Direct Off Shore Foreign Insurers(DOFIs)
The Federal Government introduced Legislation into Parliament concerning DOFIs that came into force on the 1st July 2008. The enacted legislation was introduced to protect consumers as well as to try and lessen the chances of another HIH debacle.
The legislation required that unless a DOFI was authorized under the Insurance Act they had to cease operating in Australia prior to the 1st July 2008. There was a transitional period for the natural run off of existing policies but those policies could not be renewed with the DOFI unless they were authorized. Lloyd’s of London is not regarded as a DOFI.
Before the legislation came into force an offshore foreign insurer could sell insurance products to Australians without obtaining authorisation under the Insurance Act, by offering insurance in the Australian Market through agents in Australia or solely from overseas via a direct approach from the client or its broker and sometimes through the internet. The new legislation effectively bans these dealings. The Australian Prudential Registry Authority (APRA) has been given additional enforcement powers in relation to these charges to the Insurance Act.
There are some exemptions under the Act but these relate to other categories of insurance and not Aviation.
The Australian Prudential Registry Authority takes the legislative changes most seriously given that they are responsible for insurers in this country and their duty to protect the consumer.
About Your Policy Renewal
Renewal is not automatic
Unlike some motor vehicle, homeowners, and other insurance policies, aviation insurance policies do not renew automatically. You are responsible for authorising specific renewal instructions. You should mark your expiration date on your calendar and allow sufficient time to get the renewal processed before the expiration date.
Aviation insurance policies, with few exceptions, are written for a one-year period. They expire at 4pm on the expiration date shown in the policy. It’s best to think of the day before as the absolute least you will have coverage. If the expiration date (or the day before) falls on a weekend or holiday, then the absolute latest to get the renewal bound would be the last working day before the expiration date.
Of course we don’t recommend waiting until the last day to arrange your renewal. When we receive your renewal authorisation we must prepare and send renewal documentation to the company, to you, to any lien holders, and, in may cases, to other certificate of insurance holders.
We need your instructions
We endeavour to obtain updated underwriting information early enough to present your risk to the appropriate insurance markets for coverage proposals. Then we try to provide you with our recommendations in time to get your approval and to get the appropriate insurance documentation processed.
We normally send out a Renewal Letter around 21 days before the expiration date.
We recommend you keep copies of previous underwriting forms to make updating the current information a little easier. The sooner we receive the updated underwriting information the sooner we can commence the renewal process.
Accurate underwriting information is very important.
Whether your renewal is in respect of an aircraft or an aviation liability (Premises, Hangarkeepers & Products Liability) policy it is essential that the underwriting information you provide to us with is up to date, fully complete and accurate.
As an example, for an aircraft renewal, you should review your hull insured value (Hull Agreed Value). Any additional equipment added, or improvements made such as new paint or interior should be considered.
KEEPING YOU AS A CUSTOMER BY RENEWING YOUR POLICY IS VERY IMPORTANT TO US!
Why should I use an Aviation Insurance specialist?
Pick your aviation insurance broker carefully and steer clear of amateurs. There are very few aviation insurance specialists compared to the total number of general insurance brokers. A general broker usually will know only one or perhaps two aviation underwriting companies at best and will have such a small volume of aviation business that he will not be able to match the client with the most appropriate company.
Unlike many other lines of insurance, aviation insurance policies vary greatly in content and coverage. It is very important that your broker understands the broad forms from the limited forms. Although you may qualify or want a restricted form of coverage, your broker should have the knowledge and ability to counsel you on the differences. A non aviation specialist broker will likely receive the insurer’s standard product offering rather than tailored policy coverage AIBA will provide.
This is a relationship business. It is important that your broker has a good working relationship with the insurer/underwriter and their claims personnel from which we are requesting quotations.
Should I shop around for the best price?
There are only a small number of insurers/underwriters capable of writing your insurance. If you have selected a strong broker who specialises in aviation insurance, they will approach the entire insurance market on your behalf. Pitting two or more brokers against each other is usually counter-productive because an insurer/underwriter will generally only extend terms to one broker at a time.
The first quote or declinature given by an insurer/underwriter must remain the same for any subsequent broker you appoint. This means if the first broker poorly or inadequately presents your risk to the insurer then any subsequent attempt by the second broker to improve these terms will be to no avail. Therefore your selection process should be that of choosing your broker. If only one broker is presenting your risk, the underwriter will know that this is the person with whom they must deal. You eliminate the confusion of multiple brokers contacting the same insurer/underwriter and keep your insurance marketing at a most professional level.
What if I do not like my broker?
If you do not like your existing broker or are not confident in their service or ability, you may select a new broker and give them the authority to represent you by “Letter of Appointment”. Your new broker will be glad to provide you a copy of the desired wording.
I don’t have time to deal with the proposal form; can’t my broker complete it for me?
We see many clients treat the proposal process as necessary evil. In reality, this is one of the most important documents in the insurance placement process. The better you and your broker present your risks to the insurance/underwriting market, the better response you will have. This can be reflected in broader coverages and premiums savings. Keep in mind, it is only you who can complete the correct resume. Your broker does not know your history as well as you. So, a word of advice – help the broker develop the underwriting submission and give this task priority.
