Risk management Have you tried to find liability insurance on your airplane lately? I have. Some policies cost as much annually as a small airplane. It is absurd. Why is it so expensive? Insurance agents say it is all about risks. Yet, accident and death rates are declining while rates keep increasing. It just does not make sense to most of us. But when I put on my financial planner hat and I looked at this issue from a new perspective. I found it’s all about the perception of risk.
When you get risk right, you can arrive at the right price – assuming no greed from egregious profiteering. For instance, if you have a million-dollar liability policy and the average annual loss rate is 0.1%, the first $1,000 paid in premiums covers that loss risk. Add overhead, golf clubs, utilities for city office towers, and of course reasonable profits and you will arrive at reasonable rates. However, with aviation insurance, there is no such thing as “reasonable”. That is because the raters got risk wrong. Here’s why:
Insurance never pays off until after (sometimes way after) damage is done. If you are injured, or God forbid, dead, how much does it matter about how much the insurance company will pay?
The best insurance, bar none, is prevention – and that comes in three flavors – two discussed here. Training, the third, will be reviewed in an upcoming article.
1. Preventive Maintenance:
First, is a high-quality scheduled maintenance program where every part of an aircraft that could degrade with time is inspected at least annually, and if substandard, repaired or replaced. This is called preventive maintenance – meaning fix it before it breaks or malfunctions. This is exactly what I have done and continue to do with my Super Seawind, N71RJ. See Super Seawind videos here.
2. Backup Equipment for Safety:
Second, it is asking the question; “how can I make my airplane even safer?” This my exclusive domain. You will not find this in standard inspections because Federal Aviation Regulations, FARs, simply do not require it. Hence, every general aviation aircraft is essentially the same this year as it was in the last – except for an occasional mandate like ADSB.
Au contraire, N71RJ gets an annual makeover. For 2021, I am installing a new high-definition camera to monitor the on-engine gauges as a backup for the Grand Rapids Engine Information System, or EIS. This camera automatically starts with motion and via Wi-Fi, feeds into my iPhone or Ipad – live. It also includes night vision, so I do not need under-cowling lighting for it. This way, if my EIS goes dark, I can still fly by backup, engine gauges. Moreover, both the camera and my Ipad have a 12-volt airframe power supply so that there is no battery burnout issue. Knowing my engine is healthy is better than any insurance policy because I know I can get to my destination safely with no harm to anyone or anything. Last, videos automatically loop record on my iPad for later reviewing. The cost? All this is a tiny fraction of only one month’s insurance premium would charge.
The difference N71RJ brings to the table is the prevention of problems before they happen! Secondly, if a problem occurs, I have the backup equipment and a procedure to deal with it safely. This, I believe, is the most powerful and safest way to mitigate risk. Insurance, though often important, does not enhance safety in one iota. It is low on my list. Flying safely is not!
Is flying is risky? Yes, but you can reduce risks with rigorous scheduled maintenance and by adopting and adapting technology to increase your personal safety.
One Response
Well done. Risk perception if very different from real risks we face.