Are Higher Deductibles in Aviation Insurance a Good Idea?

Many savvy aircraft owners / risk managers ask if accepting higher deductibles on their aviation insurance will result in a decrease in premium. When it comes to Aviation Hull & Liability policies the answer is normally “no,” however for an Aviation Commercial General Liability policy quite the opposite. Why?

Aviation Hull & Liability Policies

While it would seem increasing the amount of risk you are willing to accept by taking a higher deductible on your aircraft would result in a lower premium, it actually makes very little difference and therefore rarely a good move from a cost benefit perspective.

Increasing deductibles generally save insurance companies money in areas of insurance that have a high loss frequency, like auto insurance. Most of us at some point in our driving career will be involved in a fender bender.  Therefore, the odds an insurance company will be able to apply a deductible to a given auto loss is much higher.

In aviation, we do not have an issue with loss frequency; in fact, we have very few claims. Our issue is one of loss severity. When we have claims, they are typically very expensive. For this reason, insurers realize giving a significant premium decrease to an aircraft owner for taking a higher deductible, isn’t smart underwriting, given the odds the insurance company will actually get to apply the deductible to a loss is very low. 

Commercial General Liability (CGL)

For businesses who have an aviation CGL policy and carry Premises and Hangarkeeper’s Legal Liability coverage (like an FBO or repair shop), a higher deductible makes perfect sense.  Property damage to third party aircraft (hangar rash, mobile equipment banging into someone’s aircraft, etc.) is unfortunately common.  Since this exposure has a higher loss frequency, insurers are willing to provide a larger premium discount for higher deductibles. If an insured has too many claims, often the insurer will increase the deductible as a condition of providing the coverage at all.  In this case, by requiring the insured to have more “skin in the game” they will feel more financial pain when they have a loss and therefore pay more attention to their safety initiatives for their lineman and ground personnel.

Contact AssuredPartners Aerospace to find out if a higher deductible is right for you.