In airline all-risk hull and legal liability insurance policies, it is normal for standard “hull deductibles” to be used – if one of the aircraft insured under the policy is damaged, then the insured (the airline) will be responsible for paying the first part of the loss, the “hull deductible”. However, it is usual that, if the loss is settled as a total loss or constructive total loss, then the deductible will not apply and insurers will pay the full agreed value. Hull war policies do not have hull deductibles.
Hull deductibles can be insured under a separate policy so, for instance, with a widebody, a deductible insurance policy might cover a loss from $100,000 up to $1 million, with the hull policy picking up anything over $1 million – so the insured would only pay the first $100,000. Not all airlines buy deductible insurance.
In the 1960s and into the 1970s, the normal flight deductible was 1% which, for a $10 million Boeing 707 or McDonnell Douglas DC-8, would be $100,000. However, the new big-fan engines powering the first widebodies, which began entering service at that time, had a poor claims experience, with a bad foreign object damage event maybe costing insurers $2 million: 10% of the value of a $20 million Boeing 747. As a result, a new engine ingestion deductible of $600,000 per engine – maximum any two engines (that is, $1.2 million) per event – was introduced.
Insurers remained concerned by the level of deductibles and in 1982 increased all deductibles to their current level.
By the end of the 1990s, with nearly 20 years of inflation having eroded the impact of deductibles, some insurers were again becoming concerned and work was done towards the objective of increasing deductibles substantially – the new widebody deductible was going to be $5 million. However, not all hull insurers supported this move, as they saw it as taking money (premium) out of their market and putting it into the hull deductible market. Then the 9/11 terrorist attacks happened and there were other things to worry about, so changing deductibles was forgotten.
For jet types, the deductible groups were – and presumably still are – based on the engine fan inlet diameter, although it is unclear if the groupings have ever been formally defined in these terms. This means that certain narowbodies powered by engines with large fan diameters, such as the Airbus A320ceo and CFM International CFM56-powered Boeing 737 variants, are classed as “hybrids”. And bizarrely, because the Boeing 757 – which has a narrowbody fuselage – is powered by big-fan engines (Rolls-Royce RB211 and Pratt & Whitney PW2000), it is classed as a “widebody” from an insurance deductible perspective. Concorde was also classed as “widebody” for deductible purposes, presumably due to concerns over the potential cost of repairs to its sophisticated afterburning R-R/Snecma Olympus turbojets.
The fact that the fan diameter of the CFM56-5C, which powers certain Airbus A340 widebodies, is 1.84m (72.3in) suggests that any aircraft powered by an engine with a fan diameter of at least this much should also fall into the “widebody” deductible grouping, regardless of the cabin diameter.
The latest published fan diameter for the CFM Leap-1B engines on the Boeing 737 Max is 1.75m, while the Leap-1A on the Airbus A320neo is 1.98m. The Pratt & Whitney PW1100G engines for the A320neo have a fan diameter of 2.06m. Other new aircraft in this class include the Comac C919 (Leap-1C: 1.98m), Bombardier CSeries (PW1500G: 1.85m) and the Irkut MS21 ( PW1400G: 2.06m).
This should mean that, apart from the 737 Max, all these aircraft will have a “widebody” deductible of $1 million, while the 737 Max would have a “hybrid” deductible of $750,000. However, it is probable that insurers will categorise all these new-generation narrowbodies in the hybrid class.