General Aviation: Observations Related to Liability Insurance Requirements and Coverage for Aircraft Owners
Published: 2015-09-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: A substantial proportion of all domestic aviation accidents and fatalities that occur each year involve GA, which includes all aviation except commercial and military. Under federal law, the Secretary of Transportation is responsible for ensuring that commercial air carriers carry liability insurance. However, no such federal requirements exist for GA aircraft owners. In some cases, accidents involving uninsured or underinsured GA aircraft owners have occurred where individuals (passengers or third parties) who incurred losses received little or no compensation.
GAO was asked to look at the feasibility and costs associated with adopting federal liability insurance requirements for GA aircraft owners. This report examines (1) existing liability insurance requirements for GA aircraft owners, (2) premiums for GA liability insurance, and (3) factors that selected stakeholders cited which should be considered in determining whether to adopt a federal liability insurance requirement. GAO surveyed aviation officials in 50 states, analyzed state statutes identified in the surveys, collected insurance premium information from three nationwide aviation insurance brokers, and interviewed a diverse group of 73 aviation stakeholders—including FAA and NTSB officials, GA associations, and attorneys representing accident victims—selected based on GAO's prior work that identified the GA associations and recommendations from FAA, NTSB, and other aviation stakeholders.
section_title: What GAO Found
paragraphs: Based on GAO's 50-state survey of state aviation officials and analysis of state statutes and regulations identified by such officials, the vast majority of states do not have liability insurance requirements for general aviation (GA) aircraft owners and operators (i.e., pilots). As of April 2015, 11 states have some variation of a liability insurance requirement or aircraft financial-responsibility requirements, which require GA aircraft owners to demonstrate financial ability to cover potential losses incurred in an accident (see figure below). Minnesota is the only state that requires almost all GA aircraft owners to have a minimum liability insurance coverage: the required minimum coverage is $100,000 per passenger seat.
Annual premiums for liability insurance vary depending on the type of aircraft insured and a pilot's experience. For example, three nationwide brokers GAO contacted noted that an annual premium for a common 4-seat GA aircraft, a Cessna 172, can range from $200 to $550 for a policy that provides $1 million in coverage per accident, with a limit of $100,000 for each accident victim.
GAO interviewed 73 aviation stakeholders who most frequently cited five factors that they felt should be considered in determining whether to adopt a federal liability insurance requirement. Understanding the extent of the problem—both the number of GA aircraft owners who are uninsured and underinsured and the extent to which accident victims received little or no compensation from such owners—was one such factor. However, data on the extent of this problem are not available and, according to FAA and NTSB officials, could be challenging to collect. Four other factors cited include: (1) costs to victims and the public in the absence of liability insurance; (2) costs to the GA community if such a requirement were adopted; (3) issues related to the implementation and administration of such a requirement; and (4) the potential public-safety benefits.

section_title: Letter
paragraphs: According to National Transportation Safety Board’s (NTSB) statistics, the  number of accidents involving general aviation (GA), which includes all  forms of aviation except commercial and military, represent a substantial  proportion of all domestic aviation accidents and fatalities each year.  However, the number of GA accidents has decreased over the last  decade. Although no federal requirements for liability insurance exists for  GA aircraft owners and operators, a marketplace for liability insurance is  available for GA aircraft owners and operators. Some members of  Congress and aviation stakeholders have raised questions regarding the  lack of such a federal requirement as a result of accidents involving  uninsured or underinsured GA aircraft owners and operators where  individuals (i.e., passengers and third parties) who incurred losses  received little or no compensation from the responsible aircraft owners  and operators. For instance, in September 2012, a young flight instructor  was killed during a landing attempt with a student pilot and another  passenger, both of whom survived the accident. According to documents  from the flight instructor’s family, he was not covered under the flight  school’s liability insurance policy, and his estate received a claim against  the estate for property damage caused by the accident.
You asked us to examine the feasibility of and costs associated with  adopting a federal requirement for GA aircraft owners and operators to  maintain liability insurance. This report examines (1) existing liability  insurance requirements for GA aircraft owners and operators in the  United States; (2) available data on the range of premiums charged by  selected insurance providers for GA liability insurance and factors that  influence those costs; and (3) factors that selected stakeholders stated  should be considered in determining whether to adopt a federal liability  insurance requirement for GA aircraft owners and operators.
