Underwriting entails the selection and classification of risks exposures for the insurer to determine the appropriate rate that can cover related costs, losses of the insured, and also earn him/her profit (Chappell 1). To determine the applicable rate, actuaries determine the character of the insured which they use to forecast future losses. Therefore, an insurer must only have adequate exposure for each class of insurance to minimize his/her risk. Importantly, he/she must have sufficient knowledge of the applicable underwriting criteria to use when establishing the factors to consider when proving insurance coverage.
In the aviation industry, the factors that are taken into consideration when determining the insurance rate are its purpose, hull value, airplane’s pilots, and experience in the make and model. Insurance policies have different coverage and use; therefore, the insured risk determines the rates that insurance companies charge (United States Government Accountability Office [GAO]). Normally, higher valued aircrafts have lower hull insurance rates when compared to the low-valued ones. Most insurance companies believe that professional pilots are more competent in flying aircrafts than owners. As a result, aircrafts that are flown by the former are charged low rates. Finally, a pilot’s experience in the make and model of an aircraft determines his/her ability to control and operate it (Chappell 2). Therefore, those with a high exposure pay lower premiums compared to those who have little experience.
An aircraft owner should ensure that his/her airplane is flown by a professional pilot to pay low insurance rates since these companies believe they are more experienced and skillful. He/she should also use an airplane with a high hull value since it will attract low premiums. Finally, the aircraft owner should take the most affordable class of insurance that can sufficiently cover his/her risks.
Chappell, Thomas. Influences on Underwriting and Pricing. Available from www.aviationinsurance.com/uploads/INFLUENCES-ON-INSURANCE-UNDERWRITING-AND-PRICING.pdf. Accessed 29 September 2017.
United States Government Accountability Office [GAO]. “General Aviation, Observations Related to Liability Insurance Requirements and Coverage for Aircraft Owners.” Report to Congressional Requesters, GAO-15-740, 2015, www.gao.gov/assets/680/672376.pdf. Accessed 29 September 2017.