AAIRRG | Aviation Alliance Insurance Risk Retention Group, Inc.

Photo courtesy of Turbine Standard

Printer-Friendly VersionTHE HISTORY OF AVIATION INSURANCE

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.

Why we think that AAIRRG will survive 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

 

 

NTSB chief urges child-safety seats on planes
04/21/14:  Deborah Hersman, departing chair of the National Transportation Safety Board, said Monday that "one of her great disappointments" was that child-safety seats aren't required on planes for young children.
FAA Requiring All Flights to Have GPS Tracking System by 2020
04/15/14:  After a recent missing Malaysian Airlines flight, the Federal Aviation Administration (FAA) has decided to mandate GPS-based aircraft tracking on planes. According to 9 News, the FAA will require that all planes have a GPS tracking system called Automatic Dependent Surveillance Broadcast (ADS-B) radio network by 2020.
NTSB Urges FAA Oversight of Sightseeing Balloon Operators
04/11/14:  Citing three hard landings that resulted in injuries and one fatality, the National Transportation Safety Board has issued recommendations that FAA assume oversight of sightseeing balloon operators, in the same way that it oversees airplane and helicopter tour operators.
Supreme Court: Airline can drop frequent flier
04/04/14:  The Supreme Court decided unanimously Wednesday that an airline had the right to dump a frequent flier who complained too much.  The decision allows airlines to have sole discretion to drop frequent fliers.
Chasing the Money for Air Crash Victims' Families in Beijing
04/03/14:  Growing up in Peru in the 1970s, Monica R. Kelly, who specializes in aviation accidents, dreamed of becoming a diplomat and traveling the world.  But by the 1980s, violence was spreading at home with a guerrilla war waged by the Shining Path movement, and her family moved to the United States, forcing her to abandon her ambition to enter Peruvian government service.  She decided to realize her interest in international travel in a more unusual way: by flying around the world to meet and represent the families of air crash victims, one of a specialist band of aviation accident lawyers.
A Five-year-old 777-200LR Sees Early Retirement
04/01/14:  A 777-200LR, built in 2009, has been retired by Air India. Air India cannibalises 777 named Maharashtra at Mumbai's Shivaji airport.  While the rumors mentioned on the website suggest it sustained hidden damage during a heavy landing, it's still notable that a modern 777 less than five years old is being cannibalized.

Older News Articles & Press Releases

View all news items

 

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.