THE 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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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
FAA 'Strongly Encouraged' Autothrottle Change
03/31/14: The FAA in 2011 had “strongly encouraged” Boeing to make changes to the 787 flight management
computer system to provide autothrottle “wake up” capability in all modes. The request is detailed for the
first time in a new submission to the U.S. NTSB by Asiana Airlines’ on the July 6, 2013 crash in San Francisco of
Flight 214, a Boeing 777-200ER with the same flight management computer system (FMCS) and hence the same
Boeing to fix 747-8 software to avoid crash
03/26/14: The U.S. Federal Aviation Administration on Tuesday ordered an immediate fix to the latest version
of Boeing Co's 747-8 plane, saying a software glitch could cause it to lose thrust when close to landing and fly
into the ground.
investigate broken wing on Delta flight
03/17/14: A Delta plane flying from Orlando to Atlanta lost part of it's wing, mid-flight, on Sunday evening.
According to the FAA, the flight, Delta flight 2412, "landed safely on Runway 9 Left at Atlanta Airport at 7:10
p.m. after declaring an emergency due to a hydraulic problem. The aircraft stopped on the runway, and was towed to
Advance Notice of Proposed Rulemaking (ANPRM) on Drug and Alcohol Testing for Foreign Repair Stations
03/13/14: It is seeking comments on an Advance Notice of Proposed Rulemaking (ANPRM) that would require drug
and alcohol testing of maintenance personnel who work on aircraft operated by U.S. air carriers (Part 121) in
facilities outside the United States.
Warned of 'Cracking and Corrosion' Problem on Boeing 777s
03/12/14: A cracking and corrosion problem on Boeing 777s that could lead to the mid-air break-up of the
aircraft prompted a warning from air safety regulators weeks before the disappearance of Malaysia Airlines Flight
370, federal records show. The Federal Aviation Administration ordered checks on hundreds of U.S.-registered
777s after reports of cracking in the fuselage skin underneath a satellite antenna.
FAA Seeks Auto-Throttle Fix For Boeing 737s
03/04/14: The US FAA has proposed a fix for some Boeing 737s to ensure that a faulty altimeter does not cause
the automatic throttle system to unexpectedly cut engine speed. The Federal Aviation Administration said the
changes to cockpit automation, if adopted, would affect 497 Boeing 737s, specifically the 600 and later models.
Chicago-based Boeing said another 778 jets would be affected if aviation regulators outside the United States adopt
the FAA proposal.
FAA Issues Final Rule on Helicopter Safety
02/24/14: The Federal Aviation Administration has published its final rule calling for stricter helicopter
safety procedures, a rule that fulfills some NTSB recommendations to the DOT agency; addressing the unique
characteristics of helicopter operations is on the NTSB's Most Wanted List.
FAA bans pilots from using cell phones, laptops or tablets while flying
02/15/14: When the flight attendant says “Please turn off all personal electronic devices,” that will apply
to the pilot and crew as well. The FAA on Tuesday introduced new rules banning pilots and flight crews from using
laptops, tablets, cell phones and other similar devices for personal use.
FAA pilot safety training blamed for fewer flights
02/05/14: The Federal Aviation Administration chief told a House panel Wednesday that the agency pursued
greater safety in requiring more pilot training, a move that some airlines blamedfor reducing flight service across
TSA Issues New Security Rule For Aviation Repair Stations—What Does This Mean For Aircraft Maintenance Providers?
02/06/14: On January 13, the Transportation Security Administration ("TSA") issued its long-awaited aviation
repair station security rule. 79 Fed. Reg. 2119. The rule, which takes effect on February 27, affects both domestic
and foreign aviation repair stations. In marked contrast to the original proposal, the rule imposes only minimal
requirements on the repair stations. Its publication also paves the way for lifting the statutorily mandated
moratorium on the Federal Aviation Administration's ("FAA") processing of foreign repair station certificates,
potentially expanding the number of independent repair stations abroad permitted to work on aircraft registered in
the U.S. or operated by U.S. air carriers.
FAA Examines Part That Fell
02/03/14: A mysterious object fell through a northern Virginia woman's home on Friday morning and members of
the Federal Aviation Administration were visiting her home on Saturday. The FAA is trying to figure out if a
piece of metal that crashed through an awning and landed in the dining room came from a plane.
