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Q&A: Aircraft Hull Value Adjustments In Volatile Market Conditions

April 2022

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Today’s aircraft market conditions bring to light the importance of insurance and accurate hull values. If you have not consulted with your insurance agents, underwriters, or legal teams about your coverages and exclusions, the current hull value assigned to your aircraft could be off by millions.

Driven by unprecedented demand and record-low inventories, asset values are rapidly changing in almost every aviation market segment. Industry reference guides are unable to keep up. While these fluctuating market conditions remain, we recommend you consult with your insurance professionals at least twice a year to review hull value and adjust as needed.  

I recently sought expert advice from Michael McCray, Senior Vice President at Marsh JLT Specialty, to offer best practices about managing Agreed Hull Values policy adjustments in volatile market conditions.  

I appreciate and thank him for his time in providing the following valuable information.

Should policyholders reach out to their agents to update hull values?  Are hull values automatically adjusted in some policies? 

Policyholders typically update hull values annually, though it makes sense to reach out to your agent/broker during the policy period to ensure that values are accurately stated and reflective of market trends. Aircraft Hull coverage is generally written on an Agreed Value basis, so stating values as accurately as possible is vital.

Updates or adjustments to these values are usually not an automatic feature of policies, so actively engaging with your agent or broker is essential. This is especially the case should upgrades or modifications be made to the aircraft.

Should policyholders obtain a certified appraisal if they are seeking to increase their hull value?

A certified appraisal is, without question, the most credible approach to determining accurate hull values, and one that aviation underwriters generally prefer. Alternative sources do exist, however, including Aircraft Bluebook and other reputable sources, and are available to assist insureds in determining the appropriate hull value.

Are market conditions making it difficult to assign accurate hull values that match the current aircraft purchase price? 

Generally, insureds are agreeable to insured hull values that match the aircraft purchase prices, though this varies from risk to risk. Vetting hull values early with your agent/broker and underwriter is vital to ensuring that any hull value issues may be addressed in a timely fashion.

What proactive steps should clients take to protect their assets?  Clients should closely monitor the market via trusted industry sources and be prepared to adjust values accordingly, should market conditions change.

What are the potential ramifications of an under or over insured hull in the event of an insured event? In the event of a covered loss, under-insuring an aircraft can result in a claim payment well below the actual value of the aircraft. In instances where aircraft are financially encumbered, this can present significant complications with respect to loan and/or lease agreements, including potential breaches of insurance provisions. It is important to note that the agreed value of the hull (stated in the policy) is the maximum amount an insurer will pay in the event of an aircraft hull loss, so insureds should plan accordingly. It’s why determining the appropriate hull value is so important.

Setting insured values well in excess of market values risks a claims adjustment wherein underwriters could elect to either repair or replace a significantly damaged or destroyed aircraft rather than entering into a cash settlement for the agreed insured value. Accuracy is key here.

Do you have examples of the challenges related to hull values in excess of market values?  

From time to time, insurers will push back when an aircraft’s insured value greatly exceeds the figures generally accepted for that type of equipment. In those instances, insureds are often asked for additional support to bolster the case for a higher value, including certified appraisals, documentation of recently installed upgrades or other modifications of note, as well as documentation of required Stipulated Loss Values contained in lease or loan documents.  Aircraft owners and their agents and brokers should be prepared for these scenarios so that issues do not arise with regard to coverage.

Contact Duncan Aviation

To gain insight into the current ever-shifting aircraft sales market, we encourage you to connect to Duncan Aviation’s Aircraft Sales and Acquisitions team.

We have been in the business for more than 65 years providing sales and acquisitions services. Our sales representatives have an average of 35 years of experience and have completed more than 3,500 transactions. We follow the market closely and are happy to share our perspective.

To learn more about Duncan Aviation Aircraft Sales visit www.DuncanAviation.aero/services/aircraft-sales or contact our team today: aircraftsales@duncanaviation.com.