The Advisor- Now AIRCO Advisor

Inflatable Industry News You Can Use!

Welcome to the first issue of the Hullaballoo (now AIRCO) Advisor, the newsletter for people in the inflatable amusement rental business. If you do not wish to recieve this monthly newsletter, please click the unsubscribe link at the bottom of the e-mail and you'll be removed from our mailing list.

In this issue, we are discussing the insurance crisis currently facing our industry. How did it happen? Why is is happening? What's the future for obtaining insurance? Read on for different points of view from several insurance reprentatives.

Hullaballoo Moonwalk Directory Accepting Listings!

Listings are $10 a month or $100 a year if you link back to the directory, $15 a month or $150 a year if you prefer not to link to us. Resellers and manufacturers with rental businesses can be listed for $25 a month or $250 a year.

Add your listing to the new International Moonwalk Directory now- the old directory will be removed as of Aug.1!

Companies who have purchased moonwalks from us in 2003-2004 receive a free listing- please e-mail us for details on adding your listing.

What Are People Saying About the Directory?

Inflatable Insurance Insanity

By Scottie Claiborne ©2004

Once upon a time, you had a choice of insurers- you could call around, check rates and coverages, and take your pick. Suddenly, we are begging insurers to write a policy for us at almost any cost... what happened?

The Internet and the Inflatable Industry

Supply and Demand

A standard 15'x15' moonwalk that would have cost you on average, $3200 in early 2001, now runs about $1700 from the same company in 2004, a 47% decrease. Competition from startup, import and bargain moonwalk manufacturers eroded the prices across the board and to stay in business, manufacturers had to adjust prices or shut down. Since the demand just kept building as more and more people rented and decided to buy moonwalks, the big manufacturers could still make their profits by selling more at reduced prices.

A moonwalk business was an inexpensive investment at under $10,000 for equipment and necessities in 2001 and today, it's even more affordable with the almost disposable prices for inflatable equipment. A new piece of equipment can pay for itself even in a low-rental-fee area in about 12-17 rentals.

The Impact on the Insurance Market

It's All About Risk

Sandy Greaves of Cossio Insurance explains that insurance underwriters need to balance high risk policies like moonwalk businesses with lower risk policies such as auto and homeowner's insurance. With so few underwriters accepting moonwalk insurance, the ratio became too high; the percentage of high risk policies to low risk policies got out of control and that's when they stopped writing insurance policies for moonwalk companies.

According to Sandy, it's not the fair operators that are to blame, and it's not the backyard party operators. It's really no ones's fault. The income to loss ratio was out of kilter. "The market is saturated beyond belief because of the number of new businesses starting up in the past 2 years," said Sandy.

Even When You Win, You Lose

Jay Mergens of California Insurance sees the main reason inflatable carriers are getting out of the businesss is the amount of losses compared to premiums. Most policies are under $10,000; a single claim can produce a net liability. Even if no money is paid on the claim, the insurance company may have to spend $4,000-$10,000 on legal fees. The fees for processing the claim, even if never paid out, can exceed the annual premium.

Carriers have taken a closer look at the risk and possible payouts. Potential claims stay on the books for years- in some cases until a child turns 18. The money to pay future claims and complications has to be set aside as a liability, even if it's never paid out.

Interactive Games Face Higher Premiums

Scott DeSousa of the Friedman Group says history shows insurance companies can't make money at the rates they've been charging when they cover every type of inflatable. Larger interactive policies are going to very pricey- expect minimum premiums in the $20,000-$25,000 range. Interactives are going to be out of the reach of the backyard operators- only the serious operators with the money to afford the insurance will be able to operate them.

Why? Interactive games are where the large losses occur. Older kids or adults are the participants, and more serious injuries occur with longer recovery times and more medical expenses. Kids typically get bumps and bruises and broken arms and chipped teeth; adults end up with ruptured disks, back and head injuries and have families depending on them for income.

Scott expects we'll see insurance policies differentiating between operators and the type of equipment they offer. His company currently only writes for specific types of equipment because of the lowered risk. He applauds the response of many manufacturers; in a short period of time, we've seen many new safety features introduced.

The Market Cycles

Rob Winter, president of Golden State West Insurance Services, explains that we are seeing a market shift for insurance in general. A "soft" market or buyers' market occurs when insurance company profits are rising, so they lower their premiums to obtain more market share. Underwriters look at risks optimistically and are more willing to offer lower premiums.

The 1990's was a soft market. As far as the market goes, 10 years is a long time for a soft market. The stock market was a bull market and this allowed insurance companies to see greater profits even with lower premiums.

Conversely, a "hard" market occurs when the insurance company goes from realizing profits to real losses. Underwriters quickly become selective and prices increase and some companies have difficulty in obtaining insurance at any price. With lower profits, insurance companies have difficulty in obtaining investments and have less capital, and by law are able to write less coverage. This means they have met their capacity and can result in an even "harder" market.

The "hard" market cycle started in the summer of 2001 before Sept 11 and became even harder after that, due to the large amount of losses incurred by major underwriters. We are still in a hard market, but there have been signs of softening over the past several months, and clearly the cycle is starting to change (although it is debatable how long it will take to go from "hard" to "tight" to "soft" again).

The market changes aren't in response to any particular claims or and specific sector or type of company. Rob points out that their own insurance agency's professional liability doubled, their deductible doubled, and they had no claims.

The Cost of Doing Business

All the insurance providers interviewed feel the market will open back up for basic bouncers. Better safety and standards will certainly help and are encouraged, but really don't influence the high-risk rating of this type of company.

Scott De Sousa points out that insurance companies make predictions and determine risk based on historical data, and the surge in the industry growth means that it may be a few years before the major underwriters feel comfortable writing more policies than they already carry, until they have more data to base their decisions upon.

The general feeling is that even bouncer-only policies will be going up to more "realistic" amounts; amounts that reflect the possibility of a claim and the costs involved in simply processing that claim. Interactive inflatables will be very difficult and very expensive to insure.

Safety won't get insurers to write policies again, but it will definitely influnce future risk factors and ratings for our industry.

Insurance for inflatables will become available again, but the price may be prohibitive to many companies. Your annual premium may very well be higher than the equipment purchase price. The industry is growing up; it's just the cost of doing business.

Top Threads at the AIRCO Forum

Do You Ever Get Calls For Rentals You Don't Want to Take?
Do some callers give you a bad feeling when calling to book a rental? Do you go ahead and make the reservation anyway, or do you make an excuse? Our members weigh in on the subject- come add your opinion!

A Trial Website
Have you ever added things to your website you don't actually own yet? How about a website for a business that doesn't exist yet? Some thoughts on whether or not this is a good idea- tell us what you think.