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Cc: Colyn Case <colyncase@earthlink.net>
From: Jeff Edwards <vtailjeff@aol.com>
Subject: Re: [LML] Insurance Equations
Date: Tue, 29 Jan 2013 05:23:34 -0600
To: Lancair Mailing List <lml@lancaironline.net>
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Let's talk!

Jeff

AvSafe=20
Jeff Edwards
314.308.6719 mobile
636.532.5638 office
Jeff.edwards@avsafe.com

On Jan 28, 2013, at 11:13 PM, Paul Miller <pjdmiller@gmail.com> wrote:

> 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 toget=
her, formed an offshore entity, funded future years of premiums into a pool a=
nd provided their own self-insurance for 7 years.    Umbrella limits were co=
vered with re-insurance cheaply and when the premiums from the insurers even=
tually dropped, the pool was refunded to the group making the whole thing a p=
rofitable venture.
>=20
> Are you paying too much and did that accident cost you something?   I look=
ed 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 a=
n 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 woul=
d require SIMCOM, 500 hours minimum, 50k deductible and some other features.=
 The analysis said that if losses were expected, owners would get back more t=
han half their premiums in time and those premiums would have been far less t=
han industry norms.  The fleet wasn't big enough yet and premiums did start t=
o come down so it was shelved.  Owners did not like the idea of funding futu=
re premiums even if they were expected to be refunded.
>=20
> Premiums cycle like commodities because risk appetite is a commodity.  At n=
o time, did anyone in the industry spend money to actively reduce the risk l=
evel.  They simply adjusted premiums to make the business viable.  Premiums a=
re largely independent of the asset IMO.   I tested a number of insurers on a=
ircraft with widely varying hull values and the premium was the same.  When p=
ushed for an answer, the bottom line dollars was the goal.
>=20
> If someone took all the IV owners (only IVs as example) and culled them in=
to 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 woul=
d tell you if you're getting a deal or getting shafted.  I suspect premiums a=
re probably a "deal" at the moment based on the numbers being tossed around h=
ere 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 o=
nly prevent them from getting into your pool.  So, the end result will be th=
e same in terms of accidents but perhaps one insurer will make money and ano=
ther may not.  Even if the fleet turned safer this year and next, it would t=
ake many more years of safer stats to make a difference but I really don't t=
hink your premiums are going to be affected by the good news as opposed to s=
imply better market conditions for risk.  My point is that blaming any indiv=
idual owner for raising rates is nonsense.   Those rates are already baked i=
nto the fleet and the industry and largely determined by the level of risk a=
ppetite in the world and the ability of insurers to lay off that risk onto t=
hird parties.  Accidents are always blamed for premium increases.  Nobody ge=
ts credit for not having that accident because the risk is still there.
>=20
> Good to hear some companies are participating in safety.  None of the insu=
rers I worked with ever participated in any programs whatsoever like that.
>=20
> Paul
> Legacy
> Spruce Creek
> --
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