Berkley Aviation is pleased to announce that we are now offering physical damage coverage for commercially operated UAV’s and their payload(s). In addition to adding Physical Damage we are also pleased to offer Multi-Unit Discounts. Terms are available to appointed brokers via our online quoting and policy issuance system – BerkleyFlight.
The Part 107 Rule changes quite a few things, however, the most notable change will be the mandatory certification of drone operators which includes security vetting by TSA. By law, the FAA has 60 days to fully implement the Rule which means that around mid-August, the FAA will have the process up and running and all commercial drone operators will need to initiate compliance efforts at that time. Please refer to the FAA’s website for the complete Rule, associated Advisory Circular, and information concerning additional developments at www.faa.gov/uas. Berkley Aviation will require all drone operators to conduct commercial flights under either the Part 107 Rule or their Section 333 exemption if they have one; they may not operate under both.
This Rule is a step in the right direction as far as regulating the commercial use of drones and integrating drone operators – especially those with little or no prior aviation training – into our complicated airspace system. Please contact either Robin Carbone or Jody Craig for UAS coverage options and information concerning our newly launched Berkley Flight automated quoting and policy issuance system designed specifically for the UAS market.
Some of us watched the world change in the late 1990s with the emergence of the tech industry. During that time numerous companies came out with valuations that were exceeding many Fortune 50 companies, but still weren’t forecasting any profits. Brokers brought the deals to the banks that underwrote the IPOs, and everyone got rich. AOL bought Time/Warner for $162B, Amazon’s market capitalization went from $800m in 1997 to $23b in 1999 and never made a profit, and countless start-ups ran through billions of dollars just to close down when the bubble burst. Everyone vowed to never invest in technology stocks again.
Fast forward 10 years….housing values sky rocket. It didn’t matter if you could afford a house; it was an investment. Today your house is worth $500,000, but next year it would be worth $750,000. It got to a point where people making less than $15,000/year were given mortgages on homes valued above $500,000. Refinancing your house 2-3 times over the course of a year or two became normal practice. It was easy because no one needed an application to fill out. You didn’t even need to prove your income or employment. These securities were highly rated by the biggest rating agencies in the world. Even if they failed, the largest insurance companies in the world were protecting us. Mortgage brokers were bringing as much in as possible and the underwriters insured everyone. Everyone was getting rich. What could go wrong?
I think you see where I’m going with this. Every 10 years there’s a bubble happening somewhere and we can’t see it. We had our moment of “irrational exuberance” that spanned from 2003 to 2005 and we’ve followed the same path. Can we blame over capacity and lots of capital or is that a red herring? No one is willing to stop spinning the wheel out of fear of the arrow pointing at them. How often does an underwriter accept a policy based on 3 lines of information? How many times does a broker ask for a “refinance”? How often does an underwriter say no?
The last 3 years have started to remove the notion that we are adding value to the transaction. We have become order placers and order takers. Why can’t a computer do that? We once took pride in the ability to analyze risk and establish a potential return on the capital invested. Too often now we simply review what is being offered and accept a line or not. Our bubble will burst, but the outcome for our industry will be transformative. We will see fewer people “building relationships” and more programmers providing higher returns for both brokerages and capital providers. You will go to the AIA bar and find it empty with the attendees drinking lattes and playing foosball, and the keynote speaker will be the latest actor from Star Wars. Hey maybe that’s a good thing! May the force be with you.
Berkley Aviation is flying into our second decade of operations by expanding our product offerings with the ability to write Non-Critical Manufacturers’ Products Liability. We are excited with our new line of business which helps us offer more to our brokers and their clients. We have many years of experience in this class as underwriters and are very keen to build out a portfolio of manufacturers to support our aviation community.
We can offer limits up to $100m with grounding liability maxed at $50m. It will be underwritten on StarNet Insurance Company paper which has one of the highest financial ratings in the aviation insurance community (AM Best A+ XV). It is admitted in all 50 states. Our target risks will be:
- Raw material manufacturers
- Parts manufacturers
- Sub-component manufacturers
Risks will be evaluated based on their criticality to flight. We will not be offering coverage for engine or airframe manufacturers, propeller or rotorblade manufacturers, structural fuselage or wing manufacturers.
