and told me to shake every hand I could find at every airport in five states. It took three years, but I covered that map and doubled the agency's volume.
The partners eventually split. Then in 2004, I bought my book and started Northwest Insurance Group Inc. Lori Richards, my business partner, came with me from the previous agency. Three years later, specializing solely in aviation insurance, we have 500 clients and more than $5 million in premium volume. We're licensed in half the states and soon will be licensed nationally. With 23% growth last year, despite a softening market, we're poised for further expansion, including through brokerage with other agencies. Today–if you'll pardon the expression–the sky's the limit.
Specializing in specialties
Aviation insurance is a niche market, and we have a few niches inside the niche. Municipal airports make up a majority of our clients, although only about 20% of our premium volume. In recent years government-sponsored insurance pools for municipalities have discontinued the aviation portion of their packages, which has created openings for our brokerage. We write a lot of airports in the Northwest, and we're getting inquiries from other states through program risk managers. We like this class because of its moderate need for service. The airports don't ask for certs, they rarely change their operations, and we can usually service them with an e-mail and a confirmation.
About 70% of our premium comes from FBOs, or fixed-base operators. FBOs are business entities located at airports–probably every airport in America has at least one–that provide flight-related services, such as aircraft maintenance, fueling, cleaning and parking (in the FBOs' hangars). They also may own their own fleet of aircraft that they use in charter operations and flight training. The exposures of these operations are much larger–and more expensive to insure–than those of the airports themselves.
We provide comprehensive coverage for FBOs. Besides the typical property, workers comp and business auto coverages, we include many specific to the niche, such as aircraft hull and liability and aviation general liability. For those that offer aircraft management services, as I'll explain in a bit, we can manage their insurance too.
Hangarkeepers coverage, which is analogous to garagekeepers liability, is an important product for FBOs. Hangarkeepers claims are among some of the most frequent losses FBOs incur, and they commonly take the form of "hangar rash." It may not make sense, but multimillion-dollar airplanes are often pushed around hangars by minimum-wage employees. A one-inch gash in the side of a Learjet from another plane's wing can easily be a $700,000 claim. As the value of corporate aircraft rises and the cost of service interruption increases, so do the premiums for hangarkeepers insurance.
FBOs also have major completed-operations exposures in the form of mechanics who make errors while repairing aircraft. Among exposures that our markets typically exclude are engine and propeller overhauls, and rotorwing maintenance. Such work must be done by specialists, and coverage might have to be obtained offshore.
We have many corporate aircraft accounts. Although we don't actively market for such business, we receive a steady stream of referrals that is serving to rapidly build up this part of our book. Corporate aircraft, of course, are costly. A small turbine-powered plane can start around $500,000, and it's not uncommon to see corporations with less than $50 million in annual revenue spend $2 million or $3 million on a jet. Most of the corporations we work with have aircraft ranging in value from $1 million to $5 million, for which they buy $10 million to $50 million in liability limits. We can also arrange for up to $100 million in limits, including excess liability. The total premium for a $5 million corporate-owned turbine aircraft operated by a professional crew and that had $50 million in liability coverage would probably be under $40,000. (The premium on that same plane, owned by an FBO and used in its charter operations, however, would be $50,000 or more. That's one reason we like FBOs as accounts.)
A number of our FBOs provide aircraft management services to corporations that might own private jets or turbine aircraft but want to outsource their operation and upkeep to third parties. (There are also many aircraft management services that operate separately from FBOs). As part of their aircraft maintenance, fueling and hangar services, FBOs also often provide flight crews for the aircraft and ensure they are operated in accordance with complex FAA requirements.
If an FBO is taking care of just one plane, often its regular flight school coverage can accommodate its liability needs. However, if it's responsible for four or five corporate aircraft, all with high hull and liability limits, we'll need to arrange separate coverage via an aircraft management policy, which will cover all the liability and property exposures FBOs may take on in providing such services, as well as provide adequate liability coverages for the aircraft owners.
Aircraft management operations can raise many complex issues. Many corporations–for tax, liability and accounting purposes–create a separate legal entity solely to own and operate the aircraft. That entity may then lease the aircraft back to the corporation while contracting with an aircraft management service to take care of it. The use of the aircraft by subsidiaries of the parent corporation can raise additional issues, including compliance with FAA regulations.
The challenge for the insurance broker is to identify the players involved in these arrangements and sort out their liability exposures and policy "aircraft use" requirements. Untangling this skein of responsibility happens to be our agency's niche in the corporate aviation world. We've been able to develop an expertise in reading and understanding the applicable contracts and lease agreements–and their implications for insurance. We even advise attorneys drafting such agreements on coverage considerations. Attorneys are beginning to refer more of their corporate clientele to us, because of our expertise in this area.
Spreading the word
Our business is sustained by referrals. That's not only our preference but also is the only practical way to develop business in our niche. The aviation industry is close-knit. Corporate pilots fly to the main corporate airports, and they all see each other. Crop-dusters talk to other crop-dusters. Same with mechanics and aircraft owners. Networking is the coin of the realm, and we network our niche to death. In fact, we don't do anything else; we just talk to people.
I've never forgotten one of the first lessons an experienced insurance agent taught me: You have to a-s-k to g-e-t. Therefore, I'm never afraid to ask any of our good customers to help us identify more good business. And since everyone talks to everyone else, we have an almost endless supply of referrals. After 13 years of specializing in this business, with half that time traveling, I get five or 10 new-business calls every couple of days.
