Aviation Risk Consulting combines expertise and personal
service to create a smooth flight for independent agents
By Elaine Tolen
Rob Burchard is founder and President of Aviation Risk Consulting, Inc., which has offices in Greensboro, North Carolina, and Oak Brook, Illinois.
After 15 years of working for some of the largest insurance brokerage houses in the industry and handling some of the world's largest aviation accounts, Rob Burchard decided to fly solo in 2001 by founding Aviation Risk Consulting, Inc. The Greensboro, North Carolina-based firm acts as both a retail agency serving aviation clients and as a wholesaler serving independent agents' aviation needs.
"I saw firsthand that the large insurance brokerage firms had begun to treat their clients as 'bulk' commodities, replacing personal knowledge and client advocacy with large servicing 'teams' that either did not know, or worse, didn't care what the unique needs of the client were," Rob explains. "I also saw a growing need for aviation expertise among independent insurance agencies."
Throughout his career--which has been largely spent at Alexander & Alexander, Aon and Marsh & McLennan--Rob observed that unless the clients are very large, they do not receive the attention he believes they deserve. "Over the last 10-15 years, there have been multiple mergers among the major insurance brokerage firms," he explains. "As a result, many of the national brokers handling aviation insurance have grown very large and have lost touch with their clients' needs. The major firms routinely turn over smaller middle market accounts to junior staff members who often know little about the client, aviation coverage, or the underwriters."
Rob attributes the success of Aviation Risk Consulting (ARC) to its ability to better serve the needs of clients. In just two years of operation, ARC has gained altitude by helping independent insurance agencies without aviation experience compete with larger national firms that have their own internal aviation resources. "In fact, because of my years of experience and contacts in the industry, I can usually improve coverages, pricing, or both." He continues, "Because of my strong relationships with the major aviation insurance carriers, I can develop a good match for clients, regardless of their size."
Direct Jet Charter Director of Operations Jen Harrison inspects landing gear with Direct Jet Charter pilot Mike Almstead and Rob on a recent visit to the company.
Helping agencies succeed
"There is a real need for aviation expertise in many independent agencies today," says Rob. "They make the mistake of trying to handle this unique class of insurance internally. In most cases, the agent has little or no experience with aviation underwriting, and no relationship with aviation underwriters. This often results in the client receiving bare bones coverage at a higher premium than necessary. Of course, this leaves the agency vulnerable to competitors and may cause the agency to lose the account or suffer an error & omissions claim. In some circumstances, because they lack the expertise to effectively deal with aviation coverage, many independent agencies simply choose to walk away from a client's aviation needs. Again, this leaves the agency vulnerable to other agencies that either have the expertise internally, or can access it externally.
"We help the independent agent retain clients by providing a more comprehensive insurance solution that includes their aviation needs," Rob explains. "ARC specializes in corporate and commercial aircraft operations, although we have the capability and experience to address any aviation insurance exposure, including private aircraft, corporate aircraft, aviation products, airports, helicopters, and charter operators."
Mountain Air Cargo (MAC), the largest feeder operator for FedEx, is one of Rob's long-time clients that has benefited from and depended on his expertise. MAC President Bill Simpson says, "We have had the pleasure of working with Rob for over 15 years. During that time,
we found him to be a very straightforward individual with an extensive aviation insurance knowledge. We feel he has worked in our best interest and has been very responsive to our requirements."
Rob's client experience includes accounts such as ServiceMaster Aviation Services, United Airlines, American Airlines, FedEx, Atlanta Hartsfield Airport, Greater Orlando International Airport, May Department Stores, BP America, Purdue University, Harpo, Inc. (Oprah Winfrey's company), Wrigley and Eli Lilly. ARC recently became the aviation resource for BB&T Insurance Services, the seventh largest insurance broker in the country, as well as several other independent agencies.
Managing aviation risk
Agents/risk managers often ask Rob what limits a client should carry. "Ten to 15 years ago, the average passenger settlement for a commercial airline was about
$1 million per passenger seat. Today, that has increased to about $4 million per seat," Rob explains. "So, for example, an airline operating an aircraft with 100 passenger seats
has the potential of suffering a
$400 million passenger liability loss. This doesn't include losses for damage on the ground. Since around 65% of all aircraft losses occur during takeoff or landing, and many airports are surrounded by densely populated areas, it is clear that losses on the ground can also be significant.
