Tuesday, April 21, 2009
CSI Insurance: Excogitations On LSA Crashes, Part Deux
A discussion about LSA insurance rates
|Last month, Mike Adams, vice president of underwriting for Avemco Insurance (www.avemco.com), shared fascinating insights drawn from Avemco’s LSA claims data. Avemco’s conclusion: Incomplete dealer transition training for new S-LSA owners was the biggest contributor to accident claims. Avemco responded by requiring new owners to complete five hours dual and a flight review sign-off from a dealer rep to qualify for solo coverage. |
“Now look at a $120,000 LSA version of a similar plane. If you damage a Super Cub, and repair costs are $1,000, that exact same repair might cost you $3,000 on the LSA version. Why? It’s a new plane. There aren’t used parts out there yet.
“Also, many repair shops aren’t so keen on repairing LSA just yet, for many reasons. So Avemco has to pay a premium because it’s now a specialty repair. We can end up shipping the airplane some distance to fix it, because of fewer LSA repair stations. These and other factors contribute to a higher severity of loss, so premiums go up. Remember, we’ve yet to break even in this industry!”
Adams describes how one GA manufacturer dealt with lack of infrastructure a few years back. “They were very smart, very proactive in saying, ‘We’ve got a new airplane of composite construction, so if you have a claim, please contact us first. We want to work with you to make sure it gets repaired quickly and inexpensively. We’ll even send someone to help your local shop, or do the repairs ourselves.’
“So we have very good rates for that company’s airplane owners. The company helped us learn about composite repair, showed us where parts were and could do repairs at lower cost at the factory than we could get at a field shop.”
The industry is still building its infrastructure—another reason Avemco’s S-LSA claim payments are 48% higher than for GA aircraft.
Different LSA models command different insurance rates. A lot depends on how extensive a support network the company has established.
“In setting rates, we ask manufacturers or distributors to tell us where we can get the airplane repaired and where to get parts. Are those parts stocked or built locally, or back-ordered from overseas?
“When LSA sales surged in 2005, marketing departments far outran the rest of the operation. Now the infrastructure of training, repairs, parts and customer support have become vital to continued success—or even survival. We have seen much improvement in those areas. Our loss ratio, even though still in the red, is dropping. If trends continue, we’ll be in good shape five years after initiating our LSA program,” asserts Adams.
He advises potential LSA owners to factor several elements into the buying decision: “First, choose your aircraft carefully. What do you expect to do with it? A lot of cross-country flying? Then an S-LSA probably isn’t the plane for you. Lots of local flying with occasional cross-country trips, and good economy and decent speed? That’s a better fit for an S-LSA.”
Page 2 of 3