Risk Management 101 - 2004/05

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THE ASSOCIATION: When an
association looks at Risk Management it has
to consider various levels and areas. As a
basic, any association needs to have cash
reserves available when it encounters hard
times. These cash reserves usually are a
percent 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 reasons. AMA 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 cost for headquarter operations
should be established. This would require a
reduction in personnel and, at least
temporary, suspension of selected
programs.
This would be considered your 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 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. And 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 to reduce the
severity (seriousness and cost) of an injury
that may occur. Additionally, risk
management includes financing
considerations, 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:
1) Avoidance: the activity may be so
hazardous or have loss potential that makes
it 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.
2) 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.
3) 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 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.
4) Risk Funding:
Self-insurance—some losses are more
efficiently self-funded rather than
purchasing insurance for the routine risk.
Or, in many instances, the purchase of
catastrophe insurance excess of partial selfinsurance
is the best answer.
•AMA’s liability insurance program
includes partial self-insurance with true
insurance coverage 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 catastrophe claims.
Insurance—many times the transfer of
risk through the purchase of traditional
insurance is the most economical and
effective way to manage risk, especially if
all previous techniques have been
considered.
•It is impractical for AMA to selfinsure
all risk, especially catastrophic
claims and risk where claims are
infrequent, and sometimes severe, and the
cost of insurance is small compared to the
amount at 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 includes a safety
coordinator as a resource for safety
information and material 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 distribution of
information on real aeromodeling
situations resulting 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 selfinsured
retention, and to 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 the dependence on
the standard insurance market to provide
the unique coverage it requires 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 taking
responsibility to help others to 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]
Risk Management 101