Shel Huston, Senior Vice President, is spearheading this product line for us. However, we would want the brokers to contact their underwriter who will be the point person on each risk for our distribution partners.
Berkley Aviation has been a leader in the Non-Owned segment since our inception 10 years ago. We have always prided ourselves with our extensive knowledge in the segment and our ability to develop new coverages. We position ourselves to handle issues that become relevant in our changing market, watching the industry to make sure that we provide our clients with state of the art coverages.
Recently the FAA has defined Unmanned Aerial Vehicles as “aircraft.” This has made us re-evaluate the coverage offered in our Non-Owned policy. Do we intend to cover UAVs in our Non-Owned policy? Are the existing definitions accurate based on new changes being made? Are we able to identify differences in use that may present themselves with the widespread operation of drones?
There are hundreds of thousands of drones being sold every year. We know that many owners are using their UAVs on company business, and in many cases, they are not advising their company’s risk manager. This activity is leaving the company with potential coverage gaps. This is where our enhancement to our insurance product comes into play. Going forward, we will be offering $1,000,000 of coverage for Non-Owned UAVs on all of our Non-Owned policies. This is our effort to ensure that our clients know that their aviation exposures are being evaluated and new products are being delivered to protect their assets.
It’s not what everyone thought it would be. I know I just struck fear into many brokers who read the title, but in many cases it has already begun. No, it’s not advancements in IT or smart phones that have made it easier to have only one contact for the insureds’ to access the markets. What many don’t yet realize is that it’s the brokers that have gone direct. It appears that a majority of underwriting markets have given up any resemblance of actual underwriting and simply sign on to broker slips at offered premiums. No longer are underwriters evaluating exposures, risk factors, regulatory factors, or it seems even using a calculator. They simply get to agree to a premium by the broker based on 3, 5, 10, or 11 years of loss ratios or whatever provides the best picture of the client.
Sure, there are companies using software to develop premiums, and they quote their terms to the broker. But the broker has all of the leverage since they simply load it into a spreadsheet with everyone’s quote removing any further discussion on actual exposures. Submissions have become four line pieces of irrelevant underwriting information; name, city, state, limit needed, value, pilot name, and some hours. Quote it or don’t because there are several other companies willing to offer terms!
If I were a capital provider today and I was asked to get into the aviation market, I would jump on it. But I would do it much differently, I wouldn’t hire a single underwriter. I would hire an accountant to make sure I was collecting the premiums that were agreed to and the ones I was told I could get from the broker. If you think this is dramatic just think of the lineslips each of the large brokerage firms have. They simply provide bordereaux reports of the risks the company has contractually accepted. Is there any underwriting going on?
A big announcement was made last year by Google. They have entered the insurance market with an unbelievable amount of data. They didn’t jump into the insurance company side, they simply became an aggregator of quotes. They provide a spreadsheet with 10 different quotes. Sound familiar? If we can’t provide value to a transaction what is our value. Aviation specialists are part of the highest paid teams in the insurance market, which makes them the easiest target from the capital providers to cut.
We talk about excess capital and how that has changed everything. But I would argue that underwriting companies haven’t adapted fast enough to understand the implications of increased competition. Are underwriters focused on the bottom line or short-term job preservation?
The underwriter is dead. Long live the broker!
It was a long time ago that I started in the aviation insurance industry. It was interesting to learn that you did most of your business over the phone and fax machine, but didn’t get that much time to meet in person. So in many cases you would be doing business with people that you never met. How can this be a relationship business with people you’ve never met? Well it was a little easier when we actually talked on the phone. Now a days, I’m not quite sure how you can build a trust relationship by emailing and limiting your time on the phone.
I feel the most important part of our business is built on a trust between the broker, the insurance and the underwriter. This can only be built over time and through the actions of all parties. Many things get lost in translation on an email where things can be misinterpreted or worse yet in a fit of angst an email gets sent without taking the time to think an issue through. I’ve wondered how to solve the problem, and at times walk around the office checking the phone logs to see how much time is spent on the phone, and to my dismay there was very little time really building relationships. So I wanted to highlight some of our team here at Berkley Aviation so you can get to know us.