To identify existing liability insurance requirements, we conducted a  survey of aviation officials in all 50 states and analyzed state statutes,  regulations, and other documents identified by state aviation officials. We  received a 100 percent response rate to our survey as of April 2015. We  also spoke with state aviation officials in those states that identified some  kind of GA liability insurance or aircraft financial responsibility  requirements to obtain more information about those requirements,  including how they are administered. To identify the range of premiums  charged for GA liability insurance and factors that influence those costs,  we obtained information on GA liability insurance premiums for common  GA aircraft and factors that influence those costs from three nationwide  insurance brokers that work with the major underwriters in the GA  insurance market; these insurance brokers and underwriters were  identified by aviation insurance representatives we interviewed. Although  we could not independently validate the insurance premium information  collected from these brokers, we corroborated the premium information  received from the insurance brokers with premium data from the  insurance underwriters to assess the reasonableness of the data  provided. We determined that the information provided was sufficient to  use as examples of GA liability insurance premiums, but that it is not  generalizable to the entire spectrum of the GA aviation insurance market,  given the multiple and unique factors that can significantly influence  premium prices. To obtain aviation stakeholders’ perspectives on factors  that should be considered in determining whether to adopt a federal  liability insurance requirement, we interviewed or obtained written  responses from 73 stakeholders, including officials from the Office of the  Secretary/Department of Transportation, Federal Aviation Administration  (FAA), NTSB, and 39 state aviation offices, representatives from 9 GA  trade associations and 10 aviation insurance-related organizations, as  well as an accident victims association and 11 aviation attorneys  representing GA accident victims. The selection of representatives from  GA trade associations was based on prior GAO reports that identified the  GA associations and recommendations from FAA, NTSB, stakeholders,  and selected state aviation officials. We identified an accident victims  association and selected aviation attorneys, specializing in personal injury  and representing aviation accident victims based on our initial literature  reviews and recent news articles that mentioned law firms prosecuting or  defending GA accident cases. The aviation stakeholders’ views are not  generalizable to the entire GA community, but provided us with valuable  insights. See appendix I for a more detailed description of our scope and  methodology and for a list of stakeholders we interviewed.
We conducted this performance audit from October 2014 to September  2015, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: GA is composed of a diverse fleet of aircraft, including airplanes, gliders,  and helicopters, that are flown for a variety of purposes (see fig. 1). In  2013, FAA estimated there were about 340,000 licensed GA pilots, and  approximately 200,000 aircraft were in the active GA fleet, with airplanes  comprising the vast majority—almost 79 percent. According to FAA 2013  data, most GA airplanes are light, single-engine piston, fixed-wing aircraft.  FAA also identifies a small, but growing portion of the GA fleet as  “experimental” aircraft, which include amateur and home-built aircraft and  aircraft used for racing and research (among other purposes), as well as  exhibition aircraft, such as former military aircraft that are commonly  referred to as “warbirds.” The majority of these GA aircraft (about 88  percent) are used for one of the following purposes: personal (e.g., a pilot taking a family on a sightseeing trip); business (e.g., an owner and pilot flying to a meeting); corporate (e.g., a professionally-piloted aircraft transporting corporate  employees); and  instructional (e.g., a student flying with a certified flight instructor).
Domestic GA operations are conducted from more than 2,950 public-use  GA airports (which primarily serve GA aircraft) as well as from thousands  of other airports, including those that support commercial air service. GA  flights operate under various federal aviation regulations. For the  purposes of this report, our definition of GA includes flights operated  under Part 91 of general operations and flight rules, namely, all civilian  aviation flying except passenger air carriers and military aircraft.
Although the number of GA accidents in the United States has been  generally decreasing in recent years, there were over 1,200 accidents  and over 400 resulting fatalities in 2014 (see table 1). In October 2012,  we found that most GA accidents involved personal use and instructional  flight operations. In 2014, personal use and instructional flight operations  combined accounted for about 75 percent of GA accidents. Most  accidents also occurred during the landing and take-off phases of a flight,  and in 2014 most GA accidents occurred in California, Texas, and  Florida, all states with large numbers of GA aircraft.
Two federal agencies are primarily responsible for investigating GA  accidents and ensuring aviation safety: FAA and NTSB. FAA is  responsible for administering aircraft registration and pilot certification,  conducting safety oversight of pilots’ training and GA operations, and  taking enforcement actions against pilots and others who violate federal  aviation regulations and safety standards. FAA also collects GA fleet and  flight activity data through an annual survey that includes the number of  hours flown and the uses of GA aircraft. The FAA’s statutory mandate  does not, however, include requiring that GA aircraft are covered by  liability insurance. NTSB is responsible for investigating all civil aviation  accidents and major accidents and incidents in other transportation  modes. Using the information gathered by its own investigators and in  coordination with FAA, NTSB is responsible for determining an accident’s  probable cause, issuing safety recommendations, and conducting safety  studies. According to NTSB officials, if an NTSB official is not available at  the scene of where the accident occurred, FAA gathers perishable data  that are provided to the NTSB. However, NTSB is responsible for issuing  a preliminary report and final accident report describing the history of the  flight (e.g., date and time of accident, aircraft and accident type, purpose  of flight, extent of pilot and passenger injuries, etc.) and findings of  probable cause. NTSB also coordinates accident disaster-assistance  activities, including providing information and assistance to accident  victims (or their survivors), in the aftermath of an accident.
The Office of the Secretary of Transportation (OST) within DOT is  responsible for ensuring that commercial air carriers meet minimum  liability insurance coverage amounts for liability, as required under federal  law, and FAA has assumed this role pursuant to a memorandum of  understanding with OST. The related regulatory requirement, which  became effective in 1982, establishes minimum liability insurance  requirements for air carriers. Commuter air carriers and air taxi operators  are also required under federal regulations to have minimum liability  insurance. While federal insurance requirements exist for commercial  modes of transportation, the states generally regulate the business of  insurance. No federal requirement exists for GA liability insurance,  although as discussed later in this report, some states have liability  insurance or similar requirements.
Some countries require liability insurance for GA aircraft. Canada, for  instance, requires commercial and GA aircraft owners operating aircraft  with a maximum permissible take-off weight of more than 5,000 pounds to  have liability insurance for death and bodily injury in the minimum amount  of $300,000 (in U.S. dollars) multiplied by the number of passengers  onboard the aircraft. Similarly, a European Union regulation requires  liability insurance coverage for both commercial and GA aircraft when  operating within, into, out of, or over the European Union member  territories.
