CSI Insurance: Excogitations On LSA Crashes, Part Deux

"Now, if you just bought one of those Cub clones, for example," Adams explains, "have two hours dual in it, plus 15 hours and a taildragger endorsement in a Piper Cub, and you ask me to insure you, I'll have one question: ’Do you have a flight review sign-off in that Cub clone?' If you answer, ’No,' I'll say, ’Okay, I will insure you today, but you must get that flight review before you can solo, or you won't be covered.'

"Once we presented our findings to manufacturers, many understood the rationale behind more stringent training and now support the five hours dual/flight review model. They'd already been learning on their own how much harder it is to sell aircraft with high accident rates.

"Another contributing factor to accidents," says Adams, "is the unconventional systems many S-LSA present to a pilot." EFIS display panels with flight, power and navigation instruments all on one screen, dual throttles and console-mounted brake levers instead of toe brakes "aren't bad; they're just different. Thorough checkouts are crucial to addressing those differences."

Another parameter adversely affecting insurance rates is the loss severity (i.e., repair costs). "We base our rates on severity as well as calculated expectation of frequency of losses."

LSA present specific challenges to writing low premiums. Adams compares the LSA and GA aircraft market. "You can buy a decent J-3 Cub for under $35,000, and a Piper Super Cub for $70,000 or so. If you damage [either aircraft], there are still lots of new and used parts out there, and plenty of shops to work on them. That makes repair costs reasonable.

"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."

Also, consider flight characteristics. Do you want snappy and light controls or a more stable, docile personality? High-wing stability and ground visibility? Low-wing sportiness and open-sky views?

What about the S-LSA company's parts and service support? Where do you go for routine maintenance? Is there a repair facility reasonably close, in case of major damage? Are there nearby instructors for recurrency training?

Consider all those factors before you buy, because Avemco and other insurance carriers are looking at them too. Says Adams, "If it will cost us more to repair your airplane, we'll have to charge you more for insurance.

"We also suggest pilots get thoroughly checked out in the aircraft before they even fly it. Know the systems cold: EFIS displays, GPS, autopilot, braking, ground handling control, start-up and shutdown, fuel selectors, emergency procedures and more.

"I advise pilots to stay current and humble about their abilities. In return, for every year you take recurrent flight training, we'll give you a 5% base-rate discount. We want someone who's laid low all winter to get an hour or two of crosswind training in spring, for example, before they start flying again."

Avemco, like other insurance providers, also builds in discounts as pilots build no-incident hours.

What about a ballpark premium quote for both ends of the S-LSA spectrum?

"For an S-LSA with a $45,000 value, flown by a 50-hour sport pilot," says Adams, "the basic rate would be about $2,600 annually for $1 million liability and hull coverage. With premium credits and training, we could get that down to $2,200. For a more experienced pilot with 500 hours of flight time, the range would be $2,000 to $1,750.

"On a top-line, loaded S-LSA with a $135,000 hull value, the 50-hour pilot might be covered for $3,900. With credits for recurrency training, etc., we'd cut that to $3,200. For the 500-hour pilot, coverage would be $3,000, and with credits and training, [could] go down to $2,200."

Why wouldn't a lower-cost S-LSA be proportionately less than a more expensive one? "There are many factors," affirms Adams, "including cost of repairs and replacement parts when stacked against the total value. The higher the value, in theory anyway, the lower the percentage cost of the repairs."

Another factor affecting premiums would be how well a company has developed its dealer support network across the country.

Many thanks to Mike Adams of Avemco for his forthcoming insights into the character of LSA flight as the industry enters its fifth year.