Claim Inflation Article

[Parker_Woodruff]

One of our underwriting companies sent this claim inflation article out today.  Note the inflation for a light aircraft prop strike and that the typical claim cost of prop strike on a Lycoming O-320 fitted to a training aircraft is $27,000.  This is probably a $30,000-$35,000 event on a 4-cylinder Mooney.

https://www.global-aero.com/navigating-claims-inflation-in-aviation-insurance-factors-driving-the-increase-in-repair-costs/?utm_source=email&utm_medium=blog&utm_campaign=september

 

[MikeOH]

Something smells rotten in the 40% increase for prop-strike inspection.

$27,000 for a C-172 seems absurd given that the inspection is nearly ALL labor cost.  Subtract out the cost of a new fixed pitch prop, $7K. There is no way you are telling me the mechanics have seen anywhere near the kind of wage increases that would justify a 40% increase in invoice cost!  At $150/hour shop rate that would be 130 hours of labor ($20K); that's over THREE weeks of full-time work!!  Doesn't pass the sniff test.

This appears more like a supply and demand situation; they charge more because they can, not due to actual cost increases.  I am not saying 'there should be a law', this is just business; my beef is I think the article is misleading by trying to attribute the increases to rational causes rather than simple supply/demand economics. 

[Paul Thomas]

The article says it's total cost is $27,000. I actually find that to be quite reasonable when you consider R&R, shipping, a new prop, and the engine IRAN.

Edited September 25, 2024 by Paul Thomas

[Parker_Woodruff]

44 minutes ago, MikeOH said:

Something smells rotten in the 40% increase for prop-strike inspection.

[...]

This appears more like a supply and demand situation; they charge more because they can, not due to actual cost increases.  I am not saying 'there should be a law', this is just business; my beef is I think the article is misleading by trying to attribute the increases to rational causes rather than simple supply/demand economics. 

The engine teardowns are a pretty penny these days.  I'm certain much of it is supply/demand, but parts costs are definitely up, too.

I'd heard teardowns in the $18s and I believe a week or two ago I heard over $20K - can't remember if it was a 4 or 6 cyl.  

[MikeOH]

40 minutes ago, Paul Thomas said:

The article says it's total cost is $27,000. I actually find that to be quite reasonable when you consider R&R, shipping, a new prop, and the engine IRAN.

I'll bite.  Break that down for me, please.  I'm still struggling mightily to justify that price tag!!  Let alone reasonable!

[Parker_Woodruff]

2 minutes ago, MikeOH said:

I'll bite.  Break that down for me, please.  I'm still struggling mightily to justify that price tag!!  Let alone reasonable!

Let's say $18,000 teardown, $5000 propeller, $3000 logistics costs/extra labor if it happened away from the home airport or where repairs would be made, $1000 general claim expenses.

[MikeOH]

8 minutes ago, Parker_Woodruff said:

The engine teardowns are a pretty penny these days.  I'm certain much of it is supply/demand, but parts costs are definitely up, too.

I'd heard teardowns in the $18s and I believe a week or two ago I heard over $20K - can't remember if it was a 4 or 6 cyl.  

@Parker_Woodruff

I guess I'm not appreciating the 'parts cost'.  Not counting the prop (which I accounted for) what parts are needed for a tear down inspection and reassembly?  Beyond a gasket set, I'm unsure.  I am assuming the majority of tear downs don't actually find any damage; maybe that assumption is way off and new cranks, rods, etc. are typically replaced.  THEN, I can see $27,000.

[MikeOH]

1 minute ago, Parker_Woodruff said:

Let's say $18,000 teardown, $5000 propeller, $3000 logistics costs/extra labor if it happened away from the home airport or where repairs would be made, $1000 general claim expenses.

Posting past each other...

But even $18,000 at $150/hour is THREE solid full-time weeks worth of labor!!  I just can't imagine it takes 120 hours to R&R a motor and perform a tear down.

[Paul Thomas]

A great friend of mine sues insurance companies for a living. Insurance companies work incredibly hard to bring down the cost of claims as much as they can. I don't doubt their data when it comes to their costs to do things. They'll overpay some, underpay others, but the averages seem to work out.

I'll take the $7,000 you gave for a new prop, $4,000 for R&R from the local shop (that's assuming nothing else got damaged on the airframe) and you'll have $16,000 left over to IRAN the engine. Local A&P don't typically do that work, those engines get sent out and those shops charge a premium for their services. Have you priced the cost of OH an engine lately? The numbers are just that high. 

[MikeOH]

5 minutes ago, Paul Thomas said:

A great friend of mine sues insurance companies for a living. Insurance companies work incredibly hard to bring down the cost of claims as much as they can. I don't doubt their data when it comes to their costs to do things. They'll overpay some, underpay others, but the averages seem to work out.

