REFLECTOR:Re: Insurance Woes

[Phil Hooper]

Excellent and realistic.  Thank you Charles.  Now, who's going to lead this?

-----Original Message-----
From: reflector-admin@tvbf.org [mailto:reflector-admin@tvbf.org] On Behalf
Of Chuck Jensen
Sent: Wednesday, May 07, 2003 7:51 AM
To: 'reflector@tvbf.org'
Subject: REFLECTOR:Re: Insurance Woes


As Brian noted, the insurance Coop is not a new idea, and it was vetted by
Scott again last year in the news letter.  Ideas are good but implementation
is everything.  I'm going to be at the Factory next week for a XL RG
checkout and intend to spend a few minutes with Scott to discuss the issue a
bit further.  I would suspect that Velocity would be behind the idea even if
they didn't make a penny off it, since any program that made insurance
readily available would be a great selling tool for Velocity kits.  From
what I read, Long EZ, Lancair and the rest have the same problem.  But, as
we know, problems are just an opportunity waiting for a solution.  

This Coop thing isn't quite as intimidating as might appear on the front
end.  Here are a few more detailed thoughts.

1.	Actuarials:  Probably unnecessary.  We are not trying to predict
life spans and esoteric issues of that sort.  I would think the Factory
and/or their Inspectors, have a pretty good handle on the rate of
incidents/accidents.  We can be safe in one assumption; if the commercial
insurance companies will insure the hull for 5%, then the actual losses are
substantially less.

2.	Premiums:  There's little choice that the premiums start out high;
in the 4%-5% range.  While high, this is competitive with most current
commercial rates, if you can get them.  For those that are getting a low
commercial rate presently, our hats off to you; and we'll see you next year
when you come to the Coop hat in hand.  The final premium target would be
1%-2%.

3.	Variable Premiums:  We hate to make it complicated but some premium
variability would have to put in effect.  The reality is the loss potential
is different for a 300hp retract with an MT prop is different than a 200hp
fixed gear, fixed prop.

4.	Pilot Flight Checks:  Absolutely.  Not only for insurance's sake,
but our own.  Perhaps we'd require the BFR be done with a Velocity approved
CFI.  When BFRs were first implement, I was a little skeptical about more
"big brother."  The reality is, its a very good program.  We all get a
little complacent and form less than desirable habits.  Relearning once
every two years is small price to pay to save on insurance and your life.

5.	Plane Inspections:  Absolutely.  You and I know our workmanship is
great but can we trust that other guy.  The Factory and Inspectors know
every trick, tip and trap associated with the Velocity.  To have a factory
approved inspection will save insurance claims and lives.

6.	Repair Costs:  It is common wisdom that the cost of repairing a
Velocity is much less than trying to repair Kansas stuff.  We should
advantage ourselves of this.  Rules (of the fair type) would have to be
written that precludes a $15,000 claim that the owner fixes for $500 and a
few hours of his time.  Abuse of this ilk is part of the reason our aviation
and liability insurance is already outrageous.  Even in a serious accident,
there are still many salvageable items including instrumentation and
possibly engine or engine components.  Rarely is a loss ever "total."

7.	Deductibles:  High.  The Coop insurance program should be designed
to be catastrophic insurance rather than something like  a homeowners policy
where you file a claim if your storm door blows off.  This program is
designed to get you back in the air, not cushion you from every little
incident.

8.	Payout Stop-Loss:  Its difficult to imagine a scenario under which
valid claims could be denied because "we've paid too many claims this year."
A claim is a claim and at the start, the Coop would be at higher risk until
a "bank" is established (this is what seed money is about).  Certainly, a
requirement that the pilot be rechecked and the plane reinspected at the
Factory after any claim would help minimize spurious claims. (In the
interest of full disclosure, I am not a lap-dog for the Factory, I just
think a Coop would have to avail themselves of every available risk
mitigation resource)

9.	Liability Insurance:  Not!  This is where actuarials, attorneys,
courts and real headaches come into play.  Too many dollars and too many
unknowns to get involved.  The liability insurance people currently have,
may not be a bargain, but it seems more reasonable than the hull insurance.

10.	Dividends:  Yes.  Though the premiums, and risk to the Coop, are
high on the front end, if the loss rate is as low as we believe it should
be, both can come down.  With ingenuity, rules can be written that would
provide a dividend to Coop members if, over the first 2-3 years of the
program, a surplus of funds was built up.  The dividend would be in the form
of reduced premiums (if one still owned a plane) or cash payment if a
Velocity was no longer owned.

11.	Overhead:  Yes.  Even a simple program requires postage, paper,
man-power, phone, fax, email, et al.  The target would be 10% of premiums.
That may be low but might be achievable.  The person(s) running it should
look on it as a labor of love, not a profit center.  

12.	Minimum Number of Insureds:  A minimum numbers of insured of 30-40
being necessary to get the program off the ground is probably not doable.
There are advantages in a larger initial number of insured in that the risk
is spread wider, however, it does not change the risk itself.  The only
absolute advantage of an initial large number of insured is fixed
costs/overhead can be spread across more people.  I suspect 5 or 10 insured
would be sufficient to set up the program, trouble shoot it and gain
momentum (of the favorable type, hopefully).  To have 40 initially insured
may be a disadvantage by making the birthing pains even more difficult as
the bumps are smoothed out.  Be assured, "if we build it, they will come."

13.	Lawsuits:  No.  Well, we actually can't stop them but anyone that
refused a negotiated settlement, would forfeit any future dividend and could
not gain insurance from the Coop for the next 10 years.  We may be able to
require binding arbitration which would eliminate most of those problems. In
the end, the Coop would need to be fair and equitable but not reward
claimants with windfall profits.

14.	Short Memories:   An unavoidable consequence of a successful Coop is
the naysayers and grumblers who will always think things are unfair and
this-and-that are too high, and on and on.  When adequate insurance is
available at a fair price, there will be those who can remember 22.5 years
ago when they insured a plane for $30,000 and it only cost him a buck
ninety-five, two ten and that this Coop thing is a rip-off.   

Sad fact but short memories go with the territory.  Many will soon forget
the pain, agony and disgust we are currently experiencing and will find new
things to complain about.  Has anyone ever belonged to a Homeowner's
Association?  It all falls under the category of "thankless task",
nonetheless, it seems such a program will have to be undertaken if we are
ever to resolve this problem.  What we do have going for us is, as a whole,
plane owners and pilots are a more intelligent and decent group of people
than the average.  Perhaps we could appeal to their uncommon civility to
rise above the common and make it work.  It's worth thinking about.

Charles Jensen
Diversified Technologies
2680 Westcott Blvd
Knoxville, TN  37931
Phn:     865-539-9000 x25
Cell:     865-406-9001
Fax:     865-539-9001
cjensen@dts9000.com
 

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