How critical is correct information? Can I just estimate my pilot hours?
It is important to give accurate information to insurers/underwriters.
If, for example, you must estimate on such things as pilot hours, it is important that you underestimate. Many policies will make the hours and ratings given on the pilot’s underwriting submission a requirement of the policy. If you overestimate your experience, you may find yourself not meeting the minimum standards set for you in your policy. If you employ a pilot, it is up to you to ensure the information furnished by your pilot is accurate. Check their logbooks.
I’m not very familiar with the make and model of my aircraft – am I at risk for being rejected by the insurer/underwriter?
If the aircraft to be insured is of a make and model unfamiliar to you, work with your broker to develop a pilot training and transition plan before you or anyone approaches the insurer/ underwriter.. A comprehensive type conversion training programme is essential and if implemented will greatly assist the insurer/underwriter in being able to offer an insurance quotation.
Keep in mind, the insurer/underwriter is paid to accept or reject the risks as presented. If accepted, it is their duty to determine the premium the policy and confirm the breadth of coverage. It is not their responsibility to dictate or provide a conversion solution. That is up to the client and if required, the broker can offer their assistance.
How important is it for me to continue pilot training?
All pilots, professional or pleasure, want to be thought of as highly qualified in the cockpit. Some however, don’t want to prepare, train, practice and pay the price to be among the best. Remember, the underwriting community has heard all the bragging, the excuses and the broken promises about pilot skills and training.
Don’t overlook the importance of recurrent training. Some insurers /underwriters require annual schools for all pilots flying turbine, jet or high performance piston equipment. Underwriting statistics have long proven the school-trained pilot has fewer losses. If we know annual training is undertaken, we will make it an important part of our underwriting submission. The professional approach you have taken will be rewarded with a better underwriting proposition.
When Someone Else Flies Your Aircraft
There are a number of insurance considerations for an aircraft owner who loans their aircraft to someone else, or even has it ferried or flown for maintenance.
You must ensure that any other pilot who operates your aircraft meets the conditions of Insurance Policy’s Pilot Warranty or if a Named Pilot Warranty that the pilot is noted and agreed by insurers prior to the flight commencing.
Properly Value Your Aircraft
Most aviation policies are split into hull (protection against physical loss or damage to the aircraft), and liability (loss to the property of others or for bodily injury of others arising out of your negligence).
Agreed Hull Value: Properly value your aircraft on your policy. The value that you place on your aircraft and agree to with underwriter is the basis that will be used when settling your claim. This is referred to as an “agreed value policy”. If you under-value your aircraft, your claim settlement may be inadequate.
Under-valuation: If you under-value your aircraft, you can actually cause a partial loss to become a “constructive total loss”. If the salvage value plus the cost to repair exceed the insured value of the aircraft, the adjuster could pay a total loss and take title to all the salvage including the avionics.
For example: You own a $100,000 aircraft but insure it for only $50,000. You have a $25,000 claim. The adjuster receives a bid to repair the aircraft for $25,000 and a salvage estimate for $65,000. He would be foolish to spend $25,000 to repair your aircraft when he could pay you $50,000 for your total loss and sell the salvage for $65,000.
Even though this may be an exaggerated example, we frequently see aircraft owners try to save money on their hull insurance by under-insuring the aircraft. In an attempt to avoid this problem, the underwriters often monitor proper valuation. Although they are not qualified to appraise aircraft values, they are aware of market trends. Reviewing your stated insured value periodically is important, especially considering that some older models are actually increasing in value. Don’t forget you can change the value of your aircraft hull any time during the policy period. You don’t have to wait for renewal.
We are seeing used aircraft values increase steadily. In a year’s time, you might realise a significant appreciation. Upgrades to your aircraft such as new paint, new engine, new interior, or new avionics can greatly alter the value of your aircraft.
In any event, if you think the value of your aircraft has changed significantly, don’t wait, give us a call and we will ask the underwriter to endorse the policy.
Your Duty of Disclosure
Before you enter into an insurance contract which is not a consumer insurance contract, you have a duty under the Insurance Contracts Act 1984 to tell your insurer anything that you know, or could reasonably be expected to know, may affect the insurer’s decision to insure you and on what terms.
You have this duty until the insurer agrees to insure you.
You have the same duty before you renew, extend, vary or reinstate an insurance contract.
At renewal, the insurer may ask you to advise it of any changes to something you have previously disclosed, or may give you a copy of the information you previously disclosed and ask you to advise the insurer if there has been a change. If you do not tell the insurer about a change, you will be taken to have told the insurer there is no change.
You do not need to tell the insurer anything that:
- reduces the risk the insurer insures you for;
- is common knowledge; or
- the insurer knows or should know as an insurer;
- the insurer waived your duty to tell it about
If you do not tell the insurer anything you are required to, the insurer may cancel your contract or reduce the amount it will pay you if you make a claim, or both.
If your failure to tell the insurer is fraudulent, the insurer may refuse to pay a claim and treat the contract as if it never existed.
If you are in doubt about whether or not a particular matter should be disclosed, please contact your broker.