Legislature considers insurance pool for state's air carriers

Soaring insurance costs for aviation businesses in Alaska may prompt the Legislature to use state money to create insurance liability coverage for in-state air carriers.

Alaska air carriers suffered as much as 80 percent increases to their premiums over last year, when many saw as much as 30 percent increases from 1999. Now, they are seeking help from state lawmakers.

A series of hearings on the issue was held in mid-February by Rep. Andrew Halcro, R-Anchorage, chairman of the House Labor and Commerce Subcommittee. The hearings have spurred the lawmaker to draft a bill that would create a pool of money for qualifying air carriers to cover liability awards in the event of crashes.

Lawmakers may be faced with making a decision to award as much as $25 million in seed money to assist statewide carriers in starting their own insurance pool.

"You are heading in the right direction, but you have to move the decimal points over a couple of figures," said Mike O’Neal of Security Aviation.

O’Neal made the observation after Halcro offered a three-point plan that would have the state offering $10 million as seed money for an industry-created insurance company, with the carriers paying in an equal amount in premiums. He later realized that amount may not cover claims should more than one carrier have a loss.

Halcro also suggested regulation of the pool by a board of nine individuals that would consist of airline, insurance, Federal Aviation Administration officials and state regulatory experts.

Caps or limits on insurance premiums with incentives for companies with no accident claims and safety training programs along with high standards for companies seeking insurance coverage may also be in the offing.

Creating an independent insurance pool for air carriers in Alaska is new, but not to the timber and the rural electrification sectors, which also have created their own insurance liability programs.

Security Aviation has not had an incident or accident in the past, according to O’Neal, and receives the highest rating for safety by U.S. government agencies. He also has contracts for service to transport U.S. Air Force, Bureau of Land Management and FAA personnel. Yet he saw an 80 percent increase in his premiums this year. Why?

One reason is high liability awards in state courts. In 1999 alone, insurance companies paid more than $25 million in claims to victims’ families in aircraft crash liability awards, and in one case four victims’ families were awarded $5 million each, according to insurance officials testifying at the hearings.

The problem got worse in 1999 when insurance carrier American International Group Inc., or AIG, withdrew its coverage of Alaska companies -- and its money from a claims pool, forcing insurance writers to up premiums, according to statewide aviation officials.

"What we hope to do is offer relief to the aviation industry in Alaska, at a time when the insurance market has hardened to the point of breaking businesses," Halcro said during a Feb. 21 Labor and Commerce Subcommittee hearing.

Those testifying at the hearing included representatives of the aviation industry, the insurance industry, the National Transportation Safety Board, the state Department of Transportation and Public Facilities and the University of Alaska.

"We will support an industry insurance pool for the carriers if they embrace something like the Medallion Program," said Leonard Kirk of the University of Alaska Aviation and Technology Program, and a Capstone trainer. "We have the capability and the facilities to offer recurrent and annual training, and we have simulators, and could offer more specific safety training."

The Medallion Program, introduced by the Alaska Air Carriers Association during its 2000 conference, is a risk management program for carriers that would increase awareness of weather and flight challenges, with a goal of reducing accidents.

Carriers qualifying for a Medallion status would be rewarded with increased marketing of the airline’s safety record, and, they hope, reduced insurance premiums.

"Alaska is as much attitude as it is a place," said Jim LaBelle, NTSB investigator and Northwest field office chief. "And that is the problem. We have a management oversight problem that has bullied pilots into flying when they should not have."

"What this state has lacked is a company that would stick with air carriers for the long haul," said Neal Webster of Professional Insurance Adjusters. "What we have is one company leaving, forcing everyone to go to the new company for mandatory coverage. We need this pool to guarantee air carriers’ survival, and we need a more common sense approach to safety by the owners and pilots."

"Where are we going to get our pilots after all the flight schools are shut down over increased insurance costs?" asked Pat O’Hare, owner of O’Hare Aviation, which recently shut down flight training for the winter.

Halcro will draft a skeleton bill for approval by House Labor and Commerce Committee Chairman Lisa Murkowski.

"This may mean a large sum of money up front for legislators to agree on, but every one of the 60 legislators in the Capitol Building has at least one air carrier as a constituent," said Kevin Hand, chief of staff for Halcro.

Updated: 
03/03/2001 - 8:00pm

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