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Subject: Insurance Equations
From: Paul Miller <pjdmiller@gmail.com>
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I am not an insurance expert.  In another life I was involved with a =
bunch of insureds getting screwed with premiums (not aviation) and they =
got together, formed an offshore entity, funded future years of premiums =
into a pool and provided their own self-insurance for 7 years.    =
Umbrella limits were covered with re-insurance cheaply and when the =
premiums from the insurers eventually dropped, the pool was refunded to =
the group making the whole thing a profitable venture.

Are you paying too much and did that accident cost you something?   I =
looked at doing the same thing with TBMs where new owners were getting =
dinged 25-40k per year.   We looked at 50 owners, 7 years of committed =
premiums and an offshore entity to grow the premiums tax free.  Stats =
told us to expect at least two casualties over the period of coverage.  =
To minimize risk we would require SIMCOM, 500 hours minimum, 50k =
deductible and some other features. The analysis said that if losses =
were expected, owners would get back more than half their premiums in =
time and those premiums would have been far less than industry norms.  =
The fleet wasn't big enough yet and premiums did start to come down so =
it was shelved.  Owners did not like the idea of funding future premiums =
even if they were expected to be refunded.

Premiums cycle like commodities because risk appetite is a commodity.  =
At no time, did anyone in the industry spend money to actively reduce =
the risk level.  They simply adjusted premiums to make the business =
viable.  Premiums are largely independent of the asset IMO.   I tested a =
number of insurers on aircraft with widely varying hull values and the =
premium was the same.  When pushed for an answer, the bottom line =
dollars was the goal.

If someone took all the IV owners (only IVs as example) and culled them =
into a group, determined the risk scenario for next 7 years and =
calculated the annual premiums paid versus what a pool size would need =
to cover, that would tell you if you're getting a deal or getting =
shafted.  I suspect premiums are probably a "deal" at the moment based =
on the numbers being tossed around here but it wouldn't take a lot of =
effort to figure it out.  When you do that, you will realize that you =
can't stop the riskier IVs from flying, you can only prevent them from =
getting into your pool.  So, the end result will be the same in terms of =
accidents but perhaps one insurer will make money and another may not.  =
Even if the fleet turned safer this year and next, it would take many =
more years of safer stats to make a difference but I really don't think =
your premiums are going to be affected by the good news as opposed to =
simply better market conditions for risk.  My point is that blaming any =
individual owner for raising rates is nonsense.   Those rates are =
already baked into the fleet and the industry and largely determined by =
the level of risk appetite in the world and the ability of insurers to =
lay off that risk onto third parties.  Accidents are always blamed for =
premium increases.  Nobody gets credit for not having that accident =
because the risk is still there.

Good to hear some companies are participating in safety.  None of the =
insurers I worked with ever participated in any programs whatsoever like =
that.

Paul
Legacy
Spruce Creek=