SBJ/February 28 - March 5, 2000/No Topic Name

Big event crowds call for big coverage

Putting tens of thousands of people in a venue to watch a sporting event means only one thing to insurers: risk. And risk means a possibility for disaster, which is why event insurance coverage is one of the sports industry's biggest concerns — and one of its biggest expenses.

Without it, leagues, teams, facilities and sponsors face exposure ranging from a canceled event to tragedy. Consider the potential liability incurred by last year's tragedy during an IRL race at Lowe's Motor Speedway, in which three fans were killed and eight others injured after debris from an accident flew over a 15-foot-high fence and into the crowd.

Laurie Wilks, general counsel for Speedway Motorsports Inc., the track's owner, said three lawsuits have been filed against SMI as a result of the accident. Wilks could not give details of SMI's insurance, which is handled by K&K Insurance, because of the pending litigation, but she said the company was fully defended by its coverage.

Most major racing facilities, according to industry experts, carry anywhere from $30 million to $50 million worth of event insurance at rates that can average $100,000 in premiums for $40 million in coverage.

"Insurance is a big portion of this business," said Tim Frost of Frost Motorsports LLC, an industry consulting firm. "You go to a racetrack owners' meeting and there are always a number of carriers there. Coverages are getting more comprehensive, and each track has to be rated every year."

While racetracks have obvious insurance risks, it takes a careful study by insurance experts to make sure all potentially disastrous risks are covered in other events, no matter how safe they may seem.

"You have to look at an event's risk of cancellation from more than just the weather, but from a number of other factors," said Mike Price, president of ESIX Entertainment and Sports, an Atlanta-based sports and entertainment insurance consultant that counts the Sanex WTA Tour and PGA Tour as clients. "Basically, you are looking at general liability that covers everything involved in running a tournament."

For example, ESIX consults on tennis' Ericsson Open in Key Biscayne, Fla. Coverages range from a weather cancellation to the potential closing of the Key Biscayne Bridge that would prevent fans from attending the event.

"What is so important is that each event has to be viewed individually," Price said. "The risks are all different even though there may be a common denominator."

Coverages are not always included as part of a general liability policy. In a golf tournament, for example, the host country club would carry a general liability policy, but the tournament would be covered under a special events policy that releases the club from any risk accompanying the tournament.

And a golf tournament is fraught with risk, especially to insurance consultants like Price, whose job is to think of every possible disaster that could strike an event.

"You've got people walking all over the course, you've got the risk of food poisoning, transportation issues, especially if there is a shuttle service to parking lots, and there is auto insurance coverage for the players' courtesy cars," Price said.

With such a multitude of risks, it's no wonder that insurance is a major cost factor in planning an event.

"It's a big-ticket item," Price said. "It's not unusual to see the insurance piece of an event be somewhere around 10 percent of the bottom-line expense."

What the insurance carriers want to see is adequate protection from potential hazards, such as proper spectator fencing at racetracks and adequate security in the grandstands.

"The key is underwriting the risk," Price said. "Most companies are very lukewarm until they understand the risk involved."

From a team owner's perspective, event insurance must cover more than just lost ticket sales and spectator liability. It must cover the potential loss of revenue from luxury and club suites, concessions and merchandise. Then there is business and television interruption coverage and workers' compensation coverage.

Each coverage is different, depending on several variables.

"The cost depends on the size of the facility and the number of events," Price said. "Sports that have fan access like golf are more expensive than, say, the NFL, where there is limited fan access and less exposure."

Typically, insurance brokers will turn to the reinsurance market to spread the risk of the event. Insurance companies write the policy but then syndicate the risk to reinsurance companies to lessen their risk.

"The carriers are hedging their bets," said John Rand, chief executive officer of the Rand Insurance Group, which specializes in sporting events.

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