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By mtpilot
#401169
Thank you for the information Mark. I can now make sense of the financial statements. If I understand it right we
paid actual claims of 45,200 for 2016 and 2017. I agree the IBNR makes no sense and quite frankly the operating
cost either. I am more familiar with self insurance such as medium/large fleets. I am sure they are governed differently
and get a much better deal. Their liability is set at a million per accident also. My thoughts are the whole concept
of self insurance is to avoid costly premiums and control settlements. This does not look like it works . Finally I
would want the loans paid off ASAP. This leaves little money for what we really need( site ownership). safer lz's.
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By dbotos
#401170
mgforbes wrote:If we have good data on accidents, incidents, amount of flying and training activity and all the rest, then we have something solid we can go to the actuaries with. Right now we don't have much, but with your cooperation we can fill in the blanks.
So are the insurance people concerned with (1) the rate of incidents/accidents per amount of flying activity or (2) just the rate of incidents/accidents per year?

It seems like the AIRS system would really only capture the latter (and on a voluntary basis) since it would be missing the denominator required by the former. To capture the former, you'd almost need some kind of online logbook system where pilots could enter data for each day they fly, such as:

-number of flights
-type of flying (training, recreational, competition)
-total flight time
-incidents (minor/major)
-accidents (minor injury and/or glider damage, major injury and/or glider damage, death and/or glider totaled)
-pilot level and special skills (and maybe pilot's career logged airtime)
-glider level (beginner, intermediate, advanced)
-conditions (wind speed, gust factor, thermal activity/strength level)
-site familiarity

Trends could potentially be seen in the data. Some hypothetical examples:

-pilots within a certain career airtime range having problems in strong conditions at new sites
-incidents/accidents correlating to pilots with low average airtime for some time period before the incident/accident (the database could calculate this if pilots kept up with entering their data)
-pilots moving up to a more advanced wing have higher risk of incident/accident within first so many hours of flying that new wing

Those trends could be addressed with articles in the magazine or maybe even SOP changes. Maybe it would lead to lower annual dues. The flip side of the coin is the whole Big Brother / Progressive Snapshot perspective where you're basically opening up your kimono, good or bad. But, it would still be voluntary, so you could always omit or downplay things that happened. Unless the system is set up where pilots can narc on each other.
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By dbotos
#401171
Some additional thoughts:

-reporting your own death is going to be logistically complicated

-perhaps narc is a strong word. Peer reporting seems to have conflicting motivation - on one hand you want to report to make the community safer (if you believe that the report or data as part of a larger whole will be utilized/shared to do so), but on the other hand more incidents/accidents could drive up insurance rates that get passed on to members.

-it would be interesting to see safety rates between HGs and PGs. Subjectivity in reporting (e.g. not seeing a collapse as an incident) could affect results.
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By mgforbes
#401176
mtpilot wrote: Tue Nov 21, 2017 12:40 pm Thank you for the information Mark. I can now make sense of the financial statements. If I understand it right we
paid actual claims of 45,200 for 2016 and 2017.
Not quite. We paid actual costs (no claims, but some investigation expenses) of $4,350. We *reserved* 42K against known incidents that might possibly turn into claims some day in the future. We carry those reserves as a liability on the books until the statute of limitations runs out, or until they turn into an actual claim. The reserve cost for any incident is set based on the circumstances and what we think the cost of defense or settlement may be. The actuaries review our reserves and the incidents and offer an opinion on whether we're reserving enough. We passed our audit with no problems.

You're right that the objective of self-insuring is to lower claims expenses and manage risk more effectively. In the past, our insurers tended to make decisions based on business expediency, not just the merits of a claim. That's because they were under pressure to close outstanding claims so that the syndicate investors could be paid off. From their perspective, holding up closure of the books in order to litigate a few hundred thousand on a claim wasn't worth it, even if the claim itself was completely without merit. They'd rather pay off and get on with other more lucrative opportunities.

We're not in that situation. We will promptly pay legitimate claims, and we will fight claims that are not reasonable. We don't have investors breathing down our necks demanding their money, so we can take the time necessary to bring a case to trial and win on its merits. Prospective plaintiff's lawyers know this; they rely on bluffing insurance companies into a quick payoff instead of fighting a case on its merits. When they see they're up against a RRG, they know we're playing the game with our own money, and we're not going to be an easy target. Right there, a lot of potential BS claims go away, because they know it's not likely they'll get paid for their work. And if a claim really is legitimate, we want to make that injured party whole and settle their claim fairly and promptly.

Once again, prompt and complete accident reporting helps us here. If we know something happened, we can make sure it gets handled properly and fairly. What drives lawsuits, in part, is injured feelings....if someone is hurt by one of our members, and they feel like they've been ignored or blown off, they're more likely to lawyer up and sue. We want to get ahead of that and take care of whatever damage has been done right away, in a fair and reasonable way.