When operating aircraft, owners and operators face financial risks, such  as the risks associated with damage to the aircraft itself as well as those  associated with death, injury, and property damage to third parties.  Aircraft owners and operators, like many other individuals and  organizations, may choose to purchase insurance in which the financial  risks of an accident are transferred to an insurance company in exchange  for a premium payment. Various aviation insurance products are  available, such as hull insurance, which covers physical damages to the  aircraft, including the engine, propeller, and all other systems and  permanently attached equipment. Liability insurance covers death or  bodily injury to passengers or persons on the ground as well as property  damages caused by an aircraft accident. Aviation insurance policies for  GA aircraft owners are generally sold to owners as a package, which  include coverage for aircraft hull and liability.
Additionally, GA pilots who do not own their own aircraft may also  purchase their own liability insurance policy, commonly referred to as  renters insurance. This type of insurance is designed to protect pilots  against claims arising from bodily injury or property damages when they  are deemed to have caused an accident. It is also designed to provide  pilots with legal representation to defend themselves if they are sued,  whether or not they are ultimately determined to be at fault for the  accident. However, renter’s insurance is an excess insurance product that  is secondary to the primary insurance policy of the aircraft owner, which is  designed to pay for damages first. As such, renter’s insurance is not as  comprehensive as aircraft owners insurance tied to the aircraft. For  instance, in contrast to an aircraft owner’s policy, coverage for damages  to third parties on a renter’s policy is typically not triggered unless the pilot  was deemed to have been negligent in the operation of the aircraft,  according to a principal insurance underwriter offering such policies. In  addition to passengers on the aircraft or parties on the ground, insurance  companies themselves may also sue pilots for damages, taking action to  subrogate against the party responsible for losses paid. Apart from  where liability insurance is required, whether GA aircraft owners or  operators choose to purchase insurance depends, in part, on how much  risk they are willing to assume versus the risk they need or desire to  transfer (for a premium) to an insurance company. In particular, they may  choose not to purchase coverage if they believe the coverage is too  expensive for the amount of risk they bear.
section_title: The Majority of States Have No GA Liability Insurance or Related Financial- Responsibility Requirements, Although Other Entities May Impose Such Requirements
subsections: section_title: Eleven States Impose Either Liability Insurance or Aircraft Financial- Responsibility Requirements Applicable to Some GA Aircraft Owners and Operators
paragraphs: Based on our survey of state aviation officials and analysis of state  statutes and regulations identified by such officials, as of April 2015, the  majority of the states do not have liability insurance requirements  applicable to GA aircraft owners and operators (see fig. 2). Five states  have a liability insurance requirement that is applicable to at least some  categories of GA aircraft owners and operators, and six states have some  type of aircraft financial-responsibility requirements. Aviation officials we  spoke with in these states generally commented that they did not know  the history of why they have these requirements or how effective they  have been in terms of ensuring liability insurance coverage because data  are not collected to measure the effect of these requirements. Minnesota  is the only state that has a liability insurance requirement applicable to  nearly all GA aircraft owners. Every owner of aircraft in Minnesota,  including GA aircraft owners, must show proof of insurance, with the  minimum coverage requirements, when registering the aircraft with the  state. While it is a misdemeanor under Minnesota law for an owner to  operate an aircraft registered within Minnesota without the required  liability insurance, according to state aviation officials, the state relies on  self-reporting of liability insurance coverage during the aircraft registration  process and does not systematically track violations.
Four other states—Hawaii, Maryland, Oregon, and Rhode Island—have  provisions applicable to GA aircraft owners and operators that require  them to have liability insurance if they either hangar their aircraft at a  state-owned airport or operate their GA aircraft for commercial purposes,  such as leasing or renting out aircraft. For instance, according to a state  aviation official, GA aircraft owners that base or hangar their aircraft at  Rhode Island’s six state-owned airports for more than 90 days are  required to register their aircraft with the state and have a minimum  liability insurance coverage limit of $1 million per accident. In Hawaii,  persons such as GA aircraft owners who rent a state hangar as well as air  tour operators are required to maintain liability insurance.
Six other states have some type of aircraft financial responsibility  requirements. Under the aircraft financial responsibility requirements in  California, Connecticut, Indiana, Massachusetts, and Virginia, GA aircraft  owners and operators must demonstrate aircraft financial responsibility to  the state by showing differing combinations of liability insurance, a bond,  deposits of money or securities, or a letter of credit. Unlike the other five  states, North Dakota does not specify how financial responsibility should  be demonstrated. According to Virginia state aviation officials, most GA  owners meet the Virginia requirement by purchasing liability insurance;  however, aviation officials in California, Connecticut, Indiana, and  Massachusetts told us that this requirement has not been enforced, due  to lack of resources. See appendix II for more detailed description of  states with minimum liability insurance requirements or aircraft financial  requirements applicable for GA aircraft owners and operators.
section_title: Other Public and Private Entities Require Liability Insurance, but Extent Is Unknown
paragraphs: Seventeen of the 73 aviation stakeholders, including aviation insurers, GA  association representatives, and aviation attorneys, we spoke with stated  that other public and private entities require GA owners and operators  with whom they do business to purchase liability insurance, but the extent  of such requirements is unknown. According to six of the 73 aviation  stakeholders, data are not systematically collected on which or how many  public and private entities have liability insurance requirements. Some  local government airport operators may require GA aircraft owners to  have liability insurance as a condition of using the airport (e.g., to operate  in or out of or to use as a hangar for their aircraft). For instance, a GA  airport owned and operated by the city of Redding, California, requires  GA aircraft owners to have a $1 million liability insurance policy with  coverage for bodily injury and property damage in order to lease space at  the airport.
