More and more companies are going head-to-head for a share of the booming sports and events sector. But as Ben Cook reports, industry experts are sounding warning bells for underwriters: keep your eye on the ball or you’ll be out for the count

While Manchester United, Arsenal, Chelsea and Liverpool battle it out at the top of the Premier League, the sports insurance market is experiencing equally fierce competition.

The sports accident and disability sector has expanded as insurers, attracted by the increasingly large premiums paid by Premiership football clubs, join the market – and push down premiums. Similarly, the events market is attracting insurers anxious to cash in on major occasions like the 2012 Olympics, which will involve billions of pounds of cover being placed.

But although there may be plenty of opportunities, experts warn that there is the potential for big losses if insurers fail to maintain underwriting discipline.

Tim Prifti, accident and health underwriter at Kiln, says that a steady increase in capacity has meant that rates have been softening for some time. “There has been a general drift up in limits on underwriting capacity,” he says. “The UK market already has softening rates – they’ve been soft for two or three years.” He highlights Paris Re as one of the companies that has been particularly “aggressive” in the battle for new business.

So why are insurers being drawn to the accident and disability market? “Players’ contract value is increasing – clubs are looking to buy higher sums for permanent disability,” says Prifti, adding that the amount of temporary total disability cover – which effectively covers players’ wages – is also growing as players’ salaries escalate.

It is estimated that the Premier League accident/disability market is worth £30-£40m in premiums. However, some underwriters choose not to write cover for UK teams because the market has been so competitively priced, says Prifti.

Amateur focus

Philip Hall, sports disability underwriter at HCC Specialty Underwriters, says that recent entrants to the market are focusing on amateur, rather than professional, sport.

&#8220Although there may be plenty of opportunities, experts warn that there are also potentially big losses


“The new capacity coming in is more wary of professional sport as the potential for large exposure is much greater,” he says. “New capacity generally jumps in with both feet on the amateur side.”

Hall says there has been a gradual increase in the number of insurers which provide disability cover. “There has been a small influx of capacity – one or two players in the past 24 months.”

He adds that most of the new entrants are offering permanent total disability (PTD) cover, rather than temporary total disability (TTD) insurance. While TTD covers players’ wages, PTD insurance pays out in cases where the injured man or woman is unable to play sport again. “On the PTD side you see capacity coming in, but very few are stupid enough to do the ‘ temporary total disability,” he says.

It can be difficult to predict what losses an insurer will suffer in the TTD market, says Hall. Losses depend on when players get injured and how much they are earning – for example, one player at one of the “big four” Premiership clubs may be on £135,000 a week, while one of his team-mates may get £55,000. “Loss experience can be peak and trough,” Hall says. Consequently, new entrants initially may steer clear of any losses. “They may go a year or two without getting caught.”

Hall says that the influx of capacity means that rates have fallen five per cent over the past 12 to 18 months. But he sounds a note of caution. “People writing at the bottom end of rates could get into trouble.”

Falling rates

Some rates have fallen fairly dramatically in the fiercely competitive sports events market. According to Mike Patchett, managing director of SLE Worldwide, events cover has proved attractive to underwriters not traditionally associated with the market. “We’re still trying to grow but we’re in the final throes of a soft market – there’s no shortage of willing insurers,” he says.

So who has been at the forefront of the battle for market share? Patchett flags up the traditional composites, as well as newer entrants such as Brit, Amlin and Tokyo Marine. This increased competition, he says, means that some rates have fallen by 20%.

&#8220Losses depend on when the players get injured and how much they are earning. Some Premiership players may be on £135,000 a week

Philip Hall, HCC Specialty Underwriters

He has a warning for sports events underwriters who, he argues, have become sloppy. “There has been a distinct lack of underwriting discipline – if it continues, it could lead to this business becoming less profitable.”

Though Patchett declines to name SLE Worldwide’s clients, he says the key to their strategy is good risk selection.

David Bruce, head of specialty at Hiscox Syndicate 33 at Lloyd’s, says that events insurance can be highly profitable but only if insurers have enough underwriting expertise. “It’s the sort of class where, if you can underwrite, you can make money, but if you lob capacity at it you will lose a fortune,” he says.

Bruce also argues that underwriting discipline is the key. “We have a price that we won’t go below.” He says that while Hiscox may not offer the cheapest rates, it does offer claims settlements that do not involve legal disputes.

The events insurance market holds a great deal of allure for underwriters at present, not least because an estimated £2bn of ‘

cover will be bought for the 2012 Olympics in London. Though some will have already been purchased, insurers are still fighting over a significant amount of potential premium income. “Some of it [the cover] has been placed, some of is being placed, and some of it has yet to be placed,” says Bruce.

Increased competition

John Wade, operations director at Perkins Slade, says that some classes of sports business have seen a “dramatic fall” in rates. “More capacity is having an impact, it’s more competitive and there has been a significant difference [in rates] in some areas,” he says.

&#8220A number of insurers coming in and cutting rates are trying to attract critical mass. I don’t know how profitable that is

John Wade, Perkins Slade

Perkins Slade’s expertise is amateur sport; the Central Council for Physical Recreation (CCPR), which is described as “the national alliance of governing and representative bodies of sport and recreation”, is one of its major clients. “The margins become tight, but it’s still a good business to be in, “ says Wade. “You will see some pressure if you’re in the right areas, like we are.”

He acknowledges that softening rates will damage profit margins. “Inevitably, it will have some impact on profitability, but we’re widening our revenue base so it remains profitable for us,” he says. “A number [of insurers] coming in and cutting rates are trying to attract critical mass – but I don’t know how profitable that is in the long term.”

Chris Rackliffe, head of contingency underwriting at Beazley, says that there has been more competition in the sports personal accident market than in the events market. But the events market still has experienced a softening in rates. “The existing market has increased capacity, but the reduction in rating differs from event to event – the contingency market is going through some reductions,” he says.

However, rates in some areas have increased after the bad weather last summer resulted in a number of major sporting events being postponed. “The summer of 2007 was a disaster for sport – tennis and cricket especially; 25% of matches in the Twenty20 Cup were washed out,” he says.

Consequently, insurers have hiked up rates to try to claw back some of their losses. “Some rates have increased by 10 to 15% – horseracing in some cases has gone up,” he says.

But there has also been an influx of new blood in the past four years into the events market. “There is more people writing event insurance, and more competition means rates are tending to go down,” says Brian Kirsch, managing director of broker Event Assured.

However, he says that the market is changing with new types of insurance – such as the cover for athletes who may be unable to compete in a UK event, because a terrorist attack means that they cannot get into the country. Such a scenario could mean the event “no longer becomes viable”, he says.

Sports insurance: facts and figures

• The size of the market for sports insurance is difficult to quantify but, as a guide, it is estimated that £2bn worth of cover will be purchased for the 2012 Olympic Games in London. Examples of the range of insurance that will be put in place include cover for the host nation relating to the opening and closing ceremonies, as well as cover bought by TV stations to guard against the non-appearance of athletes from their respective nations. Other examples include manufacturers of “London 2012” merchandise buying cover to guard against the games being postponed until 2013, for example

• The market for accident/disability cover for Premiership footballers is estimated to be worth £30m-£40m in premiums
• Leading sports insurers include: Allianz, Amlin, Beazley, Brit, Hanover, HCC Specialty Underwriters, Hiscox, Kiln, NU, Paris Re, Royal & SunAlliance, QBE, St Paul Travellers, Tokyo Marine, Towergate, Zurich

• Leading sports brokers include: Aon, Lockton, Marsh, Perkins Slade, SBJ, SLE Worldwide