While in California for the RIMS conference, Lord Levene, Chairman of Lloyd's, made the most of his time in the area, including a visit to Dodger Stadium on Friday (25 April) where he met with Dodger's Manager Joe Torre.
Pictured from left to right: Sam Cargill, Chairman of Aon in LA, Lloyd’s Chairman Lord Peter Levene, Dodger’s Manager Joe Torre, and Peter Arkley, Head of Aon Global Construction.
It’s the bottom of the ninth; the bases are loaded; the home team is down by two runs and 35,000 people are holding their breath.
Attendance at baseball games is at an all time high these days (79.5 million people in 2007) reaffirming that baseball continues to be America’s national pastime.
But away from the sun-soaked stands, the scent of beer and hot dogs, and the passionate fans jostling for autographs, Major League Baseball is a multi-billion dollar business, and insurance is at the heart of maintaining its profitability.
Let’s start with a few stats: revenue for Major League Baseball’s 30 teams is $5.5 billion, and the average team is worth $472 million, according to Forbes Magazine. Top major league baseball players – unlike athletes in other sports – often have multi-year guaranteed contracts earning millions of dollars. They also have much longer careers, sometimes ten years or even more. In effect, this amounts to huge liabilities for baseball teams who are on the hook to pay out the full value of the contract even if a player gets injured or dies. According to Forbes, the cost of players, including salaries, bonuses and benefits, is around 56% of revenue. Put another way, players are major assets that need insurance protection.
Tim Prifti, underwriter at Kiln, said: “Alex Rodriguez would never sign his $275 million contract without the Yankees purchasing disability insurance. It is a risk that most teams would never take without some percentage of the contract being insured.”
Lloyd’s is no stranger to insurance in baseball, covering both teams and individual players. A team would typically recoup around 50-60% of the outstanding contract value in the event that a player falls victim to a career-ending injury or temporary total disability. Teams tend to insure only the top, most valuable players while retaining the risk of some of the more minor players.
Separately, the baseball leagues buy catastrophe coverage for their teams as they could be flying approximately 90 times a year. The coverage would protect the assets of an entire team in the event that a plane goes down with all the players in the Yankees team, for example.
Finally, individual players also buy their own insurance, either before or after they are with a pro team, insuring themselves for the loss of future earnings. According to Michael Petersen, COO of Petersen International Underwriters, a coverholder of Lloyd’s based in California, young players may want to insure their careers in the longer-term for loss of future earnings in the event of an injury or illness.
Petersen said: “We give them cover 24 hours a day, on and off the field, whether it’s sliding into a base and injuring a body part, coming down with an illness or an automobile accident, all could be covered to protect loss of future earnings.”
A player’s age, injury history and number of games played are all major factors in the terms of the cover, but the calibre of the player is probably the most important factor in determining insurable value.
What’s the riskiest position in baseball? Pitching by far, according to Petersen, because of the tremendous stress it places on the body.
There are also a wide range of other risks for which baseball clients need coverage including incentive bonus for certain exposures, cancellation, play-off sweep insurance and other stadium promotional activities.
According to Joe Addison, CEO of Aon Entertainment Group: “Each individual team faces these and potentially other insurable risks, especially when they are responsible for managing the risks associated with all of the stadium operations verses just managing the baseball operation. When stadium management is involved issues such as bioterrorism remains a major concern for these types of venues that cater to such large concentrations of risk.”
In the last few years, Major League contracts have continued to sky-rocket and insurers have been challenged to keep pace with their growth. According to Sam Cargill, Chairman of Aon Risk Insurance Services West, Inc.-Southern California: “Lloyd’s provides very important capacity for baseball risks.”
In the past, capacity has been a concern, but Roland Fox, underwriter at MAP underwriting said: “Capacity has increased since more European players have joined the market. It’s a soft market at the moment so rates and medical underwriting standards are not as strong as a few years ago. From a baseball team’s perspective, it’s a good time to be buying.”
Sounds like Lloyd’s underwriters have a tough job on their hands…how much can the player get for a torn rotator cuff? Will that collision at the home plate be enough to trigger a