Ballooning Rates

Hot-air balloonists' insurance rates are sky-high, and yours will be next.

Though Tucson's mild weather makes the conditions here some of the best in the country for hot-air balloonists, the national climate is proving itself inhospitable.

Local commercial hot-air balloonists may be some of the hardest hit financially by the September 11 terrorist attacks because of loss in revenue from tourism and skyrocketing insurance costs. "Now is the busiest part of the season," said Mike Fleury, pilot and owner of Fleur de Tucson, providing balloon rides over the Santa Catalina Mountains. But Fleury estimates business is down 30 percent from 2001. Add to that an already steady rise in insurance costs before September 11 and the impending scope of the problem becomes more apparent. "Insurance was already going up before 9/11. ... It's been going up steadily for the last three years. ... I'm paying four times what I was since I started ballooning."

And insurance costs are expected to get worse, says Tom Reussé, president of Insurance Marketing Center (IMC) and a licensed commercial balloon pilot himself: "You're going to see commercial insurance buyers that might see their insurance premiums go up 50 to 100 percent in this coming year." Commercial hot-air balloonists "can look for significant increases in their insurance costs, a lessening in availability of insurance. Some won't be able to get insurance at all."

When can Tucson's commercial hot-air balloonists expect to feel the pinch of skyrocketing insurance rates? "Next time they get a renewal," says Reussé. "It may be tomorrow."

As of August 2001, Reussé said, there were three companies writing commercial balloon insurance: Eaton Park, General Star and IMC. Of these IMC is the largest, insuring roughly two-thirds of the balloons in the country. Then, said Reussé, Eaton Park "stopped all kinds of commercial balloon insurance all together." By September 1, IMC and General Star were the only two companies writing commercial balloon insurance. But "General Star has tightened up underwriting since 9/11. ... [So] you've lost one-third of the market that was writing balloon insurance for balloonists" since August of last year, said Reussé.

Employees of General Star National Insurance declined to comment on any insurance matters, but according to Reussé, the decrease in the availability of insurance for balloonists is a result of underwriting losses and investment losses from an under-performing stock market. Reussé says there was general underpricing on the part of the insurance industry over the last nine to 10 years. Initially the industry was able to underprice insurance because underwriting losses could be offset by investment gains. "Well, the last two years the stock market has gone down the toilet," said Reussé, "so that eliminated that chance for the insurance companies to recoup losses." This was "enough to cause a significant contraction of the availability of insurance in general, not just in ballooning."

Add the substantial claims that will eventually surface from 9/11 to these underwriting and investment losses, and the result is that all insurance buyers will see that less insurance is available at a higher price. "This is seeping up to be a significant crisis here in the insurance industry," said Reussé. "It will be felt by insurance buyers of all kinds, whether it's your homeowners or auto insurance or the guy down the street that builds office buildings. Everybody is going to see their insurance go up."

Since insurance companies like IMC insure a variety of activities, ranging from commercial buildings to life and flight insurance, they will be hit with substantial insurance claims that will inevitably reduce the number of companies providing insurance. With a decrease in the supply of insurance and an increase in the demand of insurance claims from 9/11, prices will go up. It may just be that commercial pilots, including commercial hot-air balloonists, feel the squeeze with particular severity.

And this is assuming there are no further terrorist attacks. "That could do some serious harm," said Fleury, who, like all small-aircraft pilots who depend on visual flight rules, was suspended from flight for approximately a month after September 11. Fleury, who is insured by IMC, secured his premium before 9/11 and says if he weren't flying commercially his current insurance rate "would be 25 percent of what I'm paying."

Fleury finds it encouraging that local business is strong, tourist business is "starting to pick up" and "the Gem Show is heavily booked at this point."

But, Reussé warns, it is too early for insurance rates to change. The effects of 9/11 will be more strongly felt throughout the insurance industry in this next year. "We haven't scratched the surface yet as far as what the insurance companies are actually aware of," he said. "But the claims that will eventually surface from 9/11 will be the biggest factor" in impending rise in insurance rates.

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