Insurance is always a hot topic.  There’s lively debate about the size of the premium, and whether one group gets a better deal than another.  To help with this discussion, here are some facts about insurance.

Umbrella cover

The Association has honed the unique BPA insurance policy over decades and has constantly been advised, by different brokers, to retain it for as long as it is available.  The policy is the envy of other sports.  If the BPA chose alternative insurance arrangements, it would be unable to go back.

The current insurance does not cover BPA instructors working abroad. The BPA has always specifically excluded such cover, as it has no control of those working outside the BPA system.

Operation of the policy

The insurance is underwritten through Lloyds of London.  Not only does this mean that the policy is soundly underpinned, but that it has been formulated specifically to meet the needs of UK culture and the British legal system. This is something that cannot be said of insurance policies underwritten in countries with entirely different cultures and legal systems, for example in continental Europe.  The cover has always been there when any of us need it:  there have been no problems in the policy responding to genuine claims.

The service from the broker, underwriter and insurers’ solicitor has been highly professional.   All this has come to be taken for granted – because everything has run so smoothly.   This has not happened by chance, but though the sheer hard work of a dedicated professional team.  The BPA insurance policy benefits from the services of a highly respected senior aviation underwriter working with one of the country’s foremost specialist aviation solicitors and a top broker who has been involved in airsports insurance for over three decades.  The expertise of this team, working closely with the BPA’s Insurance Subcommittee and the BPA’s in-house technical staff, brings a level of professional understanding of sports parachuting’s insurance needs that is second to none.

Claims totals

There was a change of underwriter in 2004 because the then underwriters, the International Division of Danish insurers Tryg Baltica (TBi), ceased to operate in the UK.   The former UK Vice President of Tryg switched to new underwriters, St Paul Travelers at Lloyds, and the BPA switched with him.  This has afforded the BPA continuity of underwriter for some 13 years.

Claims totals, including reserves, still active under the run off of TBi (until 2004) are: 

                                                                         £                           %      

        Drop Zones                                         336,635                      29

        Display Teams                                       93,842                      8

        Member to Member                           735,000                      63

        Other                                                              -                        -

        Total                                                   1,165,477                  100

Claims totals, including reserves, under St Paul Travelers (2004 to date) are:

                                                                         £                         %      

Drop Zones                                      2,918, 588                  94

Display Teams                                    171,747                  5.7

Member to Member                                      -                     -

Other                                                       9,932                     0.3

________________________________________________________

Total                                                    3,100,267                100

The claims total is the main determinant of the following year’s insurance premium. The heaviest weighting is given to the total under St Paul Travelers, the current underwriters.

We all wish the policy cost less.  The only way to bring this about is to reduce the cost of claims.

Pattern of claims

The pattern of claims categories varies.  In 2004, concern focused on what at that time appeared to be the growing cost of Member to Member claims.  Since 2004, claims against Drop Zones have swamped the other categories.  These variations are attributable to the effect of only two or three high value claims.  It is not therefore possible to predict where any big costs will lie in future.  This highlights the benefit of having an umbrella policy that protects everyone in the sport, as it brings stability of cover and leaves no-one out in the cold, even after a big claim.

A sustained trend has emerged of fewer claims, but within that, a higher percentage of high value claims.  Claims against Display Teams have remained below 10% of total claims throughout.

Very few claims against instructors have been recorded.  This is because claims are made against the Club or Centre, not the instructors.  Even if an instructor were to be at fault, the DZ would be sued as it is responsible for those operating there.

No claim against a rigger or pilot can be recalled.   Were a pilot to be sued, it would be likely to be a claim against the aircraft insurance.

Allocation of premiums

It is clear from the current underwriter’s figures (2004 to date) that Student insurance is in fact Drop Zone insurance.  Over 90% of the claims total since 2004 has been paid for claims made against Drop Zones.  The vast majority of claims against Drop Zones involve Student parachutists.  If premiums were to be allocated on the basis of historical claims risk for this period, over 90% of the premium would fall to Drop Zones. 

Were premiums to be differentiated between groups of Members such as instructors, experienced parachutists, less experienced parachutists, Display Teams, Drop Zone Operators, etc, there would be likely to be a sharp rise in the costs of administering the policy.   The simplicity of the present arrangements keeps administration costs to a minimum.

