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Aviation Insurance
Tuesday, February 1, 2005
Aviation rating dilemma

Life assurers tend to load premium rates for certain perceived ‘hazardous activities’ and one of them is aviation. But are the higher rates justified?
One aircraft owner wrote to us recently, and Aviation Consultant Henry Tours believes he has a point.
As Ernie Alexander of Profile Media explains, “My life assurers have added a premium to my group life as I am an aviator. I asked them to explain and requested that they disclose the basis upon which the premium rate was increased.
“I sincerely believe that it is safer to travel by air than by road, even when flying in your own aircraft. Sensationalist media go a long way to blow out of proportion any aviation related death.” See accompanying tables and graph.
Mr Alexander says the explanation he gets is that all rates include accident mortality in terms of road hazards, and then rates are added for aviation mortality. “My real question,” he says, “is this: do they not take into account that pilots cannot be flying and driving at the same time?”
Mr Tours says he has a point. “What it comes down to is the cost to the underwriters of writing life assurance covers. You will find that Personal Accident rates have been rising quite severely over the years because the underwriters have had to pay substantial claims for aviation risks.
“But I don't believe that the life assurers have this excuse. Those that I have spoken to take the view that a penalty charge is necessary because flying is dangerous, but nowhere have I found any real statistical base for the charges. It is also extraordinary that while some of the life companies have short term insurance associates that write aviation risks, they have at no time attempted to check their statistics.”

  Another oddity is that commercial pilots are better rated than corporate or business jet pilots. Indeed, some insurers add a penalty charge for corporate pilots but not for airline pilots, when the contrary should be the case. “The airline pilot has a high stress job and is under pressure to fly in all conditions,” notes Mr Tours. “On the other hand, the corporate pilot flies far fewer hours per month, has pretty well total control of the cockpit and, if he says it isn’t safe, the flight doesn’t take place.”
  He notes that insurers trot out the tired old statistics that while deaths and serious injuries are more frequent on the ground, the motorist is exposed a zillion more times per annum than a pilot. Another argument is that mechanical problems tend more likely to be fatal in aircraft than in motor cars. “Running out of fuel in the air is not just a question of pulling in to the side of the cloud and calling the AA.”
Comments Francois Marais, chief actuary Sanlam Life, “Underwriting is not an exact science. Certain activities may receive a premium loading because of the risk. On the other hand, market competition may influence whether an assurer charges more or less for a given risk. Our experience, if anything, is that life premiums generally are below actuarial calculations because of market pressures and margins are pretty thin.”
As for aviation he says that those flying above 30 hours per annum on a private pilot’s licence are usually not loaded. There may be a loading if they fly more than 200 hours. He agrees that a pilot cannot drive a car at the same time. But asserts there is an extra risk involved in flying, however one might assess that. Motor accidents incidentally are included in the general mortality of actuarial calculations. This means that any normal life risk, whether they drive a car or not, will be rated according to the standard mortality tables, which include statistics for death by natural causes, accidents and so on.
“Pilots involved in crop spraying would be loaded,” says Mr Marais, “as it is more of a hazardous activity.”
To the basic premium of R2 per R10 000 of life cover per month for a 35-year old non-smoker the loading would be between R1 and R2 per R10 000, or up to double. Commercial pilots would pay R3 to R4 per month in total because of the long flying hours, while the highest rate would be, for example, for a trainee helicopter pilot of R6,80 in total.
Meanwhile, Mr Tours, does have a suggested solution, “It might well be better for a pilot to take out his basic life assurance with aviation excluded from the policy, and then to take out an annual Personal Accident policy for the same capital sum. When the flying stops, you do not renew the PA policy. This is particularly appropriate for Group Schemes where only a few members actually have a flying exposure, but the whole group pays a penalty.
“The broker should be suggesting these sorts of alternatives if he has any understanding of aviation risks. If he doesn’t, find a broker who knows what he’s talking about.
“Of course, anyone who includes this hazard in his life assurance policy should remember that he may be loaded for the exposure. If he is, he must remember to have it removed if he ceases flying; otherwise the loading will remain throughout the term of the policy.” By Nigel Benetton
Copyright © Insurance Times and Investments® Vol:18.1 1st February, 2005
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