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20 CHAPTER FIVE PRACTICES FOR CHOOSING DEDUCTIBLES AND LIMITS DEDUCTIBLES Seven of 19 survey respondents stated that they review deductibles annually. Seven respondents indicated that they tend to change their deductibles when market conditions yield premium savings. A smaller group of total partici- pants, five of 19, indicated that deductibles at their facility have remained the same for many years. Four of six large airport operator respondents adjust deductibles as market conditions yield premium savings. Two large airport operators stated that they review and assess deductibles annually on policy renewal. As for medium airport operators, two of the six review and assess deductibles annually on policy renewal. Two operators adjust deductibles according to conditions within the market, and two reported no change in deductibles for many years. Likewise, three of seven small airport operators have not changed the amount of their deductibles in years. Two of the small airport operator respondents review and assess deduct- ibles annually. A lesser percentage of small respondents indicated that adjustments to deductibles are dependent on market conditions or that they do not adjust deductibles at all. Results of the survey instrument show that large airport operators review deductible levels more frequently than small and medium airport operators and tend to be more sensitive to market conditions when assessing deductibles. On the other hand, small and medium airport operators tend to leave deductible levels unchanged or assess deductibles annually on renewal. The survey also inquired whether respondents have increased deductibles within the past 3 years, and if so, the reasons for this increase. Of the airport operators who acknowledged having increased deductibles in the past, five of 10 have not made any changes in the past 3 years. Three of the 10 respondents to this question reported that the cost of insurance has been a factor that has caused their airport to obtain higher deductibles, and two respondents indicated that the loss exposure supports a higher retention. None of the large or medium airport operator respondents reported an increase in deductibles within the past 3 years. Reasons compelling an increase in smaller airport operator deductibles include the cost of insurance, the condition of the insurance market, and support for a higher rate of retention. LIMITS Modification of Liability Limits Seven of the 19 survey respondents adjust liability limits according to market conditions. Six operators replied that liability limits have not changed for many years; none of these were in the largest category. Two of the 19 participants stated that they evaluate their limits annually, whereas two respondents indicated that they do not adjust liability limits at all. Large airport operator respondents change liability limits depending on market conditions. Other large airport operators indicated that they evaluate limits annually on policy renewal. Three of the six medium airport operator respondents change limits according to changes in market conditions. Two of the medium airport operator respondents stated that limits have remained the same for years, and one medium airport operator evaluates limits annually at renewal. Of the responding small airport operators, all but one indi- cated that liability limits have not changed in years or do not change at all. Only one indicated that liability limits change according to conditions in the insurance market. Figure 5 shows the distribution of responses by airport operator size. The survey instrument revealed that as airport size increases, so does the likelihood of that airport operator to evaluate and adjust liability limits. Large airport operators are more sensitive to market conditions and look for cues in the marketplace to signal a change in their insurance strate- gies, whereas medium and small airport operators tend to keep the same limits of insurance each year. Selection of Liability Limits Cost, exposure, and broker or consultant recommendation are three factors respondents cited as influential in establish- ing liability limits for their airport facility.
21 FIGURE 5 Reasons for changing or reviewing liability limits by airport operator size. Cost and exposure drive large airport operator respon- dents to make changes in liability limits. Some also indi- cated that the recommendation of their broker may prompt a change in limits. Medium airport operators indicated cost, broker recommendation, and exposure (in that order) as forces motivating a change in insurance limits. Small airport operator respondents identified exposure and cost as factors that might prompt a change in limits; however, two of the seven small airport operator respondents revealed that their facility purchases the same liability limits every year (no change). Furthermore, medium and small airport operator respon- dents also reported relying on broker recommendations when selecting insurance limits, whereas large airport oper- ators rely less on such recommendations. Increasing Liability Limits Approximately 47% of all survey respondents indicated that they have not increased liability limits within the past 3 years. For those airport operators that have, most indicated that increased liability limits were affordable, and this fac- tor prompted a change in the airport operatorâs buying prac- tice. Others increase liability limits because of a greater loss exposure or owing to a recommendation from the airport operatorâs broker. The survey instrument illustrates that small airport oper- ators do not change liability limits from year to year, as large and medium airport operators are prone to do. Specifically, large airport operator respondents adjust limits upward owing to exposures, affordability, and broker recommenda- tion. Medium airport operators increase limits because of affordability, but do not cite exposures or broker recommen- dation as influences in this decision. Property Limits The survey did not inquire about property limits purchased. The issue of limits is much more complex for property insur- ance than for liability insurance and comparisons are dif- ficult. Because the exposure is determined by the value of the property at risk, individual circumstances at each airport facility vary greatly. Not all property needs to be insured. Large property holdings invite the use of âloss limitsâ rather than insuring to the value of the entire property; the larger the holdings get, the less likely a total loss or loss to a high percentage of the holdings. Although the study could have surveyed the processes by which airport operators make decisions about property insur- ance, the detail required for any meaningful analysis put the issue beyond the scope of a general inquiry about insurance- purchasing practices and would have required many more survey questions that would have made this survey unwieldy. It is important to note the variety of types of coverage bought by different airport operators and that drawing any conclusions about the bases for insurance-buying decisions is subject to many variables. For example, the purchase of low-deductible coverage for workersâ compensation could be the result of the requirement for a particular airport oper- ator to participate in a state fund. As noted in one of the responses to our interviews, one jurisdiction provided that when a public entity buys insurance coverage in excess of the statutory tort limits, it waives those limitations. This results in a decision on limit selection that comes more from a legal perspective than from a risk management perspective. INTERVIEW RESULTSâDEDUCTIBLES AND LIMITS The interview questions did not ask specifically about deductibles and limits.
