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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

 
 

 

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.
FAA gives Amazon go-ahead on drone testing
03-19-2015: Amazon finally got the federal green light today to send its drones into the skies, but only as a test.
Why Proposed Pilots Bill Of Rights Could Affect Air Safety
03-11-2015: The introduction in the House and Senate of proposed legislation — known in the aviation community as PBOR 2 or Pilots Bill of Rights 2 — has received huge support among private pilots.
Aerotoxic Syndrome: Coroner calls for urgent action
02-23-2015: A UK coroner has submitted a report about toxic fumes in plane cabins to the Civil Aviation Authority (CAA) following an investigation into the death of British Airways pilot Richard Westgate, age 43. The report said people regularly exposed to fumes circulating in planes faced "consequential damage to their health.
FAA orders inspections of about 300 Enstrom helicopters following Colorado crash that killed 2
02-13-2015: The Federal Aviation Administration has grounded more than 300 Enstrom helicopters nationwide until they can be inspected for possible cracks like the one that may have caused a crash last month that killed two people in Colorado.
United faces $1.3M FAA fine for in-flight hazmat violations
01-28-2015: United Airlines is facing Federal Aviation Administration fines of $1.3 million stemming from at least 120 alleged violations involving hazardous material cargo on passenger flights, including several at Denver International Airport.
Drone Operator Settles Case With FAA for $1100 Fine
01-22-2015: An attorney for a drone operator who challenged the government's ban of commercial drone flights says his client has settled the case for an $1,100 fine.
Industry Balks at Requiring FAA OK To Surrender Repair Station Certificate
01-14-2015: A coalition of aviation trade associations petitioned the FAA on Friday to restore the right for a repair station to surrender its certificate voluntarily. In its new repair station rule, which became effective last November, the FAA took the unprecedented step of subjecting surrendered certificates to "acceptance for cancellation".
Industry to FAA: Repair Stations Know When to Fold 'Em
01-12-2015: On January 9, a coalition of aviation trade associations petitioned the Federal Aviation Administration (FAA) to restore the right to voluntarily surrender a repair station certificate.
FAA to Require Airlines Use Data to Prevent Accidents
01-07-2015: New federal rules announced Wednesday will require airlines to collect and analyze safety data in an effort to spot troubling trends and help prevent accidents.
When does a washer cost $317,500? When It is not installed...
01-05-2015: FAA is proposing a $317,500 civil penalty against United Air Lines, for allegedly operating an aircraft that was not in compliance with Federal Aviation Regulations.

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.