Posted by: Jeff Rhodes | July 26, 2011

Insurability and Cost of Risk for Commercial Light Sport

I began a discussion last week about commercial operations utilizing Light Sport Aircraft.  That post centered on some business concepts and risk management techniques that were oriented toward business operations considerations.  Specifically, that LSA businesses aren’t really much different from any other aviation business – or any kind of business – when it comes to good practices, good risk management, and good planning. 

This week I’d like to continue the theme and talk a little bit about how you choose and operate an aircraft, from a risk manager’s standpoint.  To verify my line of thinking, I reached out to a number of key people in the light aircraft insurance community, for their thoughts.  Below, are the responses from Greg Sterling, Senior VP and Division Manager for Light Aviation at Chartis Aerospace, one of the principal underwriters for personal aircraft and flight training operations. 

Question:  How  suitable is the current crop of LSA’s for the flight training role? 

Sterling:  Many of the LSAs available have proven to be easy-to-fly, forgiving aircraft. But, some of the higher performance aircraft may have handling characteristics that challenge new students.  Since the term “LSA” spans a wide variety of aircraft, the ultimate answer lies in a close examination of each individual aircraft type. 

As to durability and longevity, LSA’s run the gamut.  Because many are only now entering the training environment, we have yet to see how they hold up over the long term. 

My thoughts – like other “types” of aircraft, LSAs are not all trainers.  For flight school operations, be sure to consider the particular design purpose of the aircraft and tailor your offerings to the skill set of student pilots and your instructors.  From an insurer’s standpoint, it should fly like a Cessna. 

Question:  How is the loss experience with LSA, compared to “conventional” flight training aircraft?

Sterling:  “Loss history in terms of number and types of accidents has been on par with other light aircraft types.  In some cases we have experienced difficulty obtaining replacement parts and getting proper factory support for repairs.  This lack of support can lead to increase claims costs and lengthen the time an aircraft is out of service and not producing revenue for the school.  An operator deciding what type of LSA to place on the line should spend some time carefully investigating the availability of parts, ease of repair and the degree of factory support they can expect.

I expect that this also includes the availability of shops and mechanics that can work with Rotax engines and composite airframes.  When an insurer uses the term “increased claims costs,” you can be sure that that eventually filters down to the premium rating.  Aircraft that are in low production numbers, new, or manufactured in far-off places are almost always more expensive to insure than those that are not.  Many new manufactures have almost all their production resources tied up in the production and sales of new airplanes, not spare parts.  While I can have a replacement aileron for a Piper Cherokee in my hand this afternoon, that might not be the case for a new, exotic, European, composite LSA. 

Question:  How do you see the market and insurability evolving in the future? 

Sterling:  “Looking ahead, fuel cost will continue to be one of the largest single costs of operating a training aircraft.  We are already facing a pilot training crisis which has been well documented in the aviation press and noted as a point of concern for our general aviation alphabet associations.  For this reason the low fuel burn of LSA’s represent a real advantage over other aircraft.  Time will tell if those savings are offset by higher repair frequency and severity and/or accidents.”

That last sentence is an important insight.  Even after seven years of “Light Sport,” the insurance industry still lacks the comfort level that it has had with conventional flight training aircraft.  There were 40,000 Cessna 172’s built and on rental lines for more than 50 years.  Insurers know, almost exactly, what it costs to insure a Cessna 172 used for training.  Not so with LSA, that has yet to be sold or operated in any significant numbers.  I suspect that insurance companies will continue to proceed with caution on commercial LSAs for the foreseeable future.

Question:  What recommendations would you have for a commercial LSA operator? 

Sterling:  “My recommendations for a commercial LSA operator are much the same as for any flight school operator:

  • Have good dispatch procedures and controls
  • Maintain maintenance excellence.
  • To the extent possible, train students in the aircraft they will likely rent frequently post-certificate.
  • Try to minimize CFI turnover, not only to provide a better training experience for your students, but to keep the CFI’s experience working to improve your operation.
  • Select LSA’s with proven track records of parts availability and factory support.
  • Avoid LSA’s with quirky handling characteristics or which have yet to prove themselves as a viable supplier in the US market.”

Remember, insurability goes right to your bottom line and has a major effect on your ability to compete with the guy next door.  Do your best to stay in the insurance company’s box and give them (and document) exactly what they are looking for.   If you decide to venture out to an unconventional or unproven new design, be ready to accept and justify the additional cost to your customers.  There may be a reason to go with other than the “tried and true,” but it will certainly come at a cost. 


Responses

  1. […] my last 2 posts on the Light Sport Aircraft industry, – Part 1;  Part 2 – we discussed some issues facing commercial Light Sport Aircraft operators.  Today, just a […]


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