Risk Management 101
THE ASSOCIATION
When an association looks at risk management it has to consider various levels and areas. As a basic matter, any association needs to have cash reserves available when it encounters hard times. These cash reserves usually are a percentage of its total operating budget, and a motion made by the Board of Directors should establish the exact dollar amount. This amount will vary depending on the individual association.
Hard times usually result from a severe unexpected decrease in income, which could have several causes. AMA's revenue is heavily based on dues income from its members. This is a very volatile situation.
In addition to a cash reserve, a plan to reduce costs for headquarters operations should be established. This could require a reduction in personnel and, at least temporarily, suspension of selected programs.
This would be considered the basic tier or level "0" in risk management.
The next part of the article will focus on the member insurance program. This is one of the Special Services Department's responsibilities within the organization.
Insurance Program
AMA is exposed to many and varied risks of potential claims and lawsuits alleging injury or damage from the activities of AMA members and clubs. While in many cases the risk is limited due to the size and power of the aircraft flown, there is no question that most of the models flown by AMA members have the potential to cause serious injury or damage.
There is a perception that all of the risk comes from the larger, faster aircraft, but in fact almost all types and sizes of aircraft have been the source of serious injuries. Some of the most severe injuries have been caused by small- or average-size aircraft where the spinning propeller has impacted human flesh. At high speeds, motors and other airframe parts become projectiles capable of causing serious injury and possibly death. In a few instances, conditions of flying site premises have resulted in slips, trips, and falls causing serious injury.
AMA has and will continue to have substantial risk from operations. The only way to avoid risk is to avoid any activity—obviously not an acceptable alternative. Consequently, the prudent step is to manage risk to (a) reduce or eliminate the chance of loss (a claim) and (b) reduce the severity (seriousness and cost) of an injury that may occur. Additionally, risk management includes financing considerations and risk transfer by purchase of insurance.
AMA manages risk in several ways. The following are basic risk-management techniques and how AMA utilizes these techniques:
- Avoidance: the activity may be so hazardous or have loss potential that it is an unacceptable risk.
- AMA avoids some activity by limiting the size, speed, and characteristics of the aircraft allowed by the Safety Code. By prohibiting some aircraft categories that are deemed extremely dangerous and beyond the scope of the AMA mission, the exposure is avoided.
- Non-insurance Transfer: the risk of loss may be transferred to a third party through a contractual arrangement, such as a hold-harmless agreement.
- This technique has limited application to AMA since AMA in many cases, such as flying site agreements, has to accept risk through contract rather than shift the risk to others. However, this technique is utilized when others use the AMA National Flying Site for other than hobby activity.
- Risk Control: reduce the frequency and severity of loss by controlling the risk through effective and efficient loss-prevention programs.
- The AMA National Safety Code is an example of a risk-control technique. The Safety Committee constantly evaluates risk and recommends changes and improvements in the Safety Code to reduce those risks. The turbine waiver and experimental aircraft waiver are prime examples of risk control.
- Risk Funding:
- Self-insurance: some losses are more efficiently self-funded rather than purchasing insurance for the routine risk. In many instances, the purchase of catastrophe insurance in excess of partial self-insurance is the best answer.
- AMA's liability insurance program includes partial self-insurance with true insurance coverage in excess of a self-insured layer. By self-insuring the primary risk, AMA is economically funding the expected claims while protecting the members, clubs, and the organization's assets through purchase of insurance for the potential of catastrophic claims.
- Insurance: often the transfer of risk through the purchase of traditional insurance is the most economical and effective way to manage risk, especially after other techniques have been considered.
- It is impractical for AMA to self-insure all risk, especially catastrophic claims and risks where claims are frequent and sometimes severe, and the cost of insurance is small compared to the magnitude of risk. The purchase of excess insurance above the self-insured layer is a practical example of economical risk transfer through insurance. AMA also purchases insurance for headquarters operations, including the risk of fire or tornado damage to buildings and other property.
While AMA has implemented meaningful risk-management techniques in several key areas, there is always room for improvement. Several additional steps are being considered:
Risk Control
- Develop and implement a National Safety Program to help clubs improve site safety. The program would include a safety coordinator as a resource for safety information and materials for club use, as well as suggestions and templates for club safety officers to use to enhance safety.
- Increase safety awareness throughout the organization by distributing information on real aeromodeling situations that resulted in accidents, to educate members and identify responsibilities.
- Identify minimum flight criteria to establish a standard expectation of all AMA member pilots.
- Provide tips and checklists to help clubs and event organizers establish and maintain safe premises, free of hazards that may injure members and spectators, especially children.
Risk Funding
- Establish a designated reserve fund in addition to annual funds budgeted for insurance and claim payments. The designated reserve fund will be available to pay claims beyond the expected, such as catastrophic claims or a sudden increase in the frequency of claims within the self-insured retention, and to cover unexpected dramatic insurance premium increases due to excessive claims.
- Create a captive insurance company to insure AMA up to a higher self-insured retention, thus reducing dependence on the standard insurance market to provide the unique coverage required for its members, clubs, and site owners.
AMA continues to consider risk-management techniques to identify and implement the most efficient and cost-effective methods to provide the comprehensive liability insurance coverage AMA members and clubs expect and deserve.
All AMA members and clubs can contribute to this risk-management effort through their own safe flying and by taking responsibility to help others ensure safe flying throughout the organization. There are entirely too many accidents.
Limiting the risk of an accident through safe practices will reduce the accident rate; result in fewer injuries to members, guests, and others; and ultimately reduce the cost of AMA liability insurance to all members.
—Special Services Director Carl P. Maroney [email protected]
Transcribed from original scans by AI. Minor OCR errors may remain.
