New group offers MRO coverage

 - August 1, 2010, 7:52 AM

Aviation Alliance Insurance Risk Retention Group (AAIRRG), an entity that provides product liability insurance exclusively for Arsa member repair stations, will be able to offer that coverage at well below market rates, according to the group.

The group is the result of an Aeronautical Repair Station Association (Arsa) poll conducted about five years ago that revealed ARSA members’ attitudes about product liability insurance. “The majority felt they were being overcharged. More troubling was that some companies, mostly smaller ones, didn’t have any insurance at all. Many commented that they’d never had a problem that would have required insurance and the premium was too expensive for a company that small,” Paul Hawthorne, Arsa vice president of quality, told AIN

Hawthorne said Polaris Enterprise Group had contacted Arsa about the possibility of forming its own insurance risk retention group. “They told us the Federal Liability Risk Retention Act of 1981 allows a group or class of companies that all do the same thing to form an insurance company called a risk retention group. They felt Arsa’s repair station membership would be a natural fit,” Hawthorne said. 

According to Hawthorne, repair stations–a small subset of the aviation insurance market–have often been lumped with more high-risk elements of the aviation industry when seeking insurance. This has led to higher premiums representing an average of all aviation risk rather than that necessary solely for repair stations based on a historic analysis of accident and safety data. Because AAIRRG provides insurance only to repair stations, it will be able to offer coverage at well below market rates.

“AAIRRG is offering commercial general liability insurance, and products and completed-operations liability insurance, for licensed Part 145 repair stations,” said Cameron Crebs, president of Polaris Enterprise. It is also possible to obtain hangarkeepers and grounding liability insurance. 

Membership has two cost components: capitalization and annual premium. The members of a risk retention group (RRG) are the owners. As with any corporation, ownership involves a contribution to capital. Government regulations require a minimum level of capitalization in an RRG that is approximately 30 percent of a typical potential member’s current annual insurance premium. If your current annual premium for liability insurance is $100,000, for example, the up-front capital investment will be approximately $30,000. 

As with any insurance, there is a premium component. A member’s annual premium during the first few years is expected to approximate the premium the member would pay to a competitive insurance broker in the open market, but in the long run the cost of a premium will come down significantly. 

“We’re seeing average savings of 20 to 25 percent through AAIRRG over acquiring insurance on the open market. This is conceptually similar to owning versus renting. If you go on the commercial market it’s like renting, but if you become an AAIRRG member you have ownership. It gives you more control and you get to vote your shares for a board that represents you,” Crebs said. 

According to Crebs, each insured member is an owner of AAIRRG and receives shares that make the company eligible for financial distributions from potential underwriting profits. “AAIRRG is initially writing insurance in 17 states and we should be registered in all 50 states next year.”