AAIRRG | Aviation Alliance Insurance Risk Retention Group, Inc.

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Printer-Friendly VersionTHE HISTORY OF AVIATION INSURANCE

To learn about AAIRRG's history, please refer to our Home page

The first aviation insurance policy was written by Lloyd's of London in 1911. The company stopped writing aviation policies in 1912 after bad weather and the resulting crashes at an air meet caused losses on many of those first policies. Since then the majority of aviation's insurance has been concentrated within just two insurance pools.  Think of it, over 50% of all U.S. aviation was and is still written by either USAIG or AAU. In 1932, the New York Department of Insurance commenced an investigation regarding this concentration and, again in 1958, Congress also commenced an investigation into the aviation marketplace. The intent was to break up the cartel, much like Standard Oil a decade or so before.

The industry dodged the bullet by appointing a "committee" to work with first with New York Department of Insurance and then later with Congress, but that went away when Congress passed The McCarran-Ferguson Act which turned regulatory control of the insurance industry over to each individual state and exempted insurance from anti-trust laws to boot. (This exemption is enjoyed by only a few other "activities" such as unions, baseball and newspapers.)

Of course, the states resolved the issue by decreeing that aviation was an unregulated line of insurance, which means there is minimal oversight. To give you an example of just how incestuous the aviation industry is, more than half of all insurance regulators come from the industry and, after serving a period of time as a regulator, return to the insurance industry — typically in a more exulted position than when they left. Talk about the "fox guarding the hen house."

If this was any industry other than insurance, the Justice Department would be having a field day in court with these scoundrels facing more prison time than Bernie Madoff!

The result of all this is that aviation in the United States is the first or second most profitable line of liability insurance just before or after surety (principally, performance and completing bonds). All other liability lines would be delighted with an 80% loss ratio (percentage of dollars paid out in claims from premiums paid) whereas aviation has averaged in the mid 50% range for the past twenty plus years. That's thirty points more profit than the average!

Of course, over the years, other insurance providers have tried to break the cartel, but each time, the cartel has driven them out of business by savagely cutting prices until the new competitor fails and then they predictably revert back to their old ways.

The reason that AAIRRG is thriving is that, with few exceptions, each new aviation marketing effort in the past have been 'generalized' whereas AAIRRG is exclusively focused on certified Part 145 repair stations. Please read on to learn why repair stations are a much safer risk than FBO's, charters, flight schools, firefighting, etc. This is the "miscellaneous" aviation class of business that repair stations have been lumped in with. So in effect, all these years, you have been subsidizing "others" with your enviable low rate of claims.

 

Resource: Introduction to Aviation Insurance & Risk Management, second edition, Alexander T. Wells and Bruce D. Chadbourne, authors

 
 

 

Test Pilot Admits the F-35 Cannot Dogfight: New Stealth Fighter Is Dead Meat In An Air Battle
06-29-2015: A test pilot has some very, very bad news about the F-35 Joint Strike Fighter. The pricey new stealth jet can't turn or climb fast enough to hit an enemy plane during a dogfight or to dodge the enemy's own gunfire, the pilot reported following a day of mock air battles back in January.
Congress Moves to Cut FAA Funding
06-10-2015: A FOX Business Network investigation TROUBLE IN THE SKIES exposed misguided hiring practices and cheating on a key Federal Aviation Administration test to become an air traffic controller and now Congress wants to cut funding to the FAA.
After Germanwings And Malaysia Airlines Tragedies, The FAA Will Study Pilots' Mental Health
05-27-2015: The Federal Aviation Administration said Wednesday that it will join forces with air carriers and the medical community to study the mental and emotional health of commercial pilots. The study could lead to sweeping new recommendations affecting pilots, the airlines and government procedures.
FAA Hiring Scandal Barely Registers with the Media
05-26-2015: The Fox Business Network (FBN) should be congratulated for launching a six-month investigation into the Federal Aviation Administration's hiring practices.
Airbus issues software bug alert after fatal plane crash
05-20-2015: Airbus has issued a critical alert calling for immediate checks on all its A400M aircraft after a report identified a software bug as having caused a fatal crash in Spain earlier this month.
As corporate plane crashes mount, the pattern of pilot error emerges
05-14-2015: An examination by Bloomberg News of US accident records dating back to 2000 shows repeated examples of pilots flying sophisticated small aircraft skipping rudimentary safety checks, working days so long that they test the boundaries of human endurance, or overlooking routine hazards such as ice on the wings.
Bird Strike Does Disturbing Damage To The Nose Of A 737
05-08-2015: Looking at the caved-in nose of this Boeing 737-800, you'd think it flew into a flying water buffalo. But the damage was caused by a single bird — a potent reminder of what can happen when objects collide at high speed.
FAA Investigation Substantiates Mechanics Safety Complaint Against American Airlines
05-01-2015: A March 25 letter from the Federal Aviation Administration to six American Airlines mechanics, who filed whistleblower complaints against the airline for allegedly retaliating against them for reporting maintenance improprieties, states that an investigation of the airline by the agency's Flight Standards Service "substantiated that a violation of an order, regulation or standard of the FAA related to air carrier safety occurred."
FAA Orders Fix for Possible Power Loss in Boeing 787
04-30-2015: Many mechanical components in the Boeing 787 have been replaced with electrical ones for lower weight and more economical operation, but that has also made it much more reliant on electrical power than previous generations of planes.
FAA proposes $430,000 fine against Beechcraft
04-16-2015: The U.S. Federal Aviation Administration has proposed a $430,000 civil penalty against Beechcraft Corp. in Wichita for what it says was a failure to maintain quality control in the production process.
FAA Calls Out 'Systemic' Hazard at United
04-10-2015: Federal aviation inspectors stepped up oversight of United Continental Holdings Inc. two months ago, citing risks from repeated violations of mandatory pilot qualification and scheduling requirements.
FAA Once Again Fines Southwest Airlines For Maintenance Related Violations
04-01-2015: For the second time in the last 12 months, Southwest Airlines is facing another fine from the Federal Aviation Administration because of safety issues; this time totaling $328,550.

Older News Articles & Press Releases

 

Notice: AAIRRG is a licensed insurance company in the state of Montana. AAIRRG operates in 46 states under the authority of a Federal Law which requires registration with each state in which it wishes to operate. You can ascertain your state's status by visiting www.aairrg.com/states. If you should find that your state is not included, AAIRRG will register upon your request to become an insured. This offer is void in any state or jurisdiction in which it would violate their rules or regulations.