The global expansion of the professional sports industry combined with the varying type of its insurance needs, has resulted in the exponential growth of the sports insurance business in the past few years.
DBRS Morningstar expects it to continue growing and to reach $600 billion in revenues by 2025. Currently, Lloyd’s has underwritten over £150 million in premiums just for sport-related accident and health insurance policies.
In a recent note, analysts from the rating agency highlighted the importance and need of sports insurance; the practice of any sport creates risks and only some of those risks can be covered by regular insurance policies.
Analysts said: “Insurance needs of professional players and teams are highly sophisticated and require specialized coverages that are mostly provided by the Lloyd’s of London market as well as by a limited number of property and casualty insurance companies.
“Professional athletes are mostly exposed to third-party liability and accident risks, which can be transferred to the insurance market. Sport venues, professional leagues, event organizers, and clubs are exposed to additional risks, including physical damage to infrastructure and equipment, general liability, directors and officers liability, business interruption, and event cancellation.”
Disability and accident insurance is a key risk management tool for professional athletes and teams that can face considerable earning losses in case of injuries.
Professional teams can get disability insurance on key players to protect themselves financially as they may be obligated to continue paying an injured player’s salary under a guaranteed contract. Third parties, such as major sponsors, can also buy disability insurance on certain athletes given their insurable interest, while players can obtain additional disability insurance to protect themselves against a career-ending injury.
Business interruption insurance is also a key protection for professional sports events. For example, event cancellation insurance, which falls into this category, protects the insured party against the loss of income that a business suffers as a result of a covered peril that triggers a suspension of its activity.
Many cases throughout history have provided valuable insights for sports organizations looking to mitigate losses resulting from event cancellations. Moreover, the insurance industry has the expertise and capital required to provide sizable coverages for professional stadiums and arenas, as well as to large events such as the Olympics and FIFA World Cups, analysts noted.
The rating agency added: “DBRS Morningstar expects that business interruption and event cancellation insurance will attract increasing interest from professional sports organizations given the recent pandemic and their large financial exposure to a concentrated number of venues.”
Lloyd’s syndicates have developed detailed models to calculate the insurable values of national teams, and have used this to successfully predict the outcome of the last two FIFA World Cups. Its forecast for Qatar 2022 places England as the winner of the tournament.
Analysts said: “The calculation of a football player’s insurable value comprises a variety of metrics such as current and future wages, sponsorships, age, and on-field position. With the support of the Center for Economics and Business Research, Lloyd’s successfully predicted the outcome of the 2014 and 2018 FIFA World Cups based on estimated collective insurable values of the national teams participating in the tournament.
“The core logic supporting Lloyd’s predictions is that national teams with higher collective insurable values have a better chance to win the World Cup. The recent success of the model illustrates the potential insurance companies to evaluate player performance through financial value.”
With £3.17 billion, England has the highest estimated insurable value. The second and third national teams with the highest insurance values in the tournament are France, with £2.66 billion and Brazil, with £2.56 billion, respectively.
The rating agency concluded: “DBRS Morningstar notes that Lloyd’s estimate of a player’s insurable value used for the World Cup prediction is not necessarily linked to the current insured value of that particular player, but it is just an estimate of their potential income until retirement based on current salary, earnings growth potential and endorsement income. According to Lloyd’s, this is a good proxy of the performance of players and national teams in the World Cup.”