Message-ID: <00c101c18757$2e5aed60$82cca443@roylok1.mi.home.com>
From: "Edmond de Chazal" <edechazal@home.com>
To: <lancair.list@olsusa.com>
References: <20011215054648.AAA3309@pop3.olsusa.com>
Subject: Re: Insurance Pool
Date: Mon, 17 Dec 2001 19:01:44 -0500
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IIP@hawaii.rr.com  wrote a couple of days ago:

> Dear Brian
>
> AMEN.   Your ideas are great and shows  "thinking outside the box" which is
> what we all need to be doing.
>
> Offshore insurance companies can be formed for minimal cost (see
> www.offshoremax.com)
>
> In terms of liability my attorney in Hong Kong suggests I form a Liberian
> bearer share company which in turn would own a Panama offshore trust.   The
> offshore trust would own a Nevada Corporation whose sole asset would be the
> plane.   Then another California Corporation would lease the plane from the
> AZ Company and would receive rental payment for its usage from me.
>
> The same multi layered structure could work for insurance as well.
>
> Keep thinking!!!
>
> Dave

Dave, I must say, I thought you were kidding.  You are right?  The knee bone
connected to the leg bone connected to the...  Good one!

Every year someone on the list comes up with the 'new' idea of setting up an
insurance pool.  Thoughts of perpetual motion and money machines, the fountain
of youth and sugar plumb fairies dance in our heads until someone takes the
punch bowl away.  It doesn't work.  David Jones said it right.  We crash our
planes too much.  We stop crashing, insurance will drop.

Brian, your idea is noble but unworkable.  Think it through.  First, who would
pay you an insurance premium if you make payout contingent on payouts not
being excessive?  No lending institution would allow your psudo insurance to
be placed on an aircraft for which they have a lien (those of us with airplane
notes.  The bank is the reason I don't go uncovered since I agree with Brent.
I can afford to lose the airplane, but I can't afford to settle up with the
bank.)  As a policy holder I would demand payout from the pool regardless if I
was the first to crash in the year or the last.

Second, your math won't hold up regarding the growth of your cash asset from
year to year.  You are not taking into account risk which is defined as the
uncertainty of the event multiplied by the payout if the event occurs.  You
need to evaluate the 'expected' outcome. While it is possible that there will
be no accidents and your cash pool will grow, it is not likely.  And you
cannot mandate it.  In reality, there will be, say, 2 accidents each costing,
say $250,000 in write-offs plus some liability costs, say, a couple of
million.  Could be far worse than this, could be far better, but this is the
'expected' outcome.  An average if you will.  From this 'expectation', you'll
set the annual premium schedule necessary to cover this expectation.  If your
pool is small, you need to set it substantially higher in case you have bad
luck and a third airplane crashes.  Put Mr. Gate's software to work and you'll
soon realize that your annual premiums have to be LARGE to cover the expected
annual payout.

I won't advise you to 'keep thinking!!!' on this 'cause I think it's a waste
of time.  Shop around, then pay the insurance professionals to do their job
like you pay your dentist to do his job.  Then go fly and be safe.  But, as my
vehicle dynamics prof used to say "If you do invent perpetual motion, call me
first. We'll have the final exam in the Caribbean!"

Best Regards,
Ed de Chazal

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