The policy, over the years, has always been to spread the load as fairly and equitably as possible, which the BPA believes has always been in the best interests of all its Members, including DZ Operators.

Cost of premiums

One thing that everyone agrees is that they would like to see the cost of insurance come down.  (The same thing can probably be said of most types of insurance.)  Between April 1994 and March 2007 the BPA policy received £4.5m in premiums compared with £6.3m in claims and costs paid and reserved.

This ratio of monies in and out is not an attractive one to commercial insurers (it would be no more attractive were the BPA to consider becoming self-insuring).  The BPA is fortunate to be with an underwriter who genuinely understands the sport and is prepared to stick with it.  The success of BPA regulation of the sport through the BPA Operations Manual and STC, and through pioneering initiatives such as proactive risk assessment, have all been recognised by the insurers for their contribution to the underlying downward trend in the number of claims.

Individual Drop Zones are not rewarded – or penalised – for their claims history.  The BPA “all for one, one for all” policy would, however, be eligible for what amounts to something similar in effect to a ‘no claims discount’ in aggregate – that is premiums would be held, or may reduce, if the aggregate cost of claims dropped.  If premiums were allocated according to claims history, some Drop Zones might pay lower premiums until or unless they had a claim, but other Drop Zones would almost certainly see their insurance premiums increase sharply.

Drop Zones only pay for their own success in throughput of students, and Full Members pay only the equivalent of £2 a week for insurance cover of £2 million.

Payment in arrears

The established arrangements for BPA insurance cover enable payment to be made after the revenue for a jump has been received.  Informal discussions with other brokers have suggested that some alternative arrangements might require ‘up front’ payments that would impact on Drop Zones’ and the BPA’s cash flow.

The future of the sport

As the National Governing Body, the BPA has a duty to look after all its Members and to safeguard the interests of the sport.  Skydiving is a relatively small sport.  Its unity is its strength.  That unity is evidenced not least by the umbrella insurance policy that gives a unique shelter of protection for everyone in the sport.   It is in the nature of a collective policy that it will be in the interests of the majority.  There will always be groups who feel hard done by, because they are concerned that they are subsidising other groups.  The present insurance arrangements are an equilibrium that has evolved over decades.  It is an equilibrium of balanced forces, not complacency.  Both experienced Members and Drop Zone Operators have, at one time or another, said that they believe the premium to be unfairly loaded on them.  Because both groups have expressed this view, an outsider might reasonably consider that the balance was in fact probably about right, and might also observe that each group has, at different times, contributed the most claims.

If any group took themselves out of the BPA insurance policy, it would increase costs for the rest by reducing the BPA’s buying power and the economy of scale of its insurance cover.  It might actually prejudice the BPA insurance cover, which only applies when all in the sport are protected by it.

Redistribution of the allocation of insurance premiums would mean slicing the cake differently.  The same total premium would still be due.  If some paid less, others would need to pay more to make up the shortfall.  For example, if Drop Zones paid less for tandem students, there might well be more of them because of market forces; equally, if full Members had to pay more, their numbers might be expected to drop.  Because there are about seven times more students than full Members, a reduction in student premium has to be multiplied by a factor of 7 as an increase in premium for full Members.  This would fundamentally alter the structure, and future, of the sport.   If instructors paid even more, they would either expect the Drop Zones to cover the additional costs (in turn by increasing the cost of jumps) or, if they could not recover the costs, they might well stop instructing and the sport would then be faced with a chronic shortage of instructors.  Whatever route it follows, the sport’s cost of insurance has to come from jumpers’ pockets in the end.

Any move away from a common policy, or significant alteration of the allocation of premiums within the existing policy, may effect changes in the infrastructure of the sport by creating a rift between Drop Zones that concentrate mainly on Tandems and ‘mixed economy’ Drop Zones that provide a home for the BPA’s 5000+ Full Members.  This could lead to a reduction in the number of Drop Zones and a significant reduction in the availability of facilities for full Members, prejudicing future investment in the sport and fundamentally altering its structure.

Compiled by the BPA staff team after discussion with David Hickling, Chairman of the Insurance Subcommittee.

BPA Office