MGF
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By g billow
#401177
Mark, I thought that was a very good summary of the whole process, really the first time I have seen it all put together in a concise manner.
Could you tell the readership who the investors are for the $600,000. in unsecured notes that was required and their relative increments. 3.5% isn't too bad for a year in today's interest rate environment and is it absolutely true that these funds would be completely unsecured to an investor?

Thank you
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By mgforbes
#401182
I can't disclose names, but I do know several of them personally. They're all pilots with a strong interest in preserving our sport and helping us all to keep flying. They're people with significant assets, sufficient to meet the IRS standard for investors in these sorts of high-risk loans. I think the minimum investment level was $10,000, and there are several individuals who are in for $100,000 or more.

Surplus notes share in a portion of the RRG's profits, proportionate to their share of the total capitalization. For 2016, that was about 3.5%, or $21,000 of the $84,000 net profit. The share is capped at 10%. If things go well, we expect to pay off the loans in about five years. If things go really well, we can pay them off sooner. But we can't do any of that until the RRG has accumulated sufficient profits to be fully capitalized without counting the surplus notes, and only on approval of the Vermont financial regulators. If the RRG fails to accumulate enough surplus, then the loans can sit unpaid for years...or forever, in the catastrophic case.

Surplus notes are subordinate to claims, expenses and capitalization, but superior to any dividend payouts to stockholders (all of the insured parties). In other words, first we have to pay claims and have a stable business, then we can pay off the lenders, and then we can start ratcheting down premiums to our insureds.

3.5% is better than a CD or money market, but not as good as the stock market. And the risk is much higher. Even in the big financial meltdown, investors who stayed calm and didn't sell off in the panic came out ok after a few years. With surplus notes, the down-side is 100% loss, and no FDIC to bail you out. Our investors knew that going in, and stepped up to help out anyway. They're more concerned about keeping our sport healthy than about finding the highest return on their money.

MGF
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By mgforbes
#401183
dbotos wrote: Tue Nov 21, 2017 12:57 pm
So are the insurance people concerned with (1) the rate of incidents/accidents per amount of flying activity or (2) just the rate of incidents/accidents per year?

It seems like the AIRS system would really only capture the latter (and on a voluntary basis) since it would be missing the denominator required by the former. To capture the former, you'd almost need some kind of online logbook system [...]
The actuaries look at the numbers. As long as accidents aren't generating insurance claims, they're not a problem. (I'm wearing my insurance hat here, which makes me not care about the personal injuries and so on. I really do care, but not in this context.) So from the actuary's viewpoint, a complete and thorough accounting of accidents, coupled with a relatively small number of claims arising from those accidents, just gives him a better feel for what percentage of accidents result in claims. If he only hears about big accidents, and sees claims that result from them, then he assumes that most accidents result in insurance claims. If he sees a thousand accident reports and only a few claims, then he knows most accidents do not result in a claim. And when he then extrapolates (that IBNR thing, again) to the *unknown* potential claims, he may assign a much lower estimate to the potential for claims.

To the extent that we can demonstrate we're on top of everything happening out there, in flying and training, we can argue the actuaries down from their we-think-inflated estimates of risk. We do that with data, because that's what they will look at and what they're evaluated on. Actuaries are accountable to their own professional standards bodies, and to the Vermont regulators as well. We have to use actuaries approved by Vermont; we can't just pick some guy who'll give us the answers we want to hear. Like outside accountants, they're independent and they look at the numbers.

So yes, reporting accidents and incidents will actually drive DOWN our insurance costs. What drives them up is claims, litigation expense and settlements to injured parties. If somebody really does get injured (think, spectator crash) then we need to be on that right away to make sure that injured party has their medical bills covered and is treated fairly. They're far less likely to file a lawsuit with all its extra expense if they feel like we've done right by them.

We know pilots get injured in this sport. We want to find ways to minimize it, but we know it's going to happen. That's why we have a waiver. We all agree that no matter what happens, we're the "pilot in command" and it's ultimately our personal responsibility to fly safely. We don't insure medical expenses or glider repairs; that's for each pilot to handle on their own. What we insure is damage we do to other people or their property; spectators, power lines, roofs, vehicles and so on.

MGF
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By dbotos
#401187
mgforbes wrote:The actuaries look at the numbers. As long as accidents aren't generating insurance claims, they're not a problem. (I'm wearing my insurance hat here, which makes me not care about the personal injuries and so on. I really do care, but not in this context.) So from the actuary's viewpoint, a complete and thorough accounting of accidents, coupled with a relatively small number of claims arising from those accidents, just gives him a better feel for what percentage of accidents result in claims. If he only hears about big accidents, and sees claims that result from them, then he assumes that most accidents result in insurance claims. If he sees a thousand accident reports and only a few claims, then he knows most accidents do not result in a claim. And when he then extrapolates (that IBNR thing, again) to the *unknown* potential claims, he may assign a much lower estimate to the potential for claims.
Okay, that makes sense that they're just looking at it from the financial standpoint. So algebraically, would it look something like this to estimate how much would be paid out in claims per year?

