Light-Sport Chronicles: Scoping The Numbers

Good news/bad news: Rates aren't going up/rates aren't going down. The Big Picture: Things are slowly improving.

Reprising some of last year's talking points (based on Avemco data):

1. Pilot error, as with GA aircraft, causes most LSA accidents. The majority happen during landings and takeoffs.

2. Experienced GA pilots tended to be the Usual Accident Suspects. But Avemco's five-hour transition training and flight-review mandate for the insured is decreasing this group's accident rate.

3. Pilots with experience flying ultralights or lightweight certificated airplanes, such as J3 Cubs, have lower LSA accident numbers than experienced GA drivers.

4. The big "ouch" for LSA insurance remains the high cost of repairs.

Let's dig deeper. "It's been good to see manufacturers get behind our five-hour transition training program," says Mike. "They realized that without an affordable insurance policy, they'd have difficulty selling airplanes. That's made a dramatic improvement in the accident rate, and a lessening in accident severity."

There are two prime factors in calculating premiums. Severity: How much needs repair/replacement? Frequency: What's the percentage of loss for the whole fleet per year?

Mike's bible of aviation insuring: "If the premium collected pays all of the claims, we can lower rates and relax underwriting requirements. But if payout claims exceed the premiums collected, we must increase rates and/or increase underwriting requirements."

Mike observes, "We know that out of every 100 LSA, six will have an accident. The average repair cost: $60,000. That means for every hundred airplanes we insure, we need to collect at least $360,000 (6 x $60,000) just to cover the repair costs of those losses. That's basic shorthand for how insurance companies calculate premiums."

And fixing a 1946 J3 Cub (although they're currently $30,000 airplanes!) is still much cheaper than repairing a Cub clone that sells for $125,000 or more.

The culprit continues to be the minuscule used/salvaged/after-market parts pool. The LSA fleet is new, and more new designs emerge every year. Few LSA aircraft have been "totaled," and most have low flight hours on them, though as more flight schools add LSA to their fleets, that will change.

"Any insurance company will repair with like kind and quality," says Mike. "If that Cub-clone pilot ground-loops and tears up the wing and landing gear, I'll likely have to buy a part at full new retail. If he'd done the same damage in an old J3, I could probably find a used or remanufactured part at much lower cost."

Lower premiums therefore come mainly from a decrease in severity of accidents, a decrease in frequency of accidents, LSA market growth (more airplanes in the insured pool) and cheaper LSA parts. Some relevant specifics: "Avemco's frequency of loss for the LSA market is still about three times that of standard GA certificated aircraft."

That figure contradicts some industry watchers and insiders, who maintain equivalency between LSA and GA. But mitigating factors include the nature of the accident-reporting medium itself.

"I like the saying, 'Statistics lie, and liars use statistics,'" says Mike. "For example, Avemco only insures LSA's airplane (including E-LSA) and glider categories. We don't cover weight shift, gyrocopter, powered parachute and other LSA types."

Another factor in statistical variance may be that numerous LSA mishaps never get recorded in the FAA/NTSB database. Mike points out, "Some statistics come directly from FAA accident reports. But some customers never contact the FAA or NTSB after an accident, although they may contact us for claim service. I'd say probably 25% of all our aviation claims never make the FAA/NTSB record.

"Let's say someone taxis into a hangar. That's a wing tip and a nav light, maybe some damage to the hangar. They'll call Avemco, and we'll handle the claim. But if it doesn't meet the FAA or NTSB definition of an accident, they may not notify FAA...nor will we. The insurance policy is between us and the customer. Our obligation is to repair the LSA for our customer per the terms of the policy. The repair shop isn't obligated either. Many accidents don't get official recording."

And what constitutes an official NTSB/FAA "accident"? "Any occurrence where any person receives fatal or serious injury or any aircraft receives substantial damage." There are four categories: Major (fatalities involved and aircraft destroyed or substantially damaged); Serious (one fatality without substantial damage or at least one serious injury and substantial damage); Injury (a nonfatal accident, at least one serious injury, no substantial damage); and Damage (no person killed or seriously injured, but substantial aircraft damage).

I asked Mike if he noticed any "smoking gun" trends in accident statistics. "Losses the last two years are consistent with the overall aircraft insurance market, mostly loss of directional control on landings and takeoffs. That includes accidents from crosswind problems, distraction, overcontrolling and so on.

"Many customers from an ultralight background did fine. LSA are easier to control than ultralights. But pilots who transition from a Bonanza or Cessna 182? Their skills in lighter aircraft often aren't yet up to speed." Avemco's requirement of five hours and a flight review brought those kinds of accidents "way down."

One clear indicator of the sluggish aircraft market: Avemco's LSA policy count has been fairly consistent for the last two to three years. "That tells us we're picking up enough new customers to replace those that are dropping out. We just haven't seen growth in the market yet.

"It must be frustrating to manufacturers. They've held costs as steady as possible, but you can't help think if the economy hadn't slowed down, we'd have the growth everyone dreamed of. From that point of view, the frequency and severity of LSA accidents wouldn't look as dire as they do right now."

Looking ahead, Mike Adams sees reason for optimism: "As the LSA market matures, we'll see a growing reservoir of used aircraft and parts, just as we have for C-172s and the like. As LSA student pilots graduate and fly LSA, those airplanes will get into the commerce stream."

The LSA insurance overview reflects the current up/down nature of the entire industry. Yes, total Avemco claims did drop 45% from 2007 to 2010. But the total dollars paid out in claims in fact increased, enough to offset the decline. So folks, let's all fly safe and keep on practicing landings and takeoffs.