The professional football market is going crazy this summer, with a series of astronomical transfer deals and wage demands that make the record signings set last year pale into insignificance.

All this has made jaw-dropping reading in the back pages of the press. But Joe Public's gawps will be nothing compared to those from insurers. In comic-book proportions, chins have been crashing to the floor because insurers face the prospect of losses that match these sky-high transfer deals if they get their sums wrong. And, if developments of the past few seasons are repeated, the likelihood is that they will.

“My gut feeling is that we have not been making money out of underwriting professional football for many years,” says one underwriter, who does not wish to be named. “And the bigger football gets commercially, the bigger the risks get.”

Professional football cover is a game of two halves: prize indemnity and personal accident. Both of these separate markets have made headlines of their own recently over contract disputes.

Firstly, in personal accident, Pierluigi Casiraghi, an Italian striker, is demanding his club, Chelsea, continues to pay him for the remaining two years of his contract, despite his broken leg.

Chelsea, meanwhile, has already accepted an insurance payout for more than £4m on the injured striker because it claims he will never play again. The arguments will centre on whether Casiraghi is permanently disabled or not.

Secondly, in prize indemnity, a number of Lloyd's syndicates, led by Goshawk, are involved in a legal wrangle with Spanish football giant Atlético Madrid after its relegation last season. The insurers do not want to pay out a £4m claim for the club's subsequent loss of revenues, because they say the club sold key players during the season, thus changing the risk-factor.

Whatever the outcome of these cases, the message is clear in the market. Football is a game for the professional underwriters.

“The days of the dabbler in the market are gone,” says Richard Higgs of SLE. “The sums insured are too big and too risky.”

For personal accident underwriters, two factors have combined to extenuate the risks. Last year, some big reinsurers, including UNUM and Cigna Re, pulled out of the market, thereby reducing capacity and the closure in the first case of the Lloyd's managing agent, Duncanson Holt. The result is that primary underwriters now have to take a much higher percentage of the risk on their own books.

“In the past, more than 95% of the risk would be reinsured, now it is down to 85%,” says Higgs.

But the risk exposed by this lack of reinsurance capacity has also been compounded by the huge extremes in the transfer market. Although all transfers have risen, the gap is widening from the top to the bottom. In effect, the total risk of insuring a football team has increased. Luis Figo's transfer fee of £38m to Real Madrid is more than the total cost of the English premiership team, Ipswich. But the risk of injury to Figo is probably slightly higher than an Ipswich player, depending on position, age, and fitness. “It only takes one bad tackle”, as the old adage goes and superstars tend to get man-marked.

Furthermore, the primary market is soft. David Bruce, divisional head of high net worth at Hiscox, believes clubs are paying a premium of 1% rather than 1.5% on the value of a typical player, and 2.5% for a top player.

One thing is sure – press speculation about transfer deals is just speculation and the same goes for insurance deals. For instance, Chelsea was rumoured to be taking out cover against not making the Champions League this season. “Absolute piffle,” says Alan Shaw, company director of Chelsea Village, “a journalist overheard a Barcelona director talking about his club's insurance during our game with them and got his wires crossed.” In the same vein, the intricacies of insurance deals remain a closely guarded secret.

However, it is well known that Italian and Spanish players and clubs have far more wide-ranging deals than their English counterparts. A whiplash injury, or just a crick in the neck, could result in a payout of 5% to 10% of the sum insured in Italy, but would not be included here. Notably, the recent big signings have all been by Italian and Spanish clubs.

Professional sports cover is high risk. Just recently, two basketball players in the US died, resulting in payouts of $5m (£3.1m) and $3m (£1.8m) respectively. Lloyd's had its fingers burnt in the 1980s when it stepped in to underwrite the US baseball market just as the professional players mounted a strike. There is nothing new about cover for football, it is just that stakes are higher.

“I expect insurance contracts will become as intricate and tight as football contracts,” says Higgs. “The times when an insurer took the odd risk so he could be photographed with his team or a star of the game no longer happen.”

Indeed, it now works the other way. James Howland Jackson of Lloyd's insurer Euclidean recently declined to take the risk of his beloved team being relegated, Ipswich, because he was too avid a fan.