Important News About IAC Aircraft Insurance
Doug: I have a series of questions for Northwest Insurance Group [NWIG] that may help our members understand what is taking place with our IAC/NWIG insurance agreement. The end of our three-year agreement comes up for renewal on April 1, 2011. I understand Berkley will not provide aerobatic insurance policies after December 1, 2010. Is that correct?
Ryan: That is correct.
Doug: Were they required to provide us insurance policies until the end of our agreement?
Ryan: No, the agreement for services was directly with NWIG and not with Berkley; they are under no obligation to provide the product. They did, however, agree to carry the program through December 1, 2010, as a courtesy to us and the IAC.
Doug: Will NWIG be able to provide IAC members with competitive aerobatic policies?
Ryan: We have been working hard to find homes for members that won’t have Berkley as an option on renewal. Since we have the entire aviation market [except Avemco] to work with, we have been relatively successful finding IAC members an insurance product to meet their needs at a competitive price. The coverage forms are vastly different from one company to the next, so our job has really been to make sure coverages are in place for the type of flying that each insured is involved in. We are more than happy to continue to provide our brokerage services and insurance counsel to IAC members. We’ll have to look at the services contract to determine the best way to move forward since we won’t have an exclusive product from December 1 forward, when our contract with IAC expires.
Doug: Why did Vicki Cruse approach NWIG to establish an insurance program?
Ryan: Vicki approached us to bid on the then-expiring contract with the previous program provider. She conducted a member survey that showed 1) the members were unhappy with the service from the brokerage and 2) that the product wasn’t doing everything that the IAC wanted from its insurance program. She was looking for a program that would be nondiscriminatory toward the various aircraft that were involved in IAC competition, which would provide a host of additional coverages in addition to basic hull and liability [member benefits], which would also provide coverage when aircraft went to foreign countries for competition, and finally, which would provide a reasonable revenue stream back to IAC. She was also looking for an exceptional level of service to the membership from the provider.
Doug: Why did Berkley pull out of providing the IAC with aerobatic insurance policies?
Ryan: I can only speculate on the real reason, but 1)the cost of the program [losses versus premium] was clearly too high. The participation in the program by the IAC membership was lukewarm considering our three years of involvement with the club and the massive amount of promotion we did. So, the combination of low premium volume and policy count combined with high claims expense in the end necessarily warranted Berkley’s exit simply on an economic basis. Insurance companies work for a profit, and we had three years to deliver profits to Berkley…it didn’t work out so well.
Doug: Did Berkley provide IAC members with a superior product at a fair price?
Ryan: NWIG was able to negotiate an exceptionally comprehensive policy form, low pricing, worldwide territory, lots of coverages, and significant financial support. The key here was that it was a “true program” with pooled underwriting; if claims expense was high, then premiums would increase. If they were low, premiums would decrease. The program would take all IAC aircraft, nearly all pilots, in all conditions, and cover them anywhere in the world.
Doug: Why was there a large swing in the cost of insurance policies over the last three years?
Ryan: Claims and program expenses exceeded initial estimates. We did not get the participation that Vicki originally thought we would, and the claims grew to unacceptable proportions. The pricing simply followed claims experience. Premiums went up three separate times due to claims experience in the program. Additionally during the past year, as members started to leave for lower pricing, then the program’s profitability quickly eroded, creating a spiral effect. This is not an unusual phenomenon with insurance programs, though; some programs do survive if participation is garnered soon enough in the program’s infancy.
Doug: Can we receive a similar product from other insurance providers at a competitive price?
Ryan: Since the program is now concluded, we are forced into market pricing. In other words, the pricing that members receive is now what is available in the open marketplace, and no program pricing is available.
Doug: Is there any reason the IAC should work directly with insurance agencies to provide insurance options for its members?
Ryan: That depends on whether or not you can convince an insurance brokerage to pay royalties and extensive advertising costs. If we have a dedicated program or we otherwise just market the accounts, we still provide a substantial service to the IAC members regarding coverages for their activities, whether it’s for practice, for competition, for sightseeing, for dual instruction, or for air shows. But we can do that independent of the IAC contract, in which case the IAC loses all its revenue for our services. IAC needs to decide how much it is willing to promote this service [we or others provide] as a member benefit in order to generate revenue for the club. We do know that we have given a substantial amount of financial support to the IAC as part of this contract during the past three years. I can’t imagine why the IAC wouldn’t want a brokerage involved in some capacity in order to continue receiving financial benefits from such a service, even if it’s not NWIG.
If anybody has any questions or would like to discuss this issue further, I can be reached by e-mail at firstname.lastname@example.org or by phone at 847-875-3339. Fly safely and keep plenty of altitude below you! – Doug