Reduced Pilot Hours Are Dangerous. Some Risk Management Imperatives to Consider

By: Jeff Higel | May 7, 2021

Jeff Higel is a Claims Counsel with Sompo International Insurance in Alpharetta, Georgia, handling claims for W. Brown Aviation, a Sompo International company. He is a pilot (commercial/CFI), lawyer, and licensed claims adjuster. Previously, Mr. Higel was a Claims Expert for Aviation and Cyber insurance at Swiss Re and was a CFI for Purdue University before attending Emory Law School in Atlanta, GA.

Topics: Aviation | Risk Insider

The impact of COVID-19 on the aviation industry has been undeniable and well documented — perhaps so much so that for the first time in years, we’re talking about something other than the impact of drones.

Passenger volume for commercial airlines was down 60% in 2020, and new general aviation (GA) — or private — aircraft deliveries decreased 21% at the beginning of the pandemic.

We found ourselves longing for the thrill of waiting in TSA lines hoping we wouldn’t miss our flights.

While the impact on the entire aviation industry in general is staggering, GA owners and operators face potentially more pronounced issues than the commercial airline industry. Airline pilots facing furloughs will have access to sophisticated company simulators to hone their skills before returning to the skies and airlines have dedicated maintenance teams; GA pilots don’t have the same luxuries.

Data isn’t out on GA flight hours for 2020, but there’s no shortage of anecdotal evidence to show that the numbers will be down.

With airplanes sitting on the ground, there are two forms of rust that pose significant risks as pilots prepare to take to the skies — pilot recency and equipment corrosion.

Pilot Proficiency

It’s well-established that there is an inverse relationship between flight hours and safety.

The fewer the flight hours, the greater the safety risk.

However, there is one exception to this rule for newer pilots. As pilots gain a little experience and self-assurance, they tend to become overconfident in their skills and exceed their limitations, greatly increasing the likelihood of making mistakes. The FAA confirmed as much with the graph below, which shows a peak in accident rates around 500 hours of experience for non-instrument rated pilots, before returning to the baseline rate around 2,000 hours.

Looking at the chart above, a pilot could find his or her place on the graph and get an estimate of the accident rate. However, reduced flight time during the COVID-19 pandemic has shifted the focus from flight hours to recency and proficiency, two areas that are not as well researched when it comes to risk assessment of pilot safety.

While the FAA’s flight recency requirements sometimes feel like a burden, they exist for a reason. Practice is key to maintaining proficiency in any activity, whether it’s flying, golf, surgery or piano.

As they say, practice makes perfect. In the absence of practice, skills erode and errors occur.

As previously stated, there is an increase in risk once pilots gain a bit of experience and confidence. A pilot returning to the skies post-pandemic may experience the same effect but on a smaller scale: The first few flights go well, a pilot feels confident despite not having much practice, then pushes the envelope, leading to disaster.

What we’re worried about is the same risk experience curve but in terms of recency of experience instead of total hours of experience.

Having one successful instrument approach may bring back a high level of confidence, but it is important for pilots to truly analyze whether that confidence translates into proficiency when attempting the same approach in instrument meteorological conditions, when weather conditions require pilots to fly primarily relying on instruments rather than visual reference.

Rusty proficiency is not just limited to pilots.

Airports and Fixed Base Operator ground crews that handle private aviation had layoffs during the pandemic, controllers handled less traffic, and even the passengers appear to have forgotten things about flying, such as where to find the lavatory.

Simply put, every cog in the machine of aviation has ground to a halt, and it’s incumbent on the industry to take extra precautions as we emerge from the pandemic.

Even if you’re confident your flying ability is corrosion free after a long break, there are going to be other pilots who may have forgotten an airport layout they once knew or miss a frequency they thought they memorized, or linemen who are rusty with how they marshal aircraft. Pilots should keep a keen eye out, not just for their mistakes, but also for the mistakes of their fellow aviators.

Aircraft Safety

In addition to risks posed by the human error element of aviation, there’s another type of rust that poses a big risk for the GA industry: aircraft that have been sitting on the ramp or in hangars are at risk of corrosion.

The pandemic presented a unique change to the typical process of preserving an aircraft for periods of inactivity.

While an aircraft owner can typically anticipate when their aircraft will sit idle, COVID-19 caught us all by surprise. Aircraft may have been sitting on the ramp for months before owners realized this pandemic would not be over any time soon.

Many aircraft require preservation steps be taken if the aircraft will be idle for more than 30 or 60 days. These aircraft will need thorough inspection and possible repairs before flying if they were not properly preserved during the pandemic.

In regions with high humidity or salt content, these issues will be especially pronounced.

Financial pressures of COVID-19 and the lack of flight hours have resulted in some owners deferring maintenance until the end of the pandemic. It is critical that these items are addressed before returning to service. Even aircrafts stored in a heated hangar are subject to degradation over time due to corrosion, internal seal aging and the breakdown of internal lubricants.

While it’s painful to pay for an overhaul or replacement of parts on an aircraft that hasn’t been used for a year, these guidelines exist to keep crews and passengers safe.

Insurance Considerations

Once pilot proficiency and aircraft maintenance issues have been addressed, there are additional risk mitigation steps GA owners and operators need to take before heading back into the skies:

First, check with your insurance broker to make sure you have active coverage for all operations if you’ve changed or dropped coverage during the COVID-19 pandemic.
Second, read through the policy to see if there are instrument flight rules, currency or other specialized training requirements. Failure to comply with these provisions could invalidate coverage in the event of an accident.
Third, pay close attention to maintenance, because wear and tear or mechanical failures are typically not covered, and if your aircraft is unairworthy it could invalidate coverage.
Finally, while we applaud those of you starting your engines during the pandemic, one of the most frequent claims we’ve seen during this time is forgetting to detach a tow-bar before those ground run-ups. We can’t highlight the importance of taking your time and following proper procedures enough. Contrary to the old adage, flying is not like riding a bike, unless you ride your bike with a checklist.

In Conclusion

COVID-19 has presented extraordinary challenges for the aviation industry and the world in general. Pilots should be vigilant in ensuring their proficiency after a time off from flying, be aware of the possible proficiency issues of those around them and be mindful that aircraft may need a tune up after all that time on the ground.

Once pilot and aircraft proficiency is assured, GA owners and operators should consult with their insurance brokers to make sure their coverage is up-to-date as well.

As tempting as it is to rush to return to the skies, we must, as we always do, proceed with the healthy respect and caution that drives the constant safety diligence. &

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.