When the 1970s began, Bill Moloney was afraid of flying.
When the 21st century dawned, he had his own aviation brokerage based in an airport and flew his plane as often as he could. Moloney, a self-described “insurance brat” (his father spent his entire career with Hartford), decided one day that he needed to overcome his fear. Some folks might have tried hypnosis, or therapy, or in a hard case even tranquilizers. Moloney decided he would go ahead and take flying lessons.
He’s been flying ever since, and proudly displays his 1974 Mooney M20C, a four-seater that sits in the parking lot of a single runway airport in Schaumburg, a northwest suburb of Chicago. It’s this passion for flying to which Moloney attributes the success of Plus Air Inc., the brokerage he began in 2000 and has grown to nearly $5 million in annual premium volume by serving a mix of private pilots and charter plane operators.
“One of the advantages is you get to hang around the airport all day,” Moloney told me during a visit to his office in the Schaumburg Regional Airport, which sits in the shadow of its more renowned big brother, O’Hare International Airport.
“While nobody’s happy spending money on insurance, in our situation people at least get to talk to us about their airplanes. … If I happen to know someone owns an aircraft and I approach them, because I’m a pilot I immediately connect with them. … People love talking about their airplanes.”
A mentor once told Moloney, “I can teach you aviation insurance in a weekend, but it would take me a lifetime to walk into the hangar and talk to the guys like you can.” Even so, Moloney must have paid close attention during that weekend crash course. Though he spent nearly three decades selling property/casualty insurance, the aviation line has been his true niche.
“There’s a few exceptions of people who’ve learned enough about aviation who are not pilots,” Moloney said, “but 98 percent of the brokers and 98 percent of the underwriters are pilots.”
‘Truly the best quote in the world’
The biggest difference between aviation and other P/C lines of business, according to Moloney, is that every broker has access to more or less the same insurance markets.
“If someone is trying to compete on one of my accounts, they can’t really do anything for the client price-wise and coverage-wise because there’s no other available market that I don’t have access to. The only way a broker loses business is if a relationship suffers or if there’s some other kind of change. It’s not as price sensitive.” Aviation insurance truly depends on providing top-notch service, according to Moloney.
Consolidation within the line both before and after the Sept. 11, 2001, terrorist attacks has whittled the number of markets down to eight, one of which–the U.S. Aircraft Insurance Group, or USAIG–is a pool of such familiar P/C names as ACE, Gen Re, Hartford, Liberty Mutual and Zurich. And when it comes to larger commercial planes, the field narrows further, according to Larry Galizi. He is president of Aviation Insurance Services of Illinois Inc. in Crystal Lake, another Chicago suburb.
“If you own a high-valued aircraft worth more than $5 million, you’re going to be insured with USAIG, Global Aerospace, or AIG Aviation,” Galizi told IJ. “Those are the three big companies that can provide high limits on the hull.” Insuring the liability is another matter, of course, but the point remains that the limited number of markets stands in stark contrast to other P/C lines, even other lines of business insurance.
“What’s good about it,” Galizi said, “is that for a P&C broker, there might be hundreds of good companies licensed to do business in Illinois. But even Marsh & McLennan gets 10 or 20 quotes, if that. What are the all the other ones doing? You don’t know, and you can’t tell the client. In aviation, you can. All of the relationships are broker relationships. There’s no annual premium commitment. What happens is the broker truly works on behalf of the client.”
Aviation Insurance Services of Illinois did just short of $30 million in premium volume last year, according to Galizi. Most of that business was commercial, which in the aviation line includes cargo operators, fixed-based operators (or FBOs, the folks who store and care for the airplanes at the airport), flight management companies, and airport owners.
“Even when we tell someone their premiums have doubled, like they did after 2001,”Galizi said, “if we’ve done our job that is truly the best quote in the world because we represent everyone in the world who writes airplane insurance.”
Much of the service, Moloney and Galizi said, comes in learning how to work with underwriters to design programs with higher deductibles, lower liability limits and find ways to work around problems. Neither broker advertises and both rely on word of mouth about their service to do the selling for them. While Moloney said most of the personal aircrafts he insures come from “pilots talking to pilots,” the commercial side is a little different.