Fourteen of the 73 aviation stakeholders, including representatives from  most of the GA associations and state aviation offices and aviation  attorneys, we spoke with also told us that to their knowledge, all financial  institutions or lenders require GA aircraft owners and operators to have  aircraft hull insurance as a condition of financing an aircraft purchase.  Although only hull insurance might be required as a condition for  financing, four aviation insurance providers we spoke with told us that GA  insurers generally offer a package of both hull and liability insurance to  GA aircraft owners, and almost all GA aircraft owners opt to purchase the  package.
According to representatives from a flight school association, some flight  schools either cover certified flight instructors under the schools’ liability  insurance or require certified flight instructors and student pilots to have  their own liability insurance. As such, certified flight instructors and  student pilots have the option of purchasing a renter’s insurance policy.  Flight school association representatives also told us that some  independent certified flight instructors may require student pilots to have  liability insurance. In addition, a few states require flight schools to  disclose the extent of liability insurance coverage they carry, if any, which  would cover a student pilot or a pilot renting one of their aircraft. For  instance, according to a state aviation official, Nebraska requires flight  schools to disclose to renters or student pilots whether they are covered  by the school’s liability insurance before they fly. However, DOT does not  require flight schools or flight instructors to carry liability insurance.
section_title: The Ranges of GA Liability Insurance Premiums Are Influenced by the Type of Coverage and Several Risk Factors
subsections: section_title: The Two Most Common Types of Coverage Have Different Insurance Premium Ranges
paragraphs: According to the three nationwide insurance brokers we spoke with, the  two most common types of liability insurance policies purchased by GA  aircraft owners were those with coverages of: $1 million per occurrence (i.e., accident) with a $100,000 per  passenger sublimit  (commonly referred to as a “$1 million/$100 K  policy”), meaning the insurance policy limits the coverage for each  passenger in the aircraft to $100,000, although the limitation does not  apply to victims on the ground, and $1 million per occurrence with no sublimit (commonly referred to as a  “$1 million smooth policy”), meaning the policy can offer higher  coverage to passengers up to the maximum total policy limit,  depending on the accident scenario.
Because of the higher potential payouts, premiums rates are higher for  the smooth policies than for those with sublimits. Based on information  provided by brokers and underwriters we contacted, we found that other  policies with higher coverage amounts were not prevalent in the  marketplace.
These three brokers write policies with multiple underwriters in the GA area. premiums for aircraft with certain characteristics. Specifically, we sought  premium information applicable to aircraft owners who: use their aircraft primarily for personal, non-commercial use; have light aircraft with six seats or less (single or multi-engine); and use turboprop or piston engine planes (excluding corporate jets and  helicopters).
Given those parameters, the insurance brokers estimated that for the $1  million/$100K policies most commonly sold to aircraft owners, premiums  generally ranged from $125 to $1,500 annually. Comparatively, for the  $1 million smooth policies, estimated premiums ranged from $450 to  $3,500. They noted that these ranges are dependent on a number of  factors that are highly unique and individualized to characteristics of the  aircraft as well as the pilot. For example, for a Cessna 172 aircraft,  owned and operated by a pilot who has achieved at least a private pilot’s  certificate, the range of premiums was estimated from $200 to $550  annually for the $1 million/$100K policies and $500 to $1250 annually for  the $1 million smooth policies, according to the three nationwide brokers  we interviewed. Figure 3 below illustrates estimated ranges of premium  costs tied to the two types of insurance policies commonly sold to GA  aircraft owners.
As discussed earlier, GA pilots who do not own aircraft may also obtain  liability insurance or renter’s insurance. This type of insurance policy  offers pilots coverage separate from that of an insurance policy of the  aircraft owner. Such coverage is offered at many different coverage limits  (with many policies covering less than $100K per passenger) and is less  costly than insurance purchased by aircraft owners. For example, the  published rates from one of the largest GA insurance organizations in the  marketplace offered renter’s insurance for a $1 million/$100K sublimit  policy for approximately $200 per year.
section_title: Aircraft Type and Pilot Experience Are among Key Factors That Influence Premium Costs
paragraphs: Beyond the type of coverage, the aviation insurance brokers and  underwriters we interviewed generally identified the following  characteristics associated with the aircraft and the pilot as key factors that  can have a significant influence on the price of liability insurance policy  premiums:
Aircraft characteristics: Relevant characteristics include the number of  seats, the aircraft’s equipment and technology, and aircraft’s (e.g.,  make and model) accident history. For instance, an insurance broker  noted that insurance rates are higher for a 6-seat aircraft than for a 2  or 4-seat aircraft because the risk level and liability will increase with  additional passenger capacity. Additionally, some aircraft with higher  performance characteristics (e.g., higher horsepower engines and  retractable landing gear) can cost more to insure than less complex  aircraft.
