First, the background- extremely abbreviated- hang gliding and paragliding is an inherently risky activity. While it is also something we can do quite safely through proper training and diligence, the risk potential is always there. For this reason, among others, the United States Hang Gliding and Paragliding Association (USHPA) has provided 3rd party liability insurance to all members. This insurance is a necessary level of protection because most of the places we fly, we would be considered a liability to landowners and anyone nearby.
Recently, the provider of our insurance policy issued a notice of non-renewal, leaving us looking for a solution to a potentially VERY big problem. There are a number of reasons for discontinuing our coverage, but let’s keep it simple and say that it was either too costly or at least not profitable enough to the insurance provider to insure us. The insurance provider USHPA has been using was actually the *ONLY* provider willing to insure them… which complicates things further- when the last bar in town closes, where do you go to get a drink?
Home! USHPA has considered self-insuring for quite a while, but the capital necessary to get that started is large… and the formation of such a thing wasn’t quite worth not just going with the insurance we had. With the notice of non-renewal, this has changed. It’s still a big amount of money, and a big pain in the butt honestly, BUT this will be much, much better for us if we pull it off…
For more information about the plan to self-insure by forming a Risk Retention Group (“RRG”), USHPA’s site has good info and FAQ’s HERE
A question I am hearing often, and I would like to address: Why will the new RRG insurance be successful when our past insurance failed??? This is a great question, and something we should all logically be asking before investing our money into the RRG fundraiser. I haven’t seen a DETAILED answer to that question- and I think it’s holding a lot of people back from financially supporting this- so let’s answer it right here and now!
First, we have to understand that our past insurance was a bit difference from what you might purchase from Allstate or State Farm… it’s much more akin to stocks in the stock market actually. A group of rich blokes would “invest” (buy in) to fund our policy, in hopes of turning a profit on us. As with most investments, the higher the risk of losses, the higher the possible profit needs to be to attract investors. Insuring hang gliding and paragliding is a big risk of an investment, which means that policy we’ve had came at a very expensive premium. But if that’s the case, how could the insurance company still be losing money… and why would they choose we’re not worth the bother, rather than just raising our premium more?
I believe the answer lies in understanding how that insurance was structured- like stocks in the stock market, with the insurance company acting a bit like a stock broker. If you were to going to try to make money by purchasing stocks… you would probably want to check on how your stocks are doing once in a while (if not very frequently), right? And if you called your broker to ask, and they said “I don’t know”… how likely would you be to continue doing business with them? I wouldn’t either.
In the case of our insurance, claims and law suits can take time- often many years- to litigate. To an investor or their “broker”, litigating is equivalent to not having a read on how the investment is doing. In order to keep their investor’s balance sheets tidy, the broker (our insurance company) has been very keen to settle just about everything that has come up. Taking a case all the way to trial is costly and time consuming, and there’s always that chance- no matter how small- of losing in court. Settling is quick and definitive.
Insurance companies are very good at weighing the “cost” of fighting a case all the way to trial, putting a dollar amount to it, and settling for less than that amount. BUT- understanding how our insurance was structured, we can see they put a high value on wrapping things up quickly… something USHPA is not so concerned with. We can also see they put a high value on the sure-thing of settling, where as USHPA- being much more knowledgeable about our policies, flying, and probably the details of the case- might be much more confident in taking a case to trial.
So… Perhaps you are starting to see why it WAS economically best for the insurance company to settle, and yet it can be economically best for us to fight (because we have different values than the insurance “broker” and their fat-cat investors they answer to).
There is also a cascade effect to think about- the insurance company doesn’t really care how many claims are filed against their clients, do they? More law suits against is like job security for an insurance company. And they don’t really care about the settlement money, because that’s just an expense of doing business to them- and they pass it on to their clients in the way they price their premiums. Lawyers know all this… so insurance companies are great targets to go after, because they’re likely to settle. What’s more, giving out money attracts others who want their settlement, too!
Ok, so mostly I’ve just talked about why our past insurance failed… and mentioned some ways the RRG will be different. I haven’t overtly answered the question yet though- WHY WILL THE RRG SUCCEED IF THE PAST INSURANCE FAILED?
- A Risk Retention Group is not the same as an insurance company. Money grubbing vulture lawyers know this. Filing a suit against USHPA (or a USHPA insured pilot, land owner, or instructor) is to go after OUR money. We- the people of USHPA- have worked hard to earn that money, and have chosen to put it toward the RRG because the future of free flight is very important to us. We will NOT be handing this money out. You want what’s ours? Prepare to fight. No, prepare to BATTLE. You come after us, we go to war.
- After reading the above, does that sound like something lawyers want to invest their own time and money into pursuing… where they make little or nothing if they don’t secure any funds for their clients??? Exactly.
- Also, USHPA and this RRG are committed to the never-ending existence of hang gliding and paragliding. Do we care if a suit takes two years, three years, hell- twenty years? Nah. Do money grubbers want to play a long game attempting to collect, or are they hoping to settle and walk with cash in their pockets NOW?
- Some might view it as a technicality, but to be accurate- our past insurance didn’t “FAIL”. Our policy covered us in the way we needed, and it *WAS* profitable for the insurance company. So much so, in fact, it was bordering on completely unaffordable for us already. The non-renewal was because the insurance company decided it wasn’t enough profit to be worth their time. The RRG, on the other hand, is not profit driven. Even without all these reasons the RRG should be more successful than the insurance company was, it would still be successful because OUR measure of success is very different from a profit-driven insurance company, brokering shares of “high risk” policy to more profit driven investors!
- The last, and possibly most important, reason I’m confident in the RRG’s success… is because of the increased awareness this debacle has triggered. In the past, many had the attitude the insurance wasn’t important, or yea right we’ll never lose our insurance, or yea that guy’s doing something stupid but that’s his problem not mine. I think a lot more of the USHPA membership have come to realize just how important the insurance is to keeping our sports alive… and how frail it can be if we’re not diligent. We are LITERALLY a self-regulating group… and that does not mean we each regulate our self… that means we regulate each other. If I see someone about to do something that’s likely to hurt them, or someone else, it’s my duty to speak up and help them do better. If I allow them to create a legal liability for us, I’m giving away my money, your money, OUR money… and that’s not OK!
I’m confident the RRG will be successful even though our past insurance failed because an RRG is different than insurance, because we are different than insurance brokers and rich profiteering investors, and because we are more aware now than ever before.
I’d like to wrap this up by saying THANK YOU to anyone that read this whole thing. Investing the time and effort to better understand what’s up is a great step… but it’s not enough. The RRG will only come to be with the contribution and financial support of those that benefit- all of us! It is my hope that better understanding this will help those with reservations thus far see why this is a worthy and reliable investment. And I would like to thank everyone that has supported the RRG already- big or small- I look forward to flying with you for many years ahead!