SBJ/September 17 - 23, 2001/Special Report

High-dollar sports coverage forces creativity

Given the dramatic rise of sports insurance premiums, nobody would like to see new types of affordable coverage more than team owners. Experts, though, can offer only tweaks to existing coverages to make the high cost of insurance easier to swallow.

In the past year, premiums on player disability insurance have doubled, causing teams to take a hard look at how much insurance they want to carry on a player's contract. Generally, teams will buy disability coverage for their highest-paid players, but as the coverage continues to get more pricey, teams are looking for ways to offset the costs. As a result, insurers are applying tried-and-true methods from such traditional coverages as car insurance to the specialized sports disability market.

For example, insurers are including the option of longer deductible periods to teams looking to buy player disability coverage. Teams also will choose to assume higher co-payments on player disability coverage.

"Instead of a 90-day deductible period, teams may choose to take a 180-day deductible," said Leigh Rossi, vice president for the BWD Group, which administers insurance programs for the NBA and NHL. "Generally, the longer the deductible, the further it puts the insurance company away from the risk, so it lowers the premiums."

Teams also are agreeing to shoulder a greater portion of the insurance, which reduces the premiums. Instead of a team buying coverage for 80 percent of a player's guaranteed contract, teams will buy 50 percent to 60 percent of coverage. Teams also will agree to self-insure the player's long-term contract for a specified time, or may opt simply to assume the risk for the entire value of the contract.

"Even if a team had $10 million in exposure, they are not going to buy $10 million of insurance," said Bill Hubbard, president of ASU International LLC, a sports insurer. "We are going to want the team to have something at stake. Typically, [the insurance] would be around 60 percent of what the limit is."

Insurers also are offering twists to life insurance products offered to athletes and teams. It's called critical asset protection and is coverage that falls between traditional life insurance and accidental death and dismemberment coverage.

For example, it covers an athlete in the case of death on a short-term coverage basis, typically one year at a time. There are, however, exclusions in the coverage like death from drug use. The coverage is used mainly when a team signs a free agent before the start of the season and wants protection until long-term coverage can be arranged.

"It is less burdensome than traditional life insurance and it is an in-between coverage," Rossi said. "Life insurance is the broadest and least expensive coverage, but teams can use the asset protection coverage until the life insurance is in place."

Unlike life insurance, the asset protection coverage does not require medical examinations or any other underwriting factors that determine coverage. That's why the coverage is 21¼2 times more expensive than regular coverage.

Teams also can insure themselves against the loss of guaranteed salaries with 90-day policies that serve as interim coverage until underwriting is completed on other life insurance or disability insurance. Should the player die or suffer a career-ending injury within the 90-day coverage period, teams will receive a lump sum payment against the value of the guaranteed contract up to $28 million, the maximum amount of coverage for this specific coverage.

"Baseball teams buy it when they sign a player in November and they want to carry protection on him before he reports to camp," said Glenn Dorr, vice president of The Hanleigh Cos. "It's strictly for the protection of the team."

Return to top
Video Powered By - Castfire CMS Powered By - Sitecore

Report a Bug