Pilot characteristics: Relevant characteristics include the pilot’s  experience, (e.g. flight hours and flying frequency), certifications,  training, age, accident history, and violations, if any, of FAA rules or  regulations. For example, insurance brokers and underwriters noted  that a pilot who flies more frequently will likely be offered lower rates  than pilots who fly occasionally. Further, as pilots increase the number  of flight hours tied to the aircraft they are currently flying, such  experience can help lower their insurance rates. Conversely, higher  rates can be expected for pilots who have had FAA violations (e.g., an  expired medical certification).
Geographic location: Relevant considerations include the location  where the aircraft is based and will be flown, including elevation,  runway length at airports used, and terrain of the area. For instance,  an insurance broker mentioned that premiums can increase for a  plane based at an airport in mountainous terrain compared to an  airport located in flat terrain.
Use of the aircraft: This factor focuses on how the aircraft will be  used, such as primarily for personal business and recreational use or  for commercial business purposes. For instance, insurers will price  insurance for personal and recreational uses of aircraft differently than  aircraft used for commercial purposes, such as a charter operation.
section_title: Selected Stakeholders Cited Understanding the Extent of the Problem and Costs among Key Factors That Should Be Considered in Determining Whether to Adopt a Federal Liability Insurance Requirement
paragraphs: We asked 73 aviation stakeholders, including federal and state aviation  officials, GA association representatives, aviation insurers, and aviation  attorneys what factors should be considered in determining whether to  adopt a federal GA liability insurance requirement. From these interviews,  we identified the five most frequently cited factors, which include  considering: 1) the costs borne by victims and the public in the absence  of a liability insurance requirement; 2) the extent of the problem; 3) the  cost impact on the GA community if a requirement were adopted; 4)  implementation and administration issues of a potential requirement; and  5) the potential public safety benefits of a requirement.
subsections: section_title: Costs to Victims and the Public
paragraphs: Forty-seven of the 73 aviation stakeholders who responded to us,  particularly aviation attorneys representing victims of aviation accidents  and state aviation officials, cited financial costs borne by some victims  and the public in the absence of liability insurance as a factor that should  be considered in assessing the appropriateness of liability insurance  requirements for GA aircraft owners and operators. For example, 36  aviation stakeholders, including all 11 of the aviation attorneys we spoke  with mentioned that a liability insurance requirement would help ensure  that victims could receive compensation for at least some of the costs  they incurred, including medical expenses and property damage. They  also emphasized that a liability insurance requirement could help shift  some of the costs currently being borne by society at large (e.g., medical  expenses) as a result of an accident involving uninsured or underinsured  GA aircraft owners and operators. Some of these stakeholders also  commented that the very purpose and principal benefit of liability  insurance is to cover damages that the insured party, who assumes the  risk of engaging in a certain activity, causes to innocent bystanders or  their property. Some stakeholders also believed that liability insurance  requirements for GA aircraft owners and operators would serve the same  purpose as automobile liability insurance, which is to protect the public at  large from the costs associated with accidents.
section_title: Extent of the Problem
paragraphs: Forty-five of the 73 aviation stakeholders who responded to us—including  state aviation officials, GA association representatives, and aviation  insurers—mentioned the importance of understanding the extent of the  problem—namely the number of GA aircraft owners and operators who  do not have liability insurance and the extent to which the absence of  liability insurance has precluded accident victims from receiving  compensation—as a factor that should be considered in determining  whether to adopt a liability insurance requirement. Based on our  interviews with aviation stakeholders, including representatives of GA  associations and insurance organizations, data are not readily available  to help quantify the extent to which GA aircraft owners and operators do  and do not have liability insurance, much less to identify policy limits for  those with liability insurance. Representatives from insurance industry  associations and many aviation stakeholders we contacted in our review  confirmed that no central data existed or are systematically collected in a  manner that would help provide this information.
Although no central data exist, a number of stakeholders we interviewed  offered differing opinions based on their experience about the extent to  which GA aircraft owners and operators have liability insurance.  Representatives from 5 of the 9 GA associations and 11 of the 39 state  aviation officials estimated that the majority of GA aircraft owners and  operators have liability insurance and, therefore, questioned whether the  lack of liability insurance is widespread enough to justify the need for a  federal requirement. Eight of these stakeholders offered estimates in the  80 to 90 percent range.
In March 2014, a private pilot, flying an  experimental amateur-built aircraft, and  two passengers were killed. According to  a preliminary NTSB report, the pilot lost  control of the airplane, struck a few trees,  and crashed. The aviation attorney we  spoke with said the pilot did not have  liability insurance and the estimated cost  of the damages was $18 million, based on  the DOT’s 2011 Guidance on Treatment  of the Economic Value of a Statistical Life.  In November 2009, an experimental  aircraft crashed and killed the pilot and a  17-year-old passenger, shortly after  takeoff. Prior to the crash, the aircraft had  maintenance and repair work performed  by FAA-licensed aircraft mechanics.  Neither the pilot, nor the owner of the  experimental aircraft had insurance.  According to the aviation attorney, the  estimated cost of the personal injury and  property damages was more than $3  million.
