SilverLink - Winter 2008 - (Page 12)

are both exclusive types of transport and require knowledge, experience and discipline to operate. They represent a sizeable capital investment, transport passengers and cargo and operate in higher risk-of-loss environments. These parallels gave the insurance companies the ability to use established marine policies and adapt them to the aviation world. During this adaptation process, much of the shipping phraseology and language remained in place within aviation policies. The term “hull” originated from the early marine policies, as the ship or its “hull” was insured against loss. Thus, early aviation underwriters and insurers used the term “hull” to refer to aircraft. Other early shipping terms like “captain” and “pilot” also translated to the aviation world. Lloyd’s of London developed the first aviation policy in July 1912, when Lloyd’s agreed to cover legal liability only on aircraft that were participating in an air show. In May 1919, Travelers Insurance Company introduced the first comprehensive program for private and commercial aviation operations. These aviation policies offered no aircraft hull loss coverage and covered only liability, personal injury and loss to others’ property. With the passage of the Air Mail Act of 1925 and the Air Commerce Act of 1926 (which established the Federal Aviation Administration), the aviation industry stabilized and there was a dramatic increase in new aircraft being produced and operated. Insurance companies reacted to the new stability by introducing aircraft “hull” coverage. It is critical that you have a current value for your aircraft when examining coverage options. Important questions are, “If you had to replace your aircraft today due to a loss, could you replace it with the same, exact aircraft?” and “How do you determine the correct value?” The following are some important factors to consider when assigning value: • Book values—The value of used aircraft may be affected by several issues: – If a backlog exists on delivery of a new aircraft that is the same make and model as an existing used aircraft, the value of the used aircraft can be driven up, since purchasers will often pay above book value to access a used aircraft “now,” as opposed to a potential wait of several years for a new model. Fleet size—With a smaller fleet of specific makes and models available, the fleet is more vulnerable to significant swings in value. Service, parts and support availability Fuel costs World political climate Diminished values due to damage history – – – – – • Losses to fleet—If a specific make and model of aircraft has a less-than-stellar operating history, thus making it more difficult to insure, values may be driven down. Major avionics upgrades, like the installation of the Honeywell CDS-R “Glass-Box” (pictured on page 11) or Collins ProLine 21 avionics suite can increase the value by over $1 million in some cases. Issuance of Supplemental Type Certificates* has the potential to either add considerable value or, in some rare cases, devalue the aircraft. Major interior completions and paint Completion of recommendations found in certain Manufacturers’ Services Bulletins. For example, an upgrade to the Auxiliary Power Unit on a Canadair 604 may add $200K of value. Compliance, or in some cases, non-compliance with certain airframe and component airworthiness directives can have a staggering impact on value, especially with smaller single- and twin-engine aircraft. • The term “hull” originated from these early marine policies, as the ship or its “hull” was insured against loss. Within the insurance industry, in recovery for the loss of real property, the dollar amount paid back to the customer has traditionally been based upon “replacement cost” or an “actual cash value” basis at the time of the loss. Being unique, the aviation industry assigns the value of the aircraft (the “hull”) at a pre-determined price agreed to between the customer and the insurance company. • • • • Going To Market With today’s wide variety of aircraft, ranging from Piper Cubs to Boeing 747s, the fluctuating aviation market may have anywhere from minimal to dramatic effects on the value of a specific make and model of aircraft. Falling Short Being underinsured is always risky. Whether due to incorrect valuation of your aircraft or a conscious decision to carry inadequate insurance, this type of exposure can be costly. As an example, if an aircraft hull is undervalued and contact charles ParMley at 402.96 4.5718 or cParMley@ ssgi.coM 12

Table of Contents Feed for the Digital Edition of SilverLink - Winter 2008

SilverLink - Winter 2008 Contents Risk Management: Where in the World is Human Resource Consulting? Workers’ Compensation Rate Declines Insurance Certificates Haute Retirement It All Began with a Cup of Coffee Playing Fair in the Housing Market Captives 101 Proceed with Caution Fore! (Or is it Pull? or Giddyup?) Don’t Be Fuelish Employee Benefits: Medical Trend Countdown to Compliance Private Client Services: Buy & Sell Agreements Flood Insurance Pushing Wealth to the Next Generation Client Spotlight: Travel and Transport Internal Happenings: SilverStone Group Giving Back Since 1945

SilverLink - Winter 2008

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