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30 | Aviation Insurance & Risk Management
FACTS AND OBSERVATIONS
Insurance Premium Tax
So, you think if you pay your federal and state income tax and any necessary state and local sales
tax, that is the extent of it. Oh, that’s right, we still have the death taxes and a little hidden tax on
gasoline, but that is about the size of it. Wrong. Don’t forget one of the most obscure taxes, the
state insurance premium tax.
Most states require insurance companies to pay a tax on the gross insurance premium they charge
for insurance products sold in your state. These taxes vary by state but can be quite substantial.
In Tennessee, for example, each company is required to pay 2.5 percent on all premiums except
workers’ compensation. Workers’ comp is taxed at 4 percent. In addition, they charge a fi ling fee
just for accepting the money.
The next time you pay your insurance premium, just remember that some signifi cant portion of it
will be paid over to your state in taxes.
Insurance Company Notice of Cancellation or Non-renewal
Most states require the insurance companies to notify policy holders a minimum of 60 days (varies
by state) prior to policy expiration if their intent is to non-renew the policy or to increase the
premium more than 25 percent (varies by state).
If the company is unsure of its renewal intentions concerning price, it often sends out the mandatory
letter just to be sure it complies with all state requirements. Usually, this practice is most
prevalent when underwriters are backlogged.
Unfortunately, an insured receives the letter directly from the insurance company and the agent
often is not copied on the letter or receives it after the insured’s copy is delivered. If you receive
such a letter, a quick phone call to your agent can clear the whole matter up. �
Next Hard Market
The last few months in the aviation insurance world have been quite exciting. Prior to 2006, our
industry consisted of eight domestic aviation insurance underwriting facilities. From 2006 through
the summer of 2009, the number of aviation underwriting facilities grew to 16. During this time, due
to the underwriting overcapacity, premiums and rates plummeted. Losses continued both in general
aviation as well as in the commercial airline sector. Due to premium inadequacy, many underwriting
facilities will close 2009 with significant losses.
Historically, during significant soft market cycles, underwriting facilities have gotten some financial
relief from their investment portfolios. In this case, due to the current recession, the insurance
company investment portfolios are performing poorly.
With the stars aligned and insurance company profits suffering, we are seeing the beginning of the
next hard market cycle. Underwriters are becoming somewhat less cooperative and are beginning
to push for rate increases. AXA insurance company and Travelers Insurance have both withdrawn
from the general aviation insurance marketplace. Additionally, rumors are beginning to fly about
other companies withdrawing from certain aviation insurance sectors.
Stay tuned for future developments. �
Have questions about your
Aviation Insurance policy? Give CS&A a call.
800.999.1109