Expert Commentary

Private Aviation: Being an Additional Insured

Embarking into the world of private air charters poses many risk management and insurance challenges for the client. Knowing the carrier -- and their insurance coverage and safety record -- is imperative.


Corporate Aviation
October 2003

As the airline industry faces one of the toughest periods in its operational and financial history, many of its most profitable customers have begun exploring the world of private aviation. Some such passengers may be at your firm.

Private air charter has traditionally been viewed as wildly expensive and extravagant—yet more and more air travelers have cracked open the Yellow Pages or visited Google and typed in the words “private air charter” seeking, at the very least, a quote for services.

If your firm is one of these considering corporate air travel, it is important to recognize—as the risk manager at your firm—that a very important threshold has been crossed. Your firm has left the well-regulated, safe, and highly structured world of the airlines and has opened the door to air taxi. Perhaps unknown to the risk manager, they have set foot into one of the areas of travel that is little known or understood—much less studied and perused over for proper insurance coverage, limits, and ultimately performance.

Know Thy Operator

The on-demand air travel world of private aviation, commonly known as “private air charter” or “air taxi,” is effectively a $2BB industry in the United States today. FAA Part 135 Air Carriers (those who perform air taxi flights, as defined by the FAA) are part of this $2BB industry.

Perhaps the easiest way to impress on users and risk managers of the potential risks involved is to provide data from the National Business Aviation Association (NBAA). While FAA Part 135 “Air Taxi” air carriers (the major airlines are regulated under FAA Part 121) will assure you that they “train just as hard as the airlines,” the fact is that they crash more frequently. In fact, according to the NBAA, private aircraft flights operated under the Part 135 regulations (when comparing only jet powered aircraft) are 11.2 times more likely to have a fatal accident than a corporately flown and managed private jet.

The first test for any Part 135 Air Carrier, therefore, might be to ask the person who provides you your quote over the telephone what their insurance limits are per seat (per occurrence) and for the aggregate limit per occurrence on the entire aircraft. If the answer cannot be produced quickly (and corroborated with a certificate of insurance), then you may indeed want to reconsider the firm in question.

Insurance is the First Clue

Your first clue might be an aviation firm (an air taxi carrier) who struggles to speak about their insurance and its ramifications easily or one who cannot provide access to their underwriting materials in a timely fashion. (Namely, shortly after you ask!)

Underwriters don’t like paying claims and that is why the “Cadillac” of insurance policies also comes bundled with very strict training requirements. In most cases, these requirements will exceed the requirements of the FAA. Arguably, the only air taxi firm one should use might be companies who make it a point of exceed FAA regulations, since training and a focus on “avoidable mistakes” as well as “the unplanned in flight engine failure” are what good insurance underwriters seek.

Requesting that your firm be an “additional insured” provides an added layer of coverage for your firm, but it also allows you to review their limits, sublimits, if applicable, and what different levels of coverage are available for aircraft within their fleet.

Safety Is Subjective

A “culture of safety” within an aviation organization is the ultimate form of risk mitigation. Unfortunately, as many find out too late, it is a rare commodity in the ranks of the private air charter community. In fact, the culture of safety is so elusive, that some large flight departments have resorted to developing and building their own internal auditors. While several safety auditing firms exist worldwide, the fact is that some large Fortune 500 firms simply choose to send their own teams in, despite the cost.

As the private air charter industry matures, the issue of safety will evolve into the level playing field that one generally sees among the large airlines today. Airline seats are bought and sold as commodities since, in the eyes of the public, airlines are scrutinized heavily, perform safely, and are effectively required by law to exhibit a “culture of safety.”

The private air charter world, however, exhibits a wide variance in pricing per hour and per trip, due to the wide variance in carrier investments in training, insurance, maintenance, and in aircraft.

What To Look for

A carrier with high Combined Single Limit (CSL) coverage on its aircraft is ideally what one should seek. As good benchmarks, firms should use the following numbers as baseline levels and expect that:

  • Turboprops, such as King Air 200s or Pilatus PC 12s, have at least $25MM CSL depending on your firm’s needs. There are aircraft in this category with $50MM+ in the United States today as well.
  • Light Jets, such as Lear 31As (small 8-passenger craft that are really only comfortable for 3 to 5), should carry $50MM CSL as a minimum.
  • Mid-Sized Jets, such as Lear 60s or a Hawker 800XP, should carry $50MM to $100MM CSL. (These aircraft can carry 8-10 passengers and generally have “stand up” cabins.)
  • Heavy Jets, such as Gulfstream IVs or Challenger 604s, should have a minimum of $100MM to $200MM CSL.

Realistically, each firm will have its own specific guidelines and requirements and, more than likely, these will be dictated by some overlying firm-wide umbrella policy.

Conclusion

When placing an order for a charter flight, take an extra measure of time, care, and thoroughness. Ultimately, your human assets are the most valuable and pose the greatest risk to your firm if harmed in an “uninsurable” scenario.


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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