2018 Vermont Report

A Perfect Landing

The U.S. Hang Gliding and Paragliding Association creates a captive in Vermont.
By: | April 9, 2018 • 7 min read

We live in a busy, hectic, noisy world. Many of us wish we could get away from the distractions and experience peace and tranquility. Some of us make it happen through meditation, running, art or camping. But for one group, shutting out the noise takes them to a whole new level — literally. They are members of the U.S. Hang Gliding and Paragliding Association.

Advertisement




Hang gliding and paragliding have been called the purest form of flying. Enthusiasts say that without a motor — just the glider, one’s body and the wind — one experiences a thrill, a sense of peace and a oneness with nature.

“It’s a feeling like no other feeling in the world,” said Tim Herr, secretary and risk management officer, Recreation Risk Retention Group Inc., (RRRG).

“To take flight is a surreal experience, especially the first time you do it. It’s the purest form of flight. There’s no noise, no pollution and you feel like you are one with nature. I am up there with only the wind and sometimes a bird. To fly that close to a hawk or an eagle — they join you — it is incredible. When I am up there sometimes, I still can’t believe I am up there,” he said.

Herr started hang gliding in the 1980s and still recalls the early years when hang gliders were made from bamboo and plastic. Today, he runs the RRRG, which is the captive that allows the Association to be self-insured.

Back then, he said, “there were injuries due, at least in part, to subpar equipment and the lack of historical information on what works and what doesn’t when flying, landing and dealing with weather conditions.

“We realized we needed an association to help people stay safe.”

The U.S. Hang Gliding and Paragliding Association was born. The association developed best practices and standards that include location rating, education for members and instructor certification. They even worked with glider manufacturers to improve the safety and quality of gliders.

Another thing they realized they needed: liability insurance. They wanted coverage not only for their pilots, of course, but also coverage for spectators, vehicles on the ground and land and landowners. The landowners especially wanted to be named as insureds in the coverage. They were nice enough to let the gliders on their land, but understandably, they didn’t want the risk associated with the gliders should property damage or an injury (or worse) occur.

Becoming Self-Insured

Typically, the Federal Aviation Administration (FAA) regulates anything that flies. However, Herr said the FAA granted gliders an exemption from regulation with the caveat they were “on their own” in terms of safety and insurance. “Undertake at your own risk” became the unwritten regulation.

Advertisement




Even though there was no regulation mandating liability coverage, the gliders knew it was in everyone’s best interest to secure it. Protecting people first, then property and lastly, the up-and-coming sport’s reputation was paramount.

Previously, the association was able to obtain coverage through a well-respected international insurer. But when that longtime carrier was no longer able to write coverage for the association, the group knew it would need to be creative and resourceful in obtaining coverage.

It wasn’t easy.

“It was hard to find someone to write for this small- to mid-market,” Herr said. “But that changed when we went to Vermont to investigate captives. We looked at Vermont and learned about options and risk retention groups. It was the best option, especially since we needed to cover members in many different states across the country.”

The Vermont Captive Experience

In 2016, the Association formed a captive, domiciled in Vermont, that fell into a category known as risk retention groups (RRG).

A typical captive is formed when a single company funds itself and insures itself, benefitting from any derived revenue. With a risk retention group, many people, companies or organizations pool their money and insure themselves collectively. The key requirement is that they are like entities — in this case hang gliders and paragliders — but it could be schools, members of the same profession or like organizations.

The Association’s RRG is specifically for recreational organizations. RRRG’s purpose is to insure its members and protect free flight everywhere. They were joined in their RRG by The Foundation for Free Flight, The Professional Air Sports Association and several hang gliding and paragliding flight schools across the nation.

“We looked at Vermont and learned about options and risk retention groups. It was the best option, especially since we needed to cover members in many different states across the country.” — Tim Herr, secretary and risk management officer, Recreation Risk Retention Group Inc.

Vermont was a good fit for the Association. The state is filled with recreational opportunities and outdoors enthusiasts, so people appreciate the desire for a sport such as gliding.

Tim Herr, secretary and risk management officer, Recreation Risk Retention Group Inc.

The state of Vermont is also a leading domicile for captives. They’ve been hosting captives for more than 35 years as a global leader in captive insurance.

According to Sandy A. Bigglestone, director of captive insurance, Vermont Department of Financial Regulation, “Vermont is number one in gross written premium, number one in assets under management, and third in active captive insurance companies in the world.

“Vermont is home to 48 of the Fortune 100, and 18 of the companies that make up the Dow 30 have Vermont captives.”

But it was the ease of working with Vermont, their expertise and their staff’s experience that helped to make it a natural choice.

“Working with Vermont was wonderful,” Herr said. “They understand the small niche insurance market. The first meeting is always filled with trepidation, but we showed them our plans and they understood what we needed and wanted to do.”

The Association needed to raise capital to the tune of $3 million in just nine months, which they were able to do through a fundraising campaign and surplus loans from members. With the funding secured, they moved on to reinsurance and other issues and were able to get RRRG off the ground by 2016.

RRRG now has 29 member groups covering the flights of more than 9,000 USHPA members, 83 USHPA chapters, and more than 30,000 hang gliding and paragliding students annually.

“In Vermont, we had the support we needed,” Herr said. “They have a deep history with captives. They’ve done this before, and it is not a drawn-out process.”

Expert Advice

During the process, the Vermont captive experts offered the Association some crucial advice that has since enhanced member safety as well as the Association’s ability to self-insure: Create an active risk management program.

The Association was diligent in putting a risk management program together.

Today, every chapter of the Association must write and submit with its membership application a plan detailing how it will manage risk.

This must be completed and reviewed before any organization is granted entrée to the Association or can obtain liability insurance through the RRRG.

“We have a laundry list of things they must do,” Herr said.

That list includes things such as: devise a plan to protect spectators, conduct pilot training on-site, note wind and geographic dangers and publish site guides that detail site conditions and how to safely fly at their locations.

Additionally, the Association developed safety features accessible on their website, including two pre-flight safety apps available as interactive PDFs or on iTunes.

Learning Opportunities

Leaders in captive organizations say education is an important part of the process. Understanding legislation and regulations in each domicile helps find the right fit.

Organizations such as the Vermont Captive Insurance Association (VCIA) offer online education and training for industry newcomers and seasoned professionals. Topics ranging from “the advantages of captives” to tax implications are covered, as well as accounting and auditing for captives.

Advertisement




Additionally, they provide a “Captive Service Directory,” a list of VCIA members who provide services to the captive industry, such as consultants, attorneys, managers, brokers, underwriters and more.

The National Risk Retention Association, a nonprofit trade organization dedicated to protecting the rights of owner insureds, offers resources for their members, as well as an annual conference.

Its executive director, Joe Deems, said there are many good states that are domiciles and clearly Vermont is among them.

“Vermont built a good department. They were one of the first states to become a domicile. They are diligent, and they have a good staff with bright people. If Vermont approves you to be an RRG, then you have the necessary nuts and bolts to make it work,” he said. &

Mercedes Ott is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.

Advertisement




Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.

Advertisement




This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.

 

Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.

 

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.

 

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]