Sports Insurance Is Part of the Game

Whether it’s to help land a star player or open up salary-cap flexibility, specialized insurance policies can do more than just cover a loss – they can also affect your favorite team’s roster.

In big-money team sports, risk and liability are part of the game.

Players and organizations alike seek insurance coverage that can protect them against major loss, and strategic use of policies is becoming a game-changer. Argo looks to underwrite risk throughout the world on both an individual and an organizational basis.

“We can insure everything from jockeys to premiership footballers, to baseball and basketball players in the U.S.,” said John Moffatt, head of specialty at ArgoGlobal.

Professionals generally insure themselves against loss of future income due to injuries, while organizations seek to insure players either for their asset value or for wage protection when injured.

“We don’t like unusual sports, like kiteboarding, as much,” Moffatt joked, explaining that the more popular sports had larger pools of wealth from which to draw.

Pre-existing conditions are excluded from coverage, as are body parts that put the athlete at higher risk of injury due to recurring injury, position or playing style.

“If they’ve had significant injuries and keep having recurring problems, or are not fully fit at the time of underwriting, (insurers) may exclude certain body parts,” Moffatt said. Sometimes a player will be denied outright; and other times, they may be offered to extend their coverage to previously excluded body parts at a higher premium, known as exclusion buy basis.”

Take a look at three ways in which specialty insurance can affect your favorite team.

Loss-of-value policies are an NCAA recruiting tool.

The NCAA already requires that all student-athletes have health insurance in case of injuries, and enrolls every athlete in an additional catastrophic injury plan that kicks in when medical costs exceed $90,000.

Loss-of-value policies go a step further – insuring athletes against loss incurred in the event of injury or illness that significantly drops their pro-draft stock. These policies typically cover 50 to 60 percent of the athlete’s projected rookie deal.

In 2015, University of Oregon cornerback Ifo Ekpre-Olomu became the first NCAA football player to benefit from a loss-of-value contract. Anticipated to be a first-round NFL draft pick, Ekpre-Olomu collected roughly $3 million because he dropped to a sixth-round prospect after tearing his ACL and dislocating his knee during his senior season. If he fails to play in the NFL, he stands to collect another $2 million.

The NCAA permits universities to pay for loss-of-value policies using student assistance funds and, in 2014, began allowing student-athletes to borrow against future earnings to pay for their premiums. Universities are now beginning to cover student-athletes’ insurance premiums.

Moffatt prefers not to write loss-of-value policies, citing the difficulty of insuring an athlete who has not yet turned pro.

“I don’t like (loss-of-value) coverage at all,” Moffatt said. “You’ve got to have an established value in the first instance. You don’t know if (student-athletes) are going to get to their true value anyway. Any future earnings are all up in the air and the true value is subjective.”

This is why the NCAA recommends that only athletes who expect to be among the top 10 players in their respective drafts purchase loss-of-value coverage. However, with universities willing to pay student-athletes’ premiums as a means of recruiting talent or retaining players for their final years of eligibility, more student-athletes seek loss-of-value policies.

Insurance affects roster construction.

Contract insurance makes a clear difference on a team’s roster management when expensive players have to leave the sport earlier than anticipated. On some occasions, these insurance-related issues can lead directly to player movement.

When NHL player Nathan Horton’s career ended due to a back injury in 2013, the Columbus Blue Jackets still owed him $26 million – over 10 percent of the team’s $200 million value. For a budget team, paying that much to a non-roster player was out of the financial question.

Enter David Clarkson, who was just one year into a similar seven-year deal signed the previous summer with the Toronto Maple Leafs. Clarkson was underperforming relative to his compensation.

One of the most profitable teams in the NHL, the Maple Leafs could afford to pay millions to a non-roster player such as Horton. Although Clarkson was expensive, he was medically cleared to play – and his contract was insured, unlike Horton’s.

So the franchises made the trade. Clarkson played only 26 games in Columbus before he suffered his own career-ending injury, but the insurance policy on his contract saved the Blue Jackets millions.

Insuring contracts balances the budget.

Trading Horton’s contract saved the Blue Jackets millions, freeing up the money they needed to retain talent and bring in new players. This is an example of why organizations typically seek specialty coverage – to ensure that paying large sums to non-roster players doesn’t prevent the team from being competitive or profitable.

Such large amounts can have profound influence on front-office decisions to re-sign players or offer contracts to free agents – decisions that can affect a franchise’s record, reputation and even fan base.

Now when the next recruiting or free-agency window comes around, you’ll know the importance of having a top-notch broker.

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