However, 10 aviation attorneys and representatives from a GA  association and an accident victims association we contacted believed  that a problem exists, but said they did not know the extent of the  problem. As compared to the other aviation stakeholders who offered  estimates of the percentage of GA owners and operators with liability  insurance, three aviation attorneys offered a lower estimate—about 50 to  70 percent. A few aviation attorneys we spoke with said that they were  aware of accidents where no liability insurance was available to  compensate accident victims, but they did not know how many cases like  this had occurred. In some instances, the attorneys we spoke with had  represented victims or their survivors; three aviation attorneys also  mentioned that they had declined to take such a case because there was  little chance, given the absence of liability insurance, that the victim could  obtain compensation from the GA aircraft owner or his or her estate.  Some of these stakeholders pointed to the magnitude of injury that can  occur—in the millions of dollars, in some cases—as another indicator of  the problem. arm after de-boarding an aircraft that was  used for a commercial purpose. The  commercial operation owned the aircraft  but did not have insurance on it. After the  company sold the plane, hangar, and  other assets, the case was settled for  about $40,000, which did not cover the  victim’s medical expenses, which were  estimated to be more than $1 million,  according to an aviation attorney.
All 11 aviation attorneys we spoke with, however, also commented that,  based on their experience, accidents involving underinsured owners or  pilots are more prevalent than those where there is no liability insurance.  That is, the aircraft owner or pilot involved in an accident had liability  insurance; however, the liability insurance’s limit–often $100,000 per  passenger—was, according to the aviation attorneys, frequently  insufficient to compensate victims or their families in accidents involving  death or serious injury. For example, according to an NTSB report, in  February 2012, a GA aircraft owner-pilot and a passenger died after the  pilot lost control of the plane and crashed. According to aviation attorneys  we spoke with, the families of the deceased pilot and passengers each  received the total individual liability insurance coverage limit of $100,000;  however, aviation attorneys estimated the damages at about $3 million.  Two aviation attorneys we spoke with noted that their firms often do not  accept cases where the liability insurance coverage limit involved is  $100,000 because they want the prospective client to receive the total  $100,000 in compensation, rather than having their legal fees being paid  from the insurance coverage limit. At the same time, aviation insurers we  spoke with stated that such liability limits are commonly found in aviation  liability insurance policies. Furthermore, we found no GA accident data  describing the frequency of accidents with third-party damages or the  magnitude of those damages. Such data would inform an analysis of  policy limits that would be a component of a broader examination of  issues related to a possible GA liability insurance requirement.
Although more than half of the aviation stakeholders said that considering  the extent of the problem is important, no process is currently in place to  collect information on the portion of the GA community that does not carry  liability insurance coverage. FAA is responsible for registering GA aircraft  and pilots, but FAA does not collect information on insurance coverage at  the time of registration or at a subsequent time and is not required to do  so. NTSB and FAA collect certain data on GA accidents, including the  type of aircraft involved in the accident, number of fatalities and injured  parties, and geographic location of the accident. However, FAA and  NTSB data on accident and incident investigation does not include  information about insurance coverage or the amount, if any, of property  damage.
We identified four potential mechanisms to collect data based on our  interviews with aviation stakeholders and our previous work on GA  issues, and discussed these potential mechanisms with FAA and NTSB  officials. Based on these discussions and our prior work, we determined  that these mechanisms could be challenging or problematic to implement.  Specifically, according to FAA, it may be possible to collect information on  insurance coverage as part of the aircraft registration process, but FAA  officials indicated this approach could be problematic since there is no  federal requirement that GA owners and operators have insurance. FAA  officials also commented that their lack of authority to require insurance  coverage may cause some challenges in any effort to collect information  on insurance coverage. FAA officials also stated that it would be  possible to include a question on FAA’s annual survey of GA owners and  operators, but we previously found that the overall response rate to the  survey is low and the reliability of the information is questionable.  Another potential method to collect insurance information would be to  match registered aircraft numbers with policy information from insurance  underwriters; however, this would require FAA, the National Association  of Insurance Commissioners (NAIC), or another third party to devote a  significant amount of resources to collect and analyze data from about  200,000 registered GA aircraft owners; the expense of this process is  unknown. Finally, according to NTSB officials, information on insurance  coverage could be collected as part of GA accident investigations, but the  officials stated that an accident investigation is already time consuming  and collecting liability insurance information is not relevant to their safety  investigation or their broader safety mission. In addition, NTSB officials  told us that the NTSB comes in contact with only a very small number of  aircraft, and thus, the data would not be representative of the industry.
section_title: Costs to the GA Community
paragraphs: Sixty of the 73 aviation stakeholders we spoke with—including state  aviation officials, aviation attorneys, representatives of GA associations,  and aviation insurance organizations—cited potential costs to and their  effect on the GA community as a key factor in assessing the  appropriateness of a liability insurance requirement. At the same time,  these stakeholders held mixed views on the impact such a requirement  would have on costs. For instance, 18 of the 60 aviation stakeholders,  including state aviation officials, representatives from GA associations,  and aviation attorneys stated that a requirement could likely impose  higher costs on the GA community. Specifically, among the 18  stakeholders, two noted that higher operating costs would be imposed on  those who currently do not purchase liability insurance. In addition, three  aviation stakeholders noted that all GA aircraft owners could pay higher  premiums if insurance companies are forced to include potentially higher  risk owners in the coverage pool as a result of the requirement. Two  representatives from insurance-related organizations we spoke with told  us that some sort of a high-risk pool might have to be established in order  to provide insurance for all aircraft owners. Conversely, four stakeholders,  including an aviation insurance provider, stated that a larger pool would  not significantly affect costs because they believe most GA aircraft  owners and operators are already insured now or liability insurance  requirements would further spread the risk of an accident among more  insureds in the pool. Five stakeholders, including some from state  aviation offices and GA associations, raised concerns that some GA  aircraft may be uninsurable at a reasonable cost, including some vintage  and experimental aircraft. Four insurance providers and a state aviation  official we spoke with, however, told us that overall, insurance is generally  available and that providers have the capacity to offer additional liability  insurance coverage if liability insurance were required.