"The $4 million average settlement for commercial airlines is based on passengers that span the entire population and all socio-economic levels," Rob continues. "However, passengers on corporate (industrial aid) or commercial charter operations usually consist of corporate executives with higher salaries. Thus, a higher limit than
$4 million per passenger seat is often warranted. A $7 million per passenger seat is not unheard of. A corporate or charter aircraft operator with 10 passenger seats can easily be looking at a limit of liability of at least $70 million to cover the potential passenger exposure."
Rob with client Skip Gilliland, owner/pilot and Chief Operations Officer of Geodax Technology.
According to Rob, "For private aircraft owners--especially those who operate piston-engine aircraft--the issue is often not what is an adequate limit, but what is affordable or even available. Often, the limits that private aircraft owners are able to obtain is usually a function of their pilot experience. Pilots with few hours as Pilot-in-Command will struggle to get more than $1 million combined single limit with a $100,000 maximum per passenger seat limit. More experienced pilots may be able to secure higher limits without the per-passenger limitation of $100,000."
Independent agents should keep in mind that the key pillars to most aviation underwriters' decision to underwrite a risk are pilot experience and training, according to Rob. "Of course, the more experienced a pilot is--especially in the make and model of the aircraft he or she is flying--the more favorably the client will be viewed by the underwriter. However, recurrent simulator-based training has become increasingly important--particularly for corporate and commercial operations--and has become an industrywide underwriting requirement," he says.
Rob says the same is becoming true of private aircraft owners who fly multi-engine aircraft. "There has been an increasing demand in recent years for simulator training that allows pilots to be trained and exposed to 'extreme' scenarios, ones that would be difficult to re-create in real life--without the real life risk. Recurrent simulator-based training is often required by underwriters annually and can be quite expensive."
Market takes a nosedive
During the mid to late 1990s, Rob says, the aviation insurance market went through an extended "soft market" period with aviation premium reductions year after year. "With falling premiums and significant aviation losses during that period, the aviation insurance market suffered through multiple unprofitable years. This caused some insurers to exit the aviation insurance market, resulting in less capacity and fewer underwriting alternatives.
"In 2000, the aviation insurance market began to harden and gradually pushed premiums up in order to become profitable once again. Then on September 11, 2001, the aviation insurance market was not prepared for the magnitude of the worst loss in aviation history causing the aviation insurance market to stagger severely and almost fail," Rob explains. The fear that other catastrophic terrorist losses might occur within days, weeks or months made insurance carriers concerned about a possible "knock out" punch and unsure of whether it could rebound or how to rebound from such a loss.
"As you know, immediately after 9/11 the aviation insurance market cancelled all coverage for losses resulting from hijacking or terrorism. This literally grounded aircraft all around the world, since no airline could operate without that [kind of] insurance coverage, and the federal government had to step in, passing the Terrorism Risk Insurance Act of 2002 (TRIA). TRIA, which served as a federal safety net against future terrorist acts, has allowed the aviation insurance market to steady itself somewhat," explains Rob. "In spite of the governmental 'safety' net, the magnitude of the 9/11 loss--coupled with the prior unprofitable years--forced the aviation insurance market to seek very sizeable premium increases on all lines of coverage. No segment was immune from major premium increases.
"For the most part, insureds have understood the reason for the increases and have stepped up and paid the sizeable increases," Rob continues. "During 2002 and 2003, possibly due to increased security and diligence by the aviation community, the aviation insurance market experienced below average losses. This resulted in 2002 and 2003 being two of the most profitable years for aviation underwriters."
Rob and his wife, Jennifer, share an interest in flying, and enjoy taking lessons together.
The result of this profitability, according to Rob, is increased pressure on aviation underwriters to reduce premium. "During the second half of 2003, the aviation market began to show signs of 'softening.' Corporate (industrial aid), one of the safest segments was one of the first to begin seeing rate and premium reductions. Expectations for 2004 are for a continuing 'softness' in the aviation market. However, those segments of the aviation industry that have higher incidents of loss may not see reductions this year," Rob reports.