I'll take the $7,000 you gave for a new prop, $4,000 for R&R from the local shop (that's assuming nothing else got damaged on the airframe) and you'll have $16,000 left over to IRAN the engine. Local A&P don't typically do that work, those engines get sent out and those shops charge a premium for their services. Have you priced the cost of OH an engine lately? The numbers are just that high. 

Thanks for the response!

I liked Parker's $5,000 for the prop  But we can stick with my conservative $7,000...then we have your $4,000 for R&R is around 25 hours at $150/hour.  That still seems like a lot of time for an experienced shop/mechanic.  But, my only reference is R&R of auto engines as, admittedly, an amateur and I come in less than that, around 16 hours (two days, but not constant work).  Again, my experience is with automobiles, but engine tear down and reassembly at 2 and 1/2 weeks (106 hours @ $150/hour) seems pretty excessive.  What parts are being replaced (covered by insurance related to the prop strike)?

Look, I'm not arguing reality; I believe the insurance company numbers.  I just don't buy the reasons they're giving; look like excuses to me!  Admittedly, I can't fathom why the insurance industry would be covering up price gouging by shops, but it sure feels like it!

[Paul Thomas]

I thought you were high on the prop but I wasn't going to argue!

I think there is money to be made in the engine business given the current costs, but I don't have the expertise, the time, nor the funds to go out and open my own shop. Even if I did, I'd be worried about finding the right employees.

Given the lead time all these shops have, I think they could raise their rate and we'd still pay it... I know I'm going to need to do my engine and I talked to my AI about doing it instead of sending it out. I'll be able to work with him and learn a ton, know it's done right, and any delay will be attributed to how well I work with vendors. Hopefully, I'm a few years out before I need to do it.

[Joshua Blackh4t]

Something to factor in:

It used to be that mechanics/contractors charged for the time working on your job, now its more like an employee.

So there could be travel time, time spent booking the job in, office time ordering parts, checking the parts arrived, finding out they didn't and finding out why, then the time to do the job which includes the new guy who takes long lunches and uses the bathroom for half an hour twice a day. Meanwhile the apprentice has injured himself  through plain stupidity and no one can find the band aids, the blood needs to be cleaned up and all the time the phone is ringing with people wondering when their job will be finished.

AND then the paperwork.

 

And and..... then you need to cover your costs that one in every 20 clients might refuse to pay and there is not much you can do about it. Trust me, you are paying for other people's work because its easier just to cover the loss than to try to sue someone for $10k when they have all the time to make a case and the law is on the side of the poor consumer.

 

[MikeOH]

5 hours ago, Joshua Blackh4t said:

Something to factor in:

It used to be that mechanics/contractors charged for the time working on your job, now its more like an employee.

So there could be travel time, time spent booking the job in, office time ordering parts, checking the parts arrived, finding out they didn't and finding out why, then the time to do the job which includes the new guy who takes long lunches and uses the bathroom for half an hour twice a day. Meanwhile the apprentice has injured himself  through plain stupidity and no one can find the band aids, the blood needs to be cleaned up and all the time the phone is ringing with people wondering when their job will be finished.

AND then the paperwork.

 

And and..... then you need to cover your costs that one in every 20 clients might refuse to pay and there is not much you can do about it. Trust me, you are paying for other people's work because its easier just to cover the loss than to try to sue someone for $10k when they have all the time to make a case and the law is on the side of the poor consumer.

 

All of those have always been 'factors'.  The issue is the staggering increase in cost over a short period of time.

[Joshua Blackh4t]

6 hours ago, MikeOH said:

All of those have always been 'factors'.  The issue is the staggering increase in cost over a short period of time.

My experience is in a slightly different industry, in a slightly different country, but from what I have heard it holds true.

Sure these factors have always been there but what I'm saying is that tradespeople/professionals tended to wear the downtime, now they pass it on.

And it really does make a huge difference. Also adding on a fee for 'consumeables' at every step of the way.

And yet, no one is keen to fill the labour shortage. It only means minimum 4 years apprenticeship, getting covered in dirt and chemicals, hearing damage, possible injury and worn out physically before retirement age. And then you look forward to being highly in demand and customers begging you not to take a holiday because they need things. No wonder we have stopped caring about how many hours we can fit onto a bill.

Sorry, got carried away there

[MikeOH]

@Joshua Blackh4t

Thanks for a different perspective.  Maybe COVID and recent rampant inflation have served to bring wages up to where they should have been.  I'm a believer in supply/demand capitalism, so the fact that customers are clamoring to get work done and paying the price means things are working as they should.  I just don't like being on the paying end of the deal, I guess!

