Executive Director Article: Spring 2024

The Evolution of Free Flight Insurance

Martin Palmaz

It is hard to believe, but USHPA’s insurance crisis happened over eight years ago. Previously insured by Lloyd’s of London, USHPA was informed in the summer of 2015 that the policy of one of the larger schools, which had no claims, would not be renewed. It quickly became evident the same was happening to all the other schools and the entire industry, including USHPA. This loss of insurance threatened to eliminate access to our treasured flying sites and the sustainability of our sports. There were only a few months to come up with a solution.

This crisis was exacerbated by the fact that other reputable carriers were unwilling to cover our sports. Only one option remained: to form our own insurance company. After a tremendous effort by a small but dedicated group, USHPA raised the necessary capital (thanks to all our donors!) and created the Recreation Risk Retention Group (Recreation RRG) to insure our flying activities nationwide.

Like any startup, Recreation RRG went through the intense initial phase of creating everything needed to operate and issue insurance. USHPA also had to modify numerous policies and procedures to accommodate new requirements and risk management. There wasn’t much time, and what usually would have taken two years was done in 10 months. Despite these enormous challenges, Recreation RRG has accomplished amazing milestones over the past eight years and remains our best option to ensure the future of free flight for years to come.

Why bring this up now? Because the free flight community is still mourning the loss of the “good old days.” We had a good situation for many years—too good, in fact—which is why premiums were rising rapidly and why Lloyd’s of London ultimately dropped us. The free flight insurance industry is evolving, and we must continue making adjustments so our sports have the coverage and access to keep them alive and thriving.

Between 2009 and 2016, USHPA’s insurance premiums more than doubled, increasing at an average annual rate of 13% per year. It was an unsustainable increase and still insufficient to keep our previous carriers from dropping us. While insurance premiums have always been a significant portion of USHPA's operating budget, they aren’t nearly what they would have been under our old carriers.

One of the largest components of those premium increases was the commercialization of the USHPA's programs (solo and tandem instruction). The General Liability and Professional Liability policies were never meant to be the only coverage for commercial activity, but they were ultimately being used that way. That meant premiums weren’t accurately covering the actuarial risks, so premiums were rising accordingly. Under Recreation RRG, those are now appropriately structured and accounted for by the relevant parties. Since its formation in 2016, Recreation RRG has achieved an unimaginable feat: keeping premium increases (avg. 4.6%/year) far below the standard US market trends of an average of 18% per year for the same period. This represents a savings of over two million dollars.

From the start, Recreation RRG had a challenging job. Not only did it need to take over insuring our sports, but it also had to assist and educate USHPA, chapters, and members on implementing risk management to begin changing the old paradigm. These measures have been the keystone for keeping premium increases down and below market trends. The more we save on insurance, the more we can spend on USHPA programs, and the less likely we are to raise dues.

Risk management has been the most challenging aspect of our evolution. Managing this to the satisfaction of external regulators, reinsurance carriers, and actuarial analysts couldn’t be more culturally divergent for a bunch of risk-tolerant free flight pilots, yet it is necessary for our success. Hindsight is 20/20, and while we can’t change the past, we are changing the future.

Several years ago, USHPA formed an insurance sub-committee to improve risk management and other elements of the process. Recreation RRG and USHPA's participation in this committee is how we share our mutual needs and make suggested adjustments to procedures and policies for both organizations. Your continued feedback helps us understand your challenges and is an important element in what we discuss and work to improve. Insurance is inordinately complex, but every stakeholder is committed to improving the process wherever possible.

After the 2015 insurance crisis, the potential loss of coverage is always an underlying concern. If Recreation RRG fails, we risk losing access to most of our iconic sites around the country and the ability for event organizers and schools to operate with the necessary coverage. Our collective efforts over the years have been to improve and protect this resource and keep it affordable. Recreation RRG and USHPA have worked diligently to hold rates near inflationary levels, which is vastly better than the broader insurance market. In a mutual effort to protect this resource, USHPA recently approved restructuring the Recreation RRG to allow other sports, like parasailing, to join. After forming the Recreation RRG and seeing similar challenges in other recreational sports, it is clear Recreation RRG fills a broader area of need. This strategic step in growth will help strengthen Recreation RRG’s position to provide coverage in the future.

The success of this new evolution is apparent in Recreation RRG’s achievements over the past eight years and those still to come.