With the aviation insurance market in a state of transition from a hard market to a soft market, and with insurance carriers less concerned about surviving and once again interested in increasing market share, Rob predicts that there will be increased competition among insurance carriers with some carriers writing for the first time or choosing to write again certain types of aviation accounts that they quit writing after 9/11. "However, regardless of the type of market, we believe that having a broker with a strong knowledge of the aviation markets, strong relationships with underwriters and most importantly, taking a proactive and aggressive approach in developing an effective renewal strategy typically produces superior results," Rob concludes.
Preparing for takeoff
Rob prepared for his career in insurance as a risk management and insurance major at the University of Georgia. After several years at Employer's Casualty Company of Texas and Aviation Office of America, Rob joined Alexander & Alexander, Inc. (A&A), which at the time was the second largest insurance brokerage firm in the world. During that time, Rob represented both major airlines and regional airlines. He also represented major U.S. airports and Fortune 500 companies. After serving as a vice president, Rob became one of A&A's three aviation regional managers. "One of the aspects of this job that I enjoyed was traveling to New York, London, Paris, Zurich and Munich--some of the major centers for aviation insurance--and negotiating coverages and terms directly with the underwriters and reinsurers," Rob notes.
"Lloyd's of London, although an integral part of the aviation insurance market, operates very differently from the U.S. domestic market. Whereas U.S. insurance carrier underwriters generally underwrite risks independently of other carriers and view other carriers as competitors, Lloyd's requires underwriters to join together and 'support' terms offered by another underwriter. Thus, negotiating terms in London is very different than negotiating terms with U.S. domestic markets and often requires a different approach," Rob explains.
In 1997, Aon acquired Alexander & Alexander, becoming--albeit short lived--the world's largest insurance brokerage firm. Rob continued as Aon's southeastern aviation regional manager until he accepted a position on Aon's aviation team in the Chicago home office. In early 2000, Rob left Aon and became the Midwest aviation regional manager for Marsh & McLennan. While there, he increased total revenue 62% by restructuring the department to better utilize resources and focus greater energy on providing better service and client advocacy. That approach produced new business production growth of 301% and greatly increased client retention.
"Unfortunately, over the years, I have seen the major brokerage firms abandon their commitment to serving the needs of their clients in a blind pursuit of new business," says Rob. "There was always the push for more volume and the concentration on large accounts. Once-valued smaller clients were passed off to junior staff as 'training' accounts or simply run off."
Taking off
So, in late 2000, Rob began Aviation Risk Consulting, Inc., with the goal of being an advocate for clients and specializing in corporate and commercial middle market accounts. Soon after founding the firm, Rob found a niche in serving as the aviation resource for independent agencies that don't have access to aviation expertise. "My clients tell me time and again that they appreciate how I worked for them, not the carrier," says Rob, "and that I was able to get them the best coverage for the price available."
ARC's first office was in Oak Brook, Illinois, to service clients in the Midwest and to leverage the central location for easy air transportation to clients in other parts of the country, enabling personal service anywhere needed. However, with his prior experience as the southeastern aviation regional manager for A&A/Aon and with several clients in North Carolina, coupled with feedback from independent agencies in the southeast, Rob saw tremendous opportunities in an underserved area of the country.
"Many agencies in this area either avoided aviation risks because they don't have the expertise, or they tried to handle it and, with just a handful of accounts, were at the mercy of aviation underwriters at large brokerage firms," Rob explains. "Besides bringing clients an expertise that they don't have, I also bring a volume of business and relationship with the aviation underwriters that the local agencies do not. Physically being in the Southeast allows agencies easier and quicker access to Aviation Risk Consulting.
"So, we opened our second location [which is now the main office] in Greensboro in February 2003, and have seen tremendous growth and opportunities. However, no matter how large Aviation Risk Consulting gets, we are committed to our clients--large and small. To put it in aviation terms, no matter how high we fly, we'll never lose sight of the ground!" *
For more information:
Aviation Risk Consulting, Inc.
Phone: (336) 644-9313
E-mail: rburchard @avrisk.com
Web site: www.avrisk.com