Sport and insurance

Television has projected sport into the money cycle ever since it became its major funding player. Thanks to its promotion through media which made of it a real-time show, the success of international sport events has led to a considerable rise in the type of athletic practices and in the number of athletes.

Its growing financial impact and the values that are attached to sport make it stand as a great potential interest for the authorities and institutions of all countries.

Sport and insurance: diversity in types of practices and coverage

The practice of any sport creates risks. These risks are covered by ordinary insurance policies for the amateurs and specific guarantees for the professionals.

The insurance scheme depends on the manner in which the sport is practiced: as an amateur or as a professional, on an individual basis within a club, with or without a license, or taking part in competitions.

The risks to which an athlete may be exposed are of two kinds: damages caused to a third party and those endured by himself or herself.

• As far as damages caused to a third party are concerned, amateurs can be covered by a third party liability policy.
• •To cover their own damages, they may underwrite policies of the “individual accident” type. In this case, the guarantees offered will relate to medical and surgical fees as well as to fixed benefits in case of temporary incapacity, invalidity or death.

The practice of some sports justifies the need for an extended assistance guarantee, if need be, to research fees (sea and mountain) to cover mainly repatriation in case of illness or injury.

In theory, athletic federations are required to underwrite a contract that guarantees their third party liability and that of their affiliates, and to inform their members of the benefit of underwriting a contract covering physical injury and to put at their disposal several guarantee schemes that may be underwritten on a complementary or full-term basis.

Sport and insurance: the global athletic events

Show-sport is a business whose important financial revenues and stakes shape the coverage and the tariffs of insurance policies.

Big athletic events (Olympic Games, world championships, tennis tournaments, ...) sustain cancellation risks of such value that can, in its majority, only be borne by reinsurers, with insurance firms withholding only a small portion.

Sport and insurance: cancellation risk coverage

Athens 2004 ©Alterego (modified picture), CC BY-SA 3.0

The 2004 Athens Olympic Games: Because of the risk of terrorist attacks, a security apparatus was set up for the Athens Olympics with an unparalleled scale in the history of the games. For the Olympic International Committee, the necessity to build financial reserves to protect the institution justified the setting up of a policy insuring the coverage of cancellation (all causes included) for the amount of 750 million USD, that is, half the event's expected revenues.

Being the first summer games to happen following the September 11, 2001 attacks, the 28th 2004 Athens Olympics marked a turning point in the history of the Olympic movement, as cancellation guarantee will, henceforth, be underwritten for the following winter and summer Olympic editions: Turin 2006, Beijing 2008, and Vancouver 2010.

However, for the 2004 football Euro 2004 in Portugal, the European Football Federation did not underwrite cancellation insurance; organizers certainly estimated that the risk was not sufficiently high. In the eyes of Global Events insurers, the Euro event stands as a “small” competition.

Other risks: apart from cancellation, the other risks pertain to financial loss coverage, liability, protection of individuals (organizers, athletes, and spectators), car fleet, personal property and immovable estate goods, diverse associated queries emanating from sponsors, guests or event's promoters. Much more than attacks, it is the crowd's movement that is mostly feared by the organizers.

Terrorist attack or act of war risks are excluded from the guarantees and are entrusted to the charge of the states. For the 2010 football world cup, FIFA could require from the South African organizing committee a liability guarantee that amounts to about 260 million USD. The global premium at the charge of the organizing committee, all risks included, should amount to 13 million USD.

Sport and insurance: risk management

Beyond the classic guarantees, the organization and the proceedings of these mega shows require rigor and the synchronization of multiple players. In this respect, the task of risk management becomes essential. It shall ensure the good proceeding of the competition in time and place, and by respecting the forecasted budget. Risk management aims at eradicating hazards or their transfer to the insurer

Risk management means

• To intervene upstream of the event, well ahead of the attribution of its organization to the elected country, through the supply of counseling and brokerage for the different candidates.
• To elaborate simulations identifying risks and catastrophes
• To work out hazard-processing plans and a policy for risk management
• To assess the amount to be insured
• To elaborate policies and place them with insurance companies.