ARSA Bulletin: Updated Form 8130-3 to Take
Presentation Outlining the Major Changes
On February 1st, the revised Federal Aviation Administration (FAA)
Form 8130-3 will enter into force,
replacing the previous form dated June 1, 2001. The document is used for domestic airworthiness approval of
new products and articles; approval for return to service of altered aircraft parts; and export airworthiness
approvals of aircraft engines, propellers, or articles.
US Customs grounds drone fleet after $12 million
unmanned aircraft crashes off of California
01/28/14: The United States Customs and Border Protection has grounded an entire fleet of drones, the agency
admitted on Tuesday, after a mechanical function the night before forced a crew to crash an unmanned aircraft
valued at $12 million. A spokesperson for the CBP said in a statement Tuesday that the drone, a maritime
variant of the Predator B, was deliberately crashed into the Pacific Ocean near San Diego, California after it
encountered problems shortly after 11 p.m. local time late Monday.
NTSB urges fix on Robinson helicopter fuel tanks after fatalities
01/27/14: Federal safety experts are recommending that owners of Robinson Helicopter Co.’s four-seat R44
choppers replace the aircraft’s fuel tanks after crash investigators found accidents resulted in deaths that could
have been avoided.
FAA set to
order more safety checks for Boeing 767
01/26/14: U.S. regulators are set to order additional safety checks of more than 400 Boeing Co. 767 jets,
citing hazards from movable tail sections that can jam and potentially cause pilots to lose control of the
aircraft. Slated to be published in Monday’s Federal Register, the Federal Aviation Administration’s
directive calls for enhanced inspections of horizontal flight-control surfaces called elevators, along with
modification and replacement of certain bolts and other parts used to control them. Elevators help move the noses
of planes up and down.
ARSA Challenges FAA Information Collection
01/22/14: On Jan. 14, ARSA challenged the Federal Aviation Administration (FAA) on the unnecessary reporting
requirements of a notice of proposed rulemaking (NPRM) requiring the inspection and replacement of cylinders used
in certain engines manufactured by Continental Motors, Inc. ARSA's comments rebuke the FAA for failing to
abide by the requirements of the Paperwork Reduction Act in the agency's submission to the Office of Management &
Budget (OMB) seeking approval of the information collection.
TSA, At Last, Issues Final Repair Station Security Rules
01/15/14: The Transportation Security Administration (TSA) has issued a final rule covering repair station
security. “This action brings an end to the Federal Aviation Administration [FAA] ban on certifying new foreign
repair stations,” according to the Aeronautical Repair Station Association (Arsa). The new rules are the result of
the Vision 100–Century of Aviation Reauthorization Act, 10-year-old legislation that effectively banned the FAA
from certifying new foreign repair stations until the new rules went into effect. The new rules, which go into
effect in about a month-and-a-half, will apply to the 4,067 FAA-approved Part 145 repair stations in the U.S. and
707 outside the U.S.(as of August 2013).
expands reach with new anti-terror regs
01/10/14: The Transportation Security Administration on Friday unveiled long awaited regulations designed to
protect against terrorist strikes involving aircraft repair stations near airports. Part of the government’s
response to the 9/11 attacks of 2001, the regulations extend TSA’s security enforcement authority over the Federal
Aviation Administration-certified stations, where commercial planes undergo maintenance.
FAA: Journalists Not
Allowed To Use Drones
01/08/14: While hobbyists can build or buy their own drones and use them, journalists are prohibited from
using the technology until at least 2015. Drones may have once been marketed to the public as a technological
tool that farmers, law enforcement officials and journalists would be able to use in order to aid them in their
New FAA Regulations Add to Airlines' Weather Woes
01/07/14: As if a major snowstorm followed immediately by a polar vortex wasn't enough for airlines to
handle, newly imposed regulations from the Federal Aviation Administration (FAA) added yet another challenge.
Pilot reports ‘near-miss with UFO’ flying into Heathrow
01/05/14: A pilot flying a plane into Heathrow has reported a near miss with a mystery ‘rugby ball-shaped’
UFO, it has been reported. The captain told the aviation authorities the object came within a few feet of his
passenger jet, the Telegraph said this morning.
FAA Issues New Rotorcraft Icing Bulletin
01/03/14: The FAA is reissuing and revising a Special Airworthiness Information Bulletin (SW-08-03R4)
covering recommendations for rotorcraft powered by turboshaft engines flying into snowy or icy conditions. The SAIB
describes procedures to reduce the probability of an uncommanded in-flight engine shutdown due to snow and/or ice
ingestion and reminds operators that most helicopters are not approved/equipped for flight into icing conditions.
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