Insurance rates climb for Alaska air carriers

Posted: Sunday, November 05, 2000

ANCHORAGE (AP) -- An increase in aviation insurance rates could mean fewer seats and higher prices for air travelers in Alaska, some commercial air carriers say.

John Hajdukovich, chief executive of Frontier Flying Service in Fairbanks, said his company has considered carrying only mail and freight and not people to deal with an expected insurance rate hike.

Michael O'Neill of Anchorage-based Security Aviation Inc. said he seriously considered closing down when his annual insurance premium recently jumped from $226,400 to $510,886.

''Aviation is a very necessary thing in Alaska, more so than any other place in the United States,'' O'Neill said. ''We don't have a road system. People depend on general aviation. I think insurance is to the point now that if operators have to go out of business, it's going to affect lots of people.''

The problem, operators say, is Alaska's high aircraft accident rate and court judgments. Also, fewer companies offer insurance. Operators say at least one major insurer has pulled out of Alaska and others want more money for less coverage.

As a result, carriers that would feel more comfortable insuring each seat on a plane for perhaps $1 million are now having to settle for coverage as low as $300,000 per seat, the minimum required by law for some commercial carriers.

Without enough insurance, air companies worry their planes and other assets could be lost in court if they have an accident.

''We've got to stop having accidents. That's the simple solution,'' said Peter Kelley, a Fairbanks insurance broker who links air carriers with aviation insurers.

At the end of 1999, the state's crash rate remained three to four times higher than the other 49 states. Alaska had 45 crashes and 17 deaths in 1999, according to federal air-safety officials. The year before saw 51 crashes with 15 deaths. Several more fatal crashes have occurred this year.

Some insurance companies are no longer willing to take on an airline's entire insurance needs, Kelley said. That means airlines must cobble coverage from several companies.

Air companies officials say they wish insurers would blend Alaska with other states where claims don't eat up so much of the premiums. But more and more insurers keep Alaska as a separate book of business, Kelley said.

O'Neill said when he went to renew his insurance policy this year, his insurer, United States Aircraft Insurance Group in New York City, would take on only 25 percent of the coverage. His insurance broker had to spread the rest among half a dozen other companies at much higher cost.

What hurts him most is that his company has ''a perfect record'' yet his rates went up.

''What we're looking at is roughly $10,000 a week going to insurance, and that's a major chunk of our business,'' he said. He suggested air companies and even the state might need to contribute money to an insurance risk pool that could offer reasonably priced insurance coverage.

Bush travelers could pay more or find no transportation at all because of rising insurance, Hajdukovich said. Frontier is the largest locally based airline in Fairbanks.

Jim Cooling, a Kansas City, Mo., attorney and president of the Aviation Insurance Association, said Alaska is at the extreme end of a nationwide trend.

''Other people in the Lower 48 are experiencing the same issues as people in Alaska,'' he said. ''The underwriting insurance market has been in a down, down, down mode for years and years in terms of making money. Now they're trying to get the rates back up so they can make some money, and it's going to be a blood bath for lots of people, including people in Alaska.''

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