Additionally, six stakeholders, including representatives from GA  associations, believed that requiring liability insurance might discourage  individuals who were thinking of pursuing a career in aviation because of  the cost of insurance. In a February 2014 report, we found that according  to pilot school representatives we interviewed, the cost of pilot training  (about $9,500) coupled with low entry-level pay at regional airlines was  deterring students from entering pilot school and pursuing an airline pilot  career. As we noted above, renters insurance is available to student  pilots for approximately $200 per year for a $1 million/$100k sublimit  coverage policy—a fairly minimal cost when compared to the overall cost  of pilot training. Seven stakeholders also believed that insurance  requirements may cause some existing GA aircraft owners and pilots to  leave aviation, particularly those who may be subject to higher premiums.  On the other hand, other stakeholders pointed out that if most GA aircraft  owners and pilots already have liability insurance, then the number who  may choose to exit because of additional costs may be relatively low.
section_title: Implementation and Administration Issues of a Potential Requirement
paragraphs: Forty-five of the 73 aviation stakeholders that responded to us—including  federal and state aviation officials, aviation attorneys, and representatives  of GA associations—cited implementation and administration issues as  another factor that should be considered in determining whether to adopt  a federal liability insurance requirement for GA aircraft owners and  operators, though their perspectives differed. For example, two state  aviation officials and an aviation insurance provider stated that  implementing and administering a liability insurance requirement for GA  aircraft owners and operators at the federal level would be logical  because of the existing federal role—that is, FAA oversees and monitors  GA aircraft registration and pilot licenses. In addition, as previously noted,  commercial air carriers are required under federal law to have liability  insurance, and OST through FAA enforces this requirement by annually  collecting and certifying insurance information and coverage from  commercial air carriers’ insurers. However, if a GA liability insurance  requirement were to be implemented at the federal level, FAA officials  noted that a cost-benefit analysis would need to be conducted for the  development of any related regulations. FAA officials also noted that  additional resources would be needed for collecting insurance information  from GA aircraft owners and operators due to the significantly larger  number of GA aircraft and operators as compared to commercial air  carriers.
In contrast, 11 state aviation officials told us that if there is a need for a  liability insurance requirement, it should continue to be addressed and  implemented at the state level. As we mentioned above, the states  generally regulate the business of insurance with state insurance  regulators having the ability to regulate insurance companies and collect  information for other insurance products. Some of these state aviation  officials also considered the state the natural entity to require liability  insurance, analogous to state requirements for auto insurance. Four state  aviation officials also raised concerns that a federal requirement may  impede a state’s ability to best tailor a requirement to meet their specific  state’s needs and characteristics. For instance, one state aviation official  noted that the risk level of third-party losses or property damages is lower  in Montana than in Massachusetts because Montana has more remote  areas (e.g., mountain ranges and flat farmlands) and less population per  square mile while Massachusetts has fewer remote locations and a high  population density in certain parts of the state. Such factors could  influence states’ decisions to institute mandatory liability insurance  requirements and any associated coverage minimums. On the other  hand, 12 aviation stakeholders, including state aviation officials and  aviation attorneys we spoke with, commented that the advantage of a  potential federal requirement would be uniformity and standardization of  any potential requirements.
section_title: Potential Public Safety Benefits
paragraphs: Thirteen of the 73 aviation stakeholders who responded to us—including  aviation attorneys and representatives from an accident victims  association and GA associations—cited potential public safety benefits as  key considerations in determining whether to adopt a federal GA liability  insurance requirement. For instance, five aviation attorneys told us that  although requiring GA liability insurance will not eliminate accidents, it  may positively impact safety because insurers offer policyholders reduced  premium incentives for activities they consider could enhance safety. For  instance, an insurance broker we spoke with told us that premiums can  be lowered if a pilot participated in FAA’s voluntary pilot proficiency  program called “WINGS,” which is a training program designed to reduce  the number of GA accidents. Aviation attorneys noted that if GA aircraft  owners and operators were required to have liability insurance, they may  seek higher training certification or update their training more frequently in  order to obtain lower premiums from insurance companies. NTSB officials  questioned whether there was a direct link between liability insurance and  safety, although NTSB has recently noted that ongoing pilot education,  among other factors, could help reduce one of the major causes of GA  accidents—that is, a pilot’s loss of control. FAA officials also told us that  while liability insurance requirements may have an indirect impact on  safety, enforcing such requirements would be outside of their aviation  safety mission.
section_title: Agency Comments
paragraphs: We provided the DOT and NTSB with a draft copy of this report for review  and comment. Neither agency had comments on the report. FAA and  NTSB did provide technical clarifications, which we incorporated into the  report as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Transportation, the Chairman of NTSB, and  interested parties. In addition, this report is available at no charge on the  GAO Web site at http://www.gao.gov. If you or your staff members have  any questions about this report, please contact me on (202) 512-2834 or  at dillinghamg@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  Key contributors to this report are listed in appendix III.
section_title: Appendix I: Objective, Scope, and Methodology
paragraphs: The objectives of this report were to describe (1) existing liability  insurance requirements for general aviation (GA) aircraft owners and  operators in the United States; (2) available data on the range of  premiums charged by selected insurance providers for GA liability  insurance and factors that influence those costs; and (3) factors that  selected stakeholders stated should be considered in determining  whether to adopt a federal liability insurance requirement for GA aircraft  owners and operators.