[Pinecone]

Except that money to pay those wages has to come from somewhere, so costs go up on everything.

[Schllc]

On 9/25/2024 at 3:00 PM, MikeOH said:

Posting past each other...

But even $18,000 at $150/hour is THREE solid full-time weeks worth of labor!!  I just can't imagine it takes 120 hours to R&R a motor and perform a tear down.

It’s a captive market for sure, which undoubtedly affects at a minimum the averages, liability, training and overhead can be punishing at an airport.
At my home field a hangar big enough for a decent sized service business would be $8,000,000+++. The land lease could be as much as a million on top, which has to be paid in full at close. A 20,000 sqft metal building would cost close to 100k for insurance.  The average home here is north of 500k.  Now put business liability insurance, training, works comp, health insurance…. Haven’t even gotten to parts yet, and those things are insanely priced as well. 

[MikeOH]

17 minutes ago, Schllc said:

It’s a captive market for sure, which undoubtedly affects at a minimum the averages, liability, training and overhead can be punishing at an airport.
At my home field a hangar big enough for a decent sized service business would be $8,000,000+++. The land lease could be as much as a million on top, which has to be paid in full at close. A 20,000 sqft metal building would cost close to 100k for insurance.  The average home here is north of 500k.  Now put business liability insurance, training, works comp, health insurance…. Haven’t even gotten to parts yet, and those things are insanely priced as well. 

@Schllc

No argument with any of that.  But all of that should be 'baked into' the shop rate.  My beef is that the hours seem inflated to drive up the total cost.  IF all of that overhead is not in the shop rate, then they should adjust the shop rate.

[Parker_Woodruff]

@MikeOH there's definitely the economics at play that you're postulating.

For awhile, it seemed that shops, in general, were throwing out very high repair estimates.  If they got the deal, great for them.  If not, they had plenty of work anyway.

Some of the 6-figure gear ups really got my attention.

I don't think the repair market is as hot now, but it's still strong.

[Schllc]

3 hours ago, MikeOH said:

@Schllc

No argument with any of that.  But all of that should be 'baked into' the shop rate.  My beef is that the hours seem inflated to drive up the total cost.  IF all of that overhead is not in the shop rate, then they should adjust the shop rate.

Agree there too, that is where the captive market comes in. 
Some may consciously take advantage of it, but I believe the majority may just not be as well organized, but they don’t have to compete as much as other businesses and that affects the ethos in general. 
I mean your plane is in a thousand pieces on the floor and they say “it’ll take twice as long as we said, maybe”, what are your options?  Everyone else there is in the same boat. 

[UteM20F]

Thanks @Parker_Woodrufffor posting the article.  This conversation, in tandem with the difficulty of insuring aging pilots, and with already inflated renewals over the last several years, makes me closer and closer to self-insuring the hull, and just buying liability insurance.  It's a simple math exercise of risk vs. reward.

[Parker_Woodruff]

14 hours ago, UteM20F said:

Thanks @Parker_Woodrufffor posting the article.  This conversation, in tandem with the difficulty of insuring aging pilots, and with already inflated renewals over the last several years, makes me closer and closer to self-insuring the hull, and just buying liability insurance.  It's a simple math exercise of risk vs. reward.

I see you fly an M20F.  The vintage Mooneys have certainly taken noticeable increases over the past few years, though in the very recent past I've written a few modest premium reductions for F models and earlier.  The M20J has increased, too, but not as much.

The M20K seems immune from rate increases and models later to that have been flat or barely higher.

[A64Pilot]

Look up the AD, it requires a gear and bolt to be replaced, I can do that on some aircraft without removing the engine just the accy gearbox cover. That’s is what the FAA requires, maybe run out of the crank flange too, I don’t remember, point is the FAA does not require complete disassembly

However Lycoming has a MANDATORY SB that requires removal and complete disassembly of the engine and inspection using tools very few A&P’s will have, furthermore Lycoming has another MANDATORY SB that has a list of parts that must be replaced every time and engine undergoes extensive disassembly, and it’s a very extensive list.

These two SB’s are where the money is going, complied with and your pretty close to an overhaul, cylinders being the biggest expense from memory.

Neither SB is in truth mandatory, we know there is no such thing, but insurance companies due I’m sure due to fear of being sued. pony up for these SB’s but it’s not because the FAA requires it they don’t. Besides it’s unlikely an A&P will sign off the engine without the MANDATORY SB’s complied with knowing they would have no chance in court when the Lawyer shows the title page with MANDATORY in large type and colored red.

Lycoming is why the costs are so high.

NOTE, my data is years old, it may have changed, but I don’t think so.

Part 91 aircraft only of course

Edited October 5, 2024 by A64Pilot