Andrew Cave explores the wealth of risks that brokers cover on the highly lucrative Formula One racing scene

Formula One (F1) and underwriters are not the most natural of co-drivers.

One is a highly risky sport involving expensive cars and multi-millionaire drivers hurtling around chicanes at mind-numbing speeds. The other likes to find ways of limiting risks.

Not surprisingly many underwriters, including some in the Lloyd's market, won't touch F1 with a chequered flag.

But where there's risk, there's potential reward. Covering fast cars is no exception and Lloyd's is by no means the only team on the starting grid.

"Lloyd's is perceived as the major market for personal accident motorsports cover but there are other companies that provide identical cover," says John Nelson of brokers RFIB.

The driving principle behind F1 insurance seems to be selecting specific risks to cover. David Stirling, director at Crispin Speers & Partners, the Lloyd's broker that recently acquired Marsh's motorsports team, says: "As well as cars and on-track racing there is off-track storage, transit, the paddocks area and the F1 trailers, transporters, motor homes and catering trucks. A deluxe motor home can cost £1m - more than an F1 car costs.

"An F1 team can produce eight to 10 cars a year on a budget of anything up to £100m. That puts some perspective on it; it does a lot more than make cars. It's a very expensive business, producing high quality equipment with the very latest technology, all for the sake of winning. From an insurance point of view, it needs a combination of property, motor and cargo cover."

Fragmented underwriting

Peter Seymour, senior vice-president at Ace, adds: "F1 is such a niche area. There are only so many teams and about 20 drivers. Do you develop one specific package for individuals and teams?" The answer so far appears to be no, so brokers fill the gap, bringing together the best the London market has to offer.

Markel International is an example of this fragmented underwriting approach.

Until this year it insured F1 teams against having to pay drivers lucrative bonuses for achieving wins, podium finishes and championships.

Now it concentrates its activities on covering Grand Prix races against cancellation and writing personal accident insurance for F1 teams and drivers.

Richard Gaunt, Markel's contingency underwriter, says choosing such specialist areas limits the company's risk. "We are insuring the event, but obviously the highest exposure that F1 has to cancellation is adverse weather. It's not like Indy car racing in the US where the cars cannot run if there is any rain. But if rain brings with it a lot of wind or an electrical storm, clearly the cars cannot race. A serious fire would create quite a problem too."

The event cancellation cover contains key exclusions. Markel's policy doesn't cover abandonment due to terrorism risk.

Neither does Gaunt believe it would have paid out if the refusal of most F1 teams to take part in this year's US Grand Prix at Indianapolis had led to the race being called off.

"In my opinion, that would not have been a valid claim," he says. "The policy does not cover events that are within the organiser's control."

Personal accident cover

Gaunt says Markel's personal accident cover is mainly taken out to protect against a driver being injured and having to miss races.

Drivers also take out cover against personal total disablement from career-ending injuries and against accidental death. "That's quite rare these days," says Gaunt. "But the memory of Ayrton Senna shows what can happen."

Nelson, who specialises in personal accident insurance and provides cover for several F1 teams and drivers, says the level of coverage varies hugely according to drivers' contractual arrangements. "All the drivers are essentially self-employed," he says.

"If one cannot race, it is worth hundreds of thousands of pounds for the bigger name drivers. Temporary disablement policies covering drivers for missing races due to injury tend to have a one-race deductible so a driver would have to miss at least one further race before he can make a claim."

Gaunt says premiums mainly follow the market as a whole. "Rates have remained fairly level but they fall when the market does."

He adds: "Each race and driver is judged on its own criteria. Of course races in Northern Europe are more likely to be exposed to bad weather than those in the south and younger drivers will recover more quickly from accidents than older ones."

Gaunt says car pile-ups do not tend to affect race premiums, even though some courses such as Monaco are notoriously more accident-prone than others.

Transit

There are other risks to be insured too. Seymour is a marine underwriter but gets involved in covering the risks involved in transporting expensive cars and equipment to the other side of the world.

"Motorsport is risky," he says, "but the cars are not as expensive as people think - less than £1m certainly and quite a bit less in some cases." The recent loss experience has been quite benign too. "You get some small claims but I cannot think of a total loss," says Seymour.

"You have to remember that F1 cars are designed to be able to withstand various serious crashes. A nose cone on a F1 car can be switched in seconds in a race so it is not such an expense if it gets damaged in transit."

24-hour policy

Nor do the risks of insuring F1 drivers end at the trackside. "F1 personal accident cover is a 24-hour policy," says Nelson. "So if a driver drives a Ferrari when he is not on the track, that's covered and so is his lifestyle.

Some of the better-known F1 drivers may have off-track activities that are just as dangerous as those on-track.

"They may have helicopters, power boats and top-of-the-range cars so they are taking risks when they are away from the motor circuit too." Adds Stirling: "F1 may be a very limited market but it is also a very big market."

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