Berkley Aviation was built person by person to fill both the role of employee, but also be part of a team that can bond and support each other. We try to get together regularly after work to have a bit of fun.
Locally in Santa Barbara we have a place called the “Painted Cabernet” where you can paint and have a nice glass of wine. Kadie Skillingstad, Megan Millang, Tony Park, Dara Harrison and Robin Camacho painted the W.R. Berkley Corporation mascot.
We get together to raise awareness for issues that affect our community. Here we participated in the Autism Speaks annual Autism Walks event.
Our annual picnic — picture taken from a camera mounted on our DJI Phantom drone!
We have come a long way since 2005 when Berkley Aviation was formed. No one could have predicted the market conditions that we all are in, but by building such a tight team here in Santa Barbara and now in Boston and Atlanta we want you to know us and know that we’re here for you and your clients.
We get a lot of questions about what type of business we want or like to underwrite. At this past HAI we got a lot of questions about underwriting helicopters. It seems to be a common misconception that we are not in the rotorwing market when in fact we’ve always been in that market. Many people don’t know that we have a large book of CGL business. So it seems we’ve not done a great job in advising our broker network of our risk appetite.
Last year we noticed that we had not been seeing the volume of submissions that we thought were available. After some informal discussions we realized that our original plan in 2006 to only see certain classes of risks was still in most peoples’ minds. So we’ve made a big push to get out the message that we’d like to see more submissions. And in 2014 it worked and we saw an increase of over 20%. For 2015 we continue to push to see more and already we are up 20% during this first quarter.
The clear message that we want our brokers to know is that we like all types of aviation risks with only a few areas that we do not underwrite. We are not a market for manufacturers’ products liability or work comp, but beyond that we are always interested in offering terms on aviation risks that fall within our liability limits.
Our limits for risks are outlined below, but we do have the ability to do more on some risks and therefor these numbers should be used as our basic abilities and not our “never-to-exceed” numbers.
|Aircraft (fixed and rotor wing):||Hull:||$10,000,000|
|Airlines (US Based risks)||Hull:||$10,000,000 (our share)|
|Liability:||$50,000,000 (our share)|
If you have any questions on a risk, please call your underwriter to be sure we understand your risks. If you run into a wall with the other markets, please be sure to let us know and we can try to take a second look.
Every industry goes through a different cycle of ups and downs. Obviously we’re no different, but it seems like the downs are getting much longer and the ups are few and far between. Many companies feel the only way out of this market doldrums is through mergers and/or acquisitions. When capacity in the insurance industry is so plentiful and so much capital is sitting on the sidelines, it’s very hard to imagine the potential of an upswing in our soft market cycle. So many companies have turned to the M & A side to boost their potential profits and try to reduce capacity in some ways. This isn’t about aviation insurance, but rather the insurance industry as a whole.
Some people think that in order to be a major player in the insurance market you need to be excess of $10b in written premiums or you’ll end up marginalized and second tier capacity with the potential of not seeing the very profitable property cat premiums. It has many companies looking around to see who they can acquire or merge to achieve the larger premium base. Some say that is the reason behind the XL and Catlin and the Axis and Partner Re mergers. Articles in Insurance Insider are pointing towards many more mergers to come listing some companies and their potential “need” to be acquired in order to be competitive.
For the aviation market, we’ve seen a couple that involve our US book. Fosun, a Chinese investment company recently acquired Meadowbrook and also took over a majority stake in IronShore. XL and Catlin will need to be ironed out, but don’t expect a reduction in capacity from this transaction in the states. We are seeing many of the international operations especially some of the independent Lloyd’s syndicates looking like good targets based on the recently announced acquisition of Brit Syndicate by Fairfax Holdings.
Don’t be fooled that these few transactions will change the market, in fact S & P has said not to bet on a hardening market based on the recent mergers. The synergies created by the combination of the companies joining forces are not enough to improve the long term results. The one thing that seems very clear is that we will see some name changes in our industry and unfortunately we will see some job losses. My recommendation for the aviators is to focus on what you do best and keep your results positive and I’m sure there will be a position for you in our industry of the future.
This is the unveiling of the 2014 Super Producer aircraft. Shipments begin this week.