“There, people come to us when they have a problem,” he said. “The problem may be current situation that may be hampering their ability to do business. … That’s where we serve the public. If we can look at the situation to solve the insured’s problem and still make it palatable to the underwriter, that’s where we come in.”
He offered the example of an FBO that was canceled by its insurer last year. The incumbent broker couldn’t find another market to accept the risk because it had several liability losses due to damage caused while tugging airplanes into the hangar during icy weather.
“We convinced the insured to saddle himself with a sizable deductible,” Moloney said. “Then we drew up a precise list of procedures for the wing-walkers to follow to avoid future losses and basically engineered the account and put it in a position where they wouldn’t have those kinds of losses. The challenge was getting the insured to believe in this and having a larger deductible. The current broker just gave up. ‘I can’t get anyone to write your account,’ he said.”
This approach extends to how aviation brokers perceive themselves, Moloney said. When Plus Air’s account manager, Nicole Forbear, joined the firm two years ago and “knew nothing about aviation and insurance,” he said, “she expected we would be salesmen. I explained that we operate more like a law office. … I don’t think she believed it at first but she believes it now. We tend to be more of a professional service organization than a sales and marketing organization.”
The underwriter’s challenge
While satisfying the aviation client requires a level of service and innovation that’s qualitavely different from other P/C lines, the challenge for underwriters is also unusual in the insurance world.
“Aviation is so small that the typical rating basis, which is the law of large numbers, just doesn’t apply,” according to Galizi, a former underwriter for USAIG. “We could insure someone that owns a very small aircraft like a Cessna 152, which is $1,000 a year in premiums, but he may do something remarkably stupid and cause a 757 to crash and kill 300 people.
“Aviation underwriters can’t go back statistically for six years and say, ‘I need this rate to pay for it and make a 10 percent profit,'” he said. “There’s just not enough units, and because of the chance of catastrophic costs the percentage of total losses to fatalities is much higher than for automobile insurance, for example.”
This means the aviation underwriter makes decisions on a more subjective basis about which categories can make an underwriting profit and how much to charge, Galizi said. Liability limits are typically much higher than other P/C lines, as are the amounts ceded to reinsurance.
“Matching the pilot to the aircraft–that’s the most difficult job of the underwriter,” Moloney said. “You have to understand the pilot mentality. Most are ego-driven and entrepreneurial. Most feel that training for them is a waste of time, though the statistics don’t bear that out.”
Lack of training can be tragic
Moloney told the tale of a private pilot who had been flying out of Schaumburg for a number of years and was perceived to be competent though his skill levels “were suspect.” One day, he headed with three other aircrafts to Canada for a fishing trip. The group of 12 men landed to refuel in Duluth, Minn., amid foggy weather.
“They had some trepidation about departing,” Moloney said. “Three of them made it. One of them got spatial disorientation.” Four men died.
It was later discovered that the pilot of the plane that went down had no instrument training other than his initial training and had little experience in his log book for flying in those conditions. It’s precisely this kind of derring-do that makes the aviation business so exciting, but also very challenging for insurance brokers and underwriters.
“Had that pilot been going to recurrent simulator training year after year,” Moloney said, “things might have been different.”
According to Galizi, the pilot warranty clause in an aviation insurance policy is one frequently used to deny a claim. If a pilot hasn’t logged the proper number of approaches in the past six months, for example, or not been properly certified for the flight, then coverage could be denied.
In spite of the potential for tragedy that accompanies every flight and every risk he helps insure, Moloney finds the aviation business invigorating.
“I was tired of P&C after spending 30 years in it,” he said. “I was trying to figure out a way to retire. It was like a rejuvenation. Now I’m trying to figure out a way to stay around forever.”
At 57, Moloney said he’s “having too much fun” to think about retiring.
“I’ve never worried about it,” he said with a smile. “Airline pilots have mandatory retirement at age 60. Aviation insurance brokers don’t.”
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