AAIRRG | Aviation Alliance Insurance Risk Retention Group, Inc.

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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

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At FAA, bigger budgets for less work lead to waste
11-20-2014:  The Federal Aviation Administration's budget demands continue to grow, even though air traffic has dropped in recent years and the agency's productivity has significantly declined, according to a damning internal audit.
FAA easing restrictions on older pilots
11-12-2014: They believe they can fly.  The Federal Aviation Administration (FAA) is loosening the age restrictions for older pilots, the agency said Wednesday.  Pilots over 60 will no longer be required to fly side-by-side with a younger pilot on international flights to compensate for various physical limitations and health problems they may face after that age.
FAA confirms date for air ambulance rule
11-11-2014: A final rule regarding safety regulations for helicopter air ambulances will go into effect April 22, 2015, the Federal Aviation Administration announced.
FAA amends repair station rule
11-10-2014: ARSA, Airlines for America (A4A) and MRO facilities across the US are celebrating a victory of common sense, after the FAA reinserted the word "serious" into its revision of paragraph 14 of Part 145 of the Code of Federal Regulations (CFR).
Record Claims To Boost Price Of Insuring Planes Against Attack
10-21-2014: Insurers worldwide are going to have to pay up to a record $800 million to cover the damage done by attacks on airplanes this year, driving prices up and drawing rivals into the market.
Battery Fires on Planes Spur New Proposals
10-13-2014: An international team of aviation safety experts has called for sweeping changes in packaging and other safeguards to limit the fire hazard posed by bulk shipments of lithium batteries on commercial planes.
FAA Feedback: The Yellow Tag
10-07-2014: A question often asked as I travel around the country giving safety seminars is: Does a yellow tag satisfy the requirements of a maintenance release?
Your Word is Your Bond — Bonded Repair Size Limits Draft Policy
10-02-2014: A member has alerted ARSA to a draft policy from the FAA regarding Bonded Repair Size Limits that would require design approval holder (DAH) substantiation on any repairs developed by owners, operators, repair stations, Designated Engineering Representatives (DER), or engineering firms.
FAA Orders Replacement of Pilot Displays on Boeing Jets
09-30-2014: Federal regulators have ordered replacement of pilot displays on more than 1,300 Boeing Co. jets, including some of the newest 737 models, to prevent possible interference from Wi-Fi devices used in cockpits.
FAA: Dozens of Alaska aircraft mechanics must retake exams
09-28-2014: According to a formal notice issued last month by the Federal Aviation Administration, all individuals holding mechanic certificates with airframe or powerplant ratings (or both) who were tested by Designated Mechanic Examiner (DME) Marty James Simmons of Anchorage must be re-examined.
Coalition of Aviation Groups Sends "Serious" Petition to FAA
09-23-2014: On Sept. 22, a coalition of aviation trade associations asked the FAA (Federal Aviation Administration) to fix a seven-letter mistake in the Code of Federal Regulations (CFR) that would create serious headaches for the aviation maintenance industry.
Gulfstream faces $425,000 FAA fine over mechanic training
09-18-2014: The Federal Aviation Administration has proposed a $425,000 civil penalty against Savannah-based Gulfstream Aerospace Corp.
Aviation Group Questions FAA Repair Station Rule
08-25-2014: Not everyone is convinced the FAA's recently issued final Part 145 rule, which governs maintenance of U.S.-registered aircraft, aligns with the intent of the original notice of proposed rulemaking (NPRM).
FAA: Lithium Batteries Pose More Danger Than Thought
08-14-2014: New tests conducted by the Federal Aviation Administration suggest that lithium batteries pose more dangers to planes than previously thought.
ARSA Reviewing Amended Repair Station Regulations
08-13-2014: The FAA has issued amended repair station regulations that allow the agency to deny an application for a new repair station certificate if the applicant or certain associated key individuals had materially contributed to the circumstances that caused a previous repair station certificate revocation action.
FAA proposes S-92 oil pump failure prevention mandate
07-30-2014: The US Federal Aviation Administration has proposed to mandate a series of actions already recommended by Sikorsky aimed at preventing a main gearbox oil pump failure on the airframer's S-92 helicopter.
ARSA: FAA Agrees: Line Maintenance can be Major
07-29-2014: In a quick turnaround, the Aircraft Maintenance Division responded within two days to ARSA's question about airframe-rated repair stations with line maintenance authorization performing major repairs and alterations. The agency agreed with the association's interpretation that the CFR's definition of line maintenance does not imply a prohibition against non-specified activities.
FAA proposes $12 million fine against Southwest over repairs
07-28-2014: Southwest Airlines Co. may have to pay a $12 million penalty to the U.S. government for operating "numerous flights" in 2009 after being notified that repairs to its airplanes didn't live up to federal regulations.
Trade Associations Weigh in on Foreign Mx Drug Testing
07-23-2014: A coalition of aviation trade associations spoke out on behalf of the international maintenance, repair and overhaul market.
IG Concerned over FAA's Growing Backlog
07-04-2014:  The FAA's Flight Standards District Offices (FSDOs) have a backlog of applications for certificates that concerns the Department of Transportation Inspector General's Office.

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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.