Because of our reliance on referrals, most of our prospects are pre-qualified. A business owner with an aviation insurance problem might ask his mechanic or flight school instructor for advice, and they recommend us. We're dealing with the decision-maker almost exclusively. If we can solve the problem, they move their book to Northwest. We have an 85% closing rate on referrals and a 98% retention rate.
Submitting from scratch
Submissions in the aviation niche are nearly an art form–brokers more or less have to create them as they go along. There are few ACORD forms that meet our needs, and some of the carriers don't even have their own applications. Brokers sometimes must devise their own formats for submitting information.
No two pilot/plane combinations are alike, so one of the prime considerations for underwriters is making sure the flight crews and respective aircraft are compatible. Therefore, underwriters want plenty of details on the pilots, such as licenses, hours flown, prior losses, annual physicals, experience with the particular aircraft, etc. They also want to make sure that pilots have the proper annual simulator training, which has really helped lower the losses in the corporate aviation insurance market.
Underwriters also want a lot of detail on the aircraft: hours flown, intended use, where it's kept, whether the hangar has sprinklers, presence of security, dedicated mechanics, and much more. The broker's experience and reputation can carry a lot of weight.
Coverage for corporate aircraft
When insuring corporate aircraft accounts, the status of pilots can raise coverage implications. Often, a small corporation chooses to operate its aircraft itself rather than turn that function over to an aircraft management service, so it probably will hire no more than one chief pilot. For any given flight, a co-pilot is selected from a pool of independent contractors. We may need to place such an account with a market that will accept the exposure such independent-contractor pilots create for the corporation. Occasionally we insure pilots themselves, separate from the aircraft, with a product known as professional non-owned aircraft liability, but in most cases independent-contractor pilots can't afford it. Other structured coverages have to be agreed upon by the aircraft owner and the pilot.
Aircraft liability insurance for a corporation covers its public liability, passenger liability and property damage. Per-passenger limits can be purchased with limits less than the policy's full limits. For instance, a $10 million aircraft liability policy may provide only $1 million for injury to any one person on the plane. With smaller aircraft such limitations are more common. In regard to hull coverage, nearly all aircraft policies are issued on an agreed-value, all-risk physical damage coverage basis, often with no deductibles.
Then there are some coverages that are unique to corporate aircraft accounts. One is coverage for guest voluntary settlements, which may or may not include the crew. Let's say you have a $10 million aircraft liability policy and the plane crashes, resulting in three fatalities. Guest voluntary settlements are no-questions-asked settlements with the estates of the deceased, usually for $250,000 or $500,000, assuming they release all other liability. We try to add this coverage to every account. It can spare both the client and the insurance company from protracted litigation.
Another common coverage is trip interruption expense. Let's say a bird strikes a plane, and it has to make an emergency landing. The plane is now minus one engine, and five highly paid executives are left just standing around. Trip interruption covers the cost of alternative transportation to get the executives where they're going. Temporary parts coverage or engine coverage is also a good idea. After that bird strike, the corporation will exchange engines, which means there's now a spare one on the books while the original is being repaired. Since an engine can be worth up to $1 million, it needs to be insured.
A few warranties must be observed in a typical corporate aircraft policy. Pilots have to meet the minimum requirements for the aircraft they're flying, for example, and aircraft must be operated only in their designated territories. Using corporate aircraft for sightseeing flights or charters (or any other case where a charge is assessed for the aircraft use) also can void the coverage, as can flying the aircraft without a valid airworthiness certificate.
Promoting risk management
We "train" our clients to always think in terms of risk management and liability exposure and to call us whenever they're unsure of where they stand. For example, I recently got a call from a mechanic who had overhauled an engine a year ago. While renewing the account, I spotted this job and told him he wasn't insured for it. The mechanic called to tell me he had a client who wanted him to tear down and inspect an engine–not overhaul it–on a plane that had been involved in an accident, just to make sure the engine was still OK. I replied that the fact that he felt he should call me probably meant he'd already answered his own question. (He sent the engine out to another engine repair facility.) Similarly, our FBOs know to call us if they're asked to sign any kind of an agreement, particularly in connection with aircraft management services. They tell their customers that we'll need to approve any written documents. We urge clients to keep us in the loop on everything where insurance might be in question.
Stretching the markets
We sometimes struggle with markets. Although there are a dozen or so carriers offering coverage in the domestic aviation industry (some of them divisions of the largest insurance companies in the world), this class of business is just a tiny sliver in their parents' overall books. Nor do all aviation markets cover all aviation risks. There may be three that will quote municipal airports and three others that will quote crop-dusters. So even with a number of domestic markets, each customer is faced with a substantially less competitive marketplace than is usual.
We love what we do. We're based at an airport and encourage our employees to watch the planes and ask lots of questions. Our employees enjoy working in such an unusual environment, as well as the casual business dress and flexible work schedules. Our clients love it too. Many are business owners who may even have dedicated risk managers, but they'll often still call us personally because they want to chat about their airplanes. We're the one piece of insurance they'll still handle personally, because aviation is their passion. We understand that passion, because we share it. Ryan Birr is president of Northwest Insurance Group Inc., which specializes entirely in aviation insurance. Mr. Birr, who has 13 years' experience in the field, holds an associate degree in aviation from Mt. Hood Community College in Gresham, Ore., and a bachelor's degree in business from Washington State University. He also holds the Certified Aviation Insurance Professional designation.

Special Reports /

Cleared for take-off in the aviation insurance market

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