(A claims / B accidents) x (C $,average / claim) x (D accidents / year) = E $/year

I guess you'd need reasonable confidence in the three factors on the left side of the equation to trust the number that comes out on the right side.

You could further break it down and do the above equation three times for minor, medium, and major claims (based on some dollar amount ranges), with each of type having their own frequency of occurrence.

So do the insurance people factor in any growth, decline, or lack of change in the number of participants in the sport?
By blindrodie
#401189
Here's how I look at it Dave... Let's say:

Over the next year we have a hundred pilots report "anonymously" that they took out 150 downtubes. No other incidents or accidents or injuries or claims are filed.

The insurance company says, "OK these guys are taking out downtubes but not getting hurt or hitting people or destroying property or filing claims anyway". Logic tells them that it seems typical for hang glider pilots to bend or break downtubes BUT they don't get hurt, hit other people or destroy property. "We didn't know this!", they exclaim. And the result will be lower reserves to cover potential claims resulting in lower dues.

Meantime the association and us pilots, that's you Dave, say "Woah, we got a serious problem. Where are these pilots taking out downtubes and why?" And then we can all learn to stop taking out downtubes OR help other pilots to stop. YMMV.

8)
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By mgforbes
#401191
dbotos wrote: Wed Nov 22, 2017 12:16 pm You could further break it down and do the above equation three times for minor, medium, and major claims (based on some dollar amount ranges), with each of type having their own frequency of occurrence.

So do the insurance people factor in any growth, decline, or lack of change in the number of participants in the sport?
In a very simple way, that's the general idea. The actuaries run a Monte Carlo analysis, with a huge number of input variables, and then build their estimates on the 90% confidence interval after discarding the tails of the curve. At least that's how I understand it, but I'm an electronics engineer, not a statistician.

https://en.wikipedia.org/wiki/Monte_Carlo_method

I know that the number of participants, level of activity, amount and type of training and lots of other factors all play into this. Where information is sparse, actuaries are going to make a conservative guess. Improved data will make those guesses more accurate. Based on the numbers we see so far, we think that will tend to drive the rate calculations down.

Jim summarizes this well. Lots of accident reports and no claims makes the actuaries less nervous. Lots of accident reports gives us pilots data we need to work on having fewer accidents. It's a win-win.

MGF
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By DAVE 858
#401198
blindrodie wrote: Wed Nov 22, 2017 1:02 pm Here's how I look at it Dave... Let's say:

Over the next year we have a hundred pilots report "anonymously" that they took out 150 downtubes. No other incidents or accidents or injuries or claims are filed.

The insurance company says, "OK these guys are taking out downtubes but not getting hurt or hitting people or destroying property or filing claims anyway". Logic tells them that it seems typical for hang glider pilots to bend or break downtubes BUT they don't get hurt, hit other people or destroy property. "We didn't know this!", they exclaim. And the result will be lower reserves to cover potential claims resulting in lower dues.

Meantime the association and us pilots, that's you Dave, say "Woah, we got a serious problem. Where are these pilots taking out downtubes and why?" And then we can all learn to stop taking out downtubes OR help other pilots to stop. YMMV.

8)
We'll see. It does make a little more sense. To be totally honest, I tried to delete that post after I posted it but could not figure out how with this new format. Sorry Mark for the diarrhea comment. I have continued to maintain the philosophy that insurance is like condoms. Best to have it & not need it than to need it and not have it. People are only going to pay so much for condoms though... The same holds true for USHPA membership.
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By mgforbes
#401200
No worries. I agree, there's an upper limit to dues, and we definitely have lost some members with the higher rate. Just looking at the records, I think a bunch of them were folks who were no longer flying, but hadn't quite given up on the idea and still maintained a full membership. I'm hoping we can bring rates back down, but it's really a matter of how well we do on accident and claim prevention. If we have a few more years of no significant claims, that'll start to change things for the better.

I was told of a medical malpractice RRG that was formed by a bunch of doctors who were paying tens of thousands in annual insurance premiums. After some years of good claims results, they were able to bring their rates down to a few hundred dollars a year, and investment returns paid most of their operating expenses. They did this with rigorous risk management, detailed reporting of every "incident" and careful attention to how their insureds were operating. If we could drive USHPA's insurance costs down from the current $650,000 per year to something more like $100,000, that would be a huge savings that could be passed on to members. I don't know if we can do that, but that's what I'd like to see us accomplish. With everyone's cooperation, I think it's possible. Forming and running an RRG is a lot of work, but it could pay off big for us in the long run.

MGF
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By mtpilot
#401208
Thanks Mark, I think direct communication with pilots helps a lot. Few of us have any clue what is really going on
and it takes a bit of research to even get an outline. I am shocked by the decline in HG members, less than 3k. I look at
the 2500 deductible the 250k stop loss policy and wonder about the 650k cost. I am actually not against 150$ dues
but would like to see it go towards lz or launch purchases or lease. An org owned training hill would be a huge boost
for both sports. I don't see this even suggested. We also have local expenses in addition to ushpa dues and it gets harder
to make improvements.