Some brokerage firms have developed a genuine know-how that enables them to manage this type of events. With an experience of ten Olympic Games editions in its tank, Marsh&Mac Lennan is comfortably positioned on this lucrative window.

Professional sport and insurance: an attractive market

Tiger Woods

Having picked up on efficiency thanks to the clarifications of the players' status and to the consolidation of the clubs legal structures, professional sport has become an attractive market for insurance with a diversified and growing demand for covers. After having triggered an influx of numerous actors at the end of the 1990s, the market, which has been reshaped ever since, is now characterized by a fierce competition among operators with sharper profiles and increased functions.

In France, for instance, where rugby accounts for 250 000 permit-holders, the growing number of claims made by players victim of disabling injuries, has led the authorities to underwrite new insurance schemes offering coverage increase and compensations, doubling the premium from 10 to 20 million euros (13 to 26 million USD). Acting at the level of risk prevention, the insurers managed to have the federation adopt measures aiming at reducing the number and seriousness of accidents by accommodating participation terms to competition as well as on the rules themselves of the game.

In the United States golf tournaments are the biggest generators of business to insurances. Varying according to each match, premiums are calculated in relation to several criteria: the value of the prize awarded, the number of participants, the length of each player's shot, and the course features.

Being the number one sport across the Atlantic, baseball represents a market in which considerable sums of money are at stake. The exorbitant salaries of the big stars and the amounts of their compensations in case of injury constitute a serious threat to the finances of major teams, and to insurers who had to limit to five years the duration of star players' policies.

To ensure the good proceeding of competitions, organizers may have recourse to special complementary insurances «good weather». Good Weather Insurance Agency, based in Massachusetts, has specialized in the market of open-air events, and proposes the coverage of bad weather risk thanks courtesy of policies underwritten with Royal & Sun Alliance. The calculation of these premiums is complex. It is determined by the localization of the event, the date, the time, the type of risk and the amount to be covered.

Professional sport and insurance: athletes under high protection

Lance Armstrong, Gruene Tour 2008 © Daniel Norton, CC BY-SA 3.0

Their performances and their value being conditioned by their form and their physical integrity, athletes incur specific risks that require tailor-made policies. The guarantees pertain to personal accident insurance, the permit loss, death benefit, disabling incapacity, insurance against the risk of club relegation or the loss of profession.

Relying on proximity and the knowledge of the professional environment, former athletes, who converted to insurance, are designing products that are adapted to the players' needs, namely in the football sector where the top coverage for a player in France was set at 29 million USD, in 2002. But big names are picked up through «key man» type of contracts by firms which propose prospective strategies and consultancy services in the field of training and placement.

An exemplary case among all is that of Zineddine Zidane, who was, in 2002, the most dearly insured football player for a value of about 98 million USD, whereas the average value of 23 French football players, present at the 2002 world cup, amounted to 13 million USD.

Clubs, on the other hand, seek to get insured against financial losses incurred by the payment of the players' daily benefits or victory bonuses.

Insurance and amateur sport market

Most of athletic insurance turnover is achieved with amateur sport. In the United States, where a genuine heritage of sport tradition exists, the growing number of permit-holders provides inexhaustible material for the sector business. Among the multitude of offers, AIG launched, in 2004, AIG Sport Risk Solutions, an insurance scheme combining various products covering a wide range of risks related to amateur athletic practice. The scheme sets the limits of the liability to 1 million USD for players and to 5 million USD for managers and supervisory staff.

In Europe, as well, amateur sport stands as a rewarding segment for insurances that manage the portfolio of attracted federations. With average premiums of 4 USD per permit, the French market is reporting a turnover of 130 million USD in premiums per year. 8000 annual lossess are reported per branch of 1 million permit-holders.