To identify existing liability insurance requirements, we conducted a  survey of aviation officials in all 50 states and a legal analysis of state  statutes and regulations identified by such officials to determine the  number of states with existing liability insurance requirements for GA  aircraft owners and operators. We developed two questions in the survey  instrument, asking each state about any liability insurance or aircraft  financial-responsibility requirements for GA aircraft owners and pilots, and  we requested citations of their state statutes, regulations, or policies. We  pre-tested the two-question survey instrument with state aviation officials  from California and Virginia—two states we initially found to have  provisions relating to liability insurance—and Alabama and Alaska—two  states that did not have insurance requirements. These state aviation  officials provided technical comments to our questions, which we  incorporated as appropriate. We conducted the survey from February  through April 2015 and received a 100 percent response rate. We also  spoke with aviation officials in those states that indicated some type of  liability insurance or aircraft financial-responsibility requirements to obtain  more information about those requirements, including how they are  administered. We also spoke with aviation stakeholders, as we mention  later, to ascertain information on other entities that may require GA  aircraft owners and operators to maintain liability insurance.
To identify the range of premiums for GA liability insurance and factors  that influence those costs, we obtained GA liability insurance premium  information for common GA aircraft from insurance associations, brokers,  and underwriters through interviews and responses to a questionnaire.  We spoke with three nationwide insurance brokers who work with the  major underwriters in the GA aviation insurance market, according to  aviation insurance representatives. We collected liability insurance  premium information, using the following parameters to be covered by an  insurance policy: light, single-piston or multi-piston or turbo-prop engine  GA aircraft type with 6-seats or less that is used primarily for personal  and non-commercial flights. Although we did not independently validate  the insurance premium information collected from these brokers, we  corroborated the premium information received with premium data from  aviation insurance underwriters to assess the reasonableness of the data  provided. We determined that the information provided was sufficient to  use as examples of GA liability insurance premiums, but that it is not  generalizable to the entire spectrum of the GA insurance market, given  the multiple and unique factors that can significantly influence premium  prices.
To obtain selected stakeholders’ perspectives on factors that should be  considered in determining whether to adopt a federal liability insurance  requirement, we obtained oral or written responses from 73 aviation  stakeholders, including officials from the Department of Transportation,  Federal Aviation Administration, the National Transportation Safety  Board; 39 state aviation offices; representatives from 9 GA trade  associations and 10 aviation insurance-related organizations; as well as  an accident victims association and 11 aviation attorneys representing  GA accident victims (see table 2). Through interviews or written  responses, we collected the perspectives of aviation officials in 39 states  on these factors after receiving their responses on our survey of state  liability insurance or aircraft financial-responsibility requirements. Aviation  officials from five states declined to talk with us, and aviation officials from  six states did not respond to our numerous attempts to obtain their views  on factors that should be considered on potentially adopting a federal GA  liability insurance requirement. The selection of representatives from GA  trade associations was based on prior GAO reports that identified the GA  associations and recommendations from FAA, NTSB, and selected state  aviation officials. We identified the accident victims association and  selected aviation attorneys, specializing in personal injury and  representing aviation accident victims, based on our initial literature  reviews and recent news article that mentioned attorney firms prosecuting  or defending GA accident cases, recommendations from state aviation  officials, and an Internet search with the following terms: “aviation  lawyers, aviation attorneys, and aviation litigation.” We analyzed the  contents of our interviews with or written responses from all 73 aviation  stakeholders to identify the key factors that were mentioned in  consideration of potentially adopting a federal liability insurance  requirement. The aviation stakeholder’s views are not generalizable to the  entire GA community, but they provided us with valuable insights.
We conducted this performance audit from October 2014 to September  2015, in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: States with Minimum Liability Insurance or Aircraft Financial-Responsibility Requirements
paragraphs: Eleven states have either a minimum liability insurance requirement or an  aircraft financial-responsibility requirement applicable to general aviation  (GA) aircraft owners and operators. Five states—Hawaii, Maryland,  Minnesota, Oregon, and Rhode Island—have a liability insurance  requirement that is applicable to at least some categories of GA aircraft  owners and operators. Six states—California, Connecticut, Indiana,  Massachusetts, North Dakota, and Virginia—have some type of aircraft  financial-responsibility requirements, which require GA aircraft owners to  demonstrate financial ability to cover potential losses incurred in an  accident. Details on the requirements are in table 3 below.
section_title: Appendix III: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, the following individuals made  important contributions to this report: Edward Laughlin, Assistant Director;  Stephen Brown; Jim Geibel; Geoff Hamilton; Delwen Jones; Jennifer Kim;  Elke Kolodinski; Barry Kirby; Emei Li; Amanda Miller; SaraAnn  Moessbauer; Malika Rice; Sandra Sokol; Patrick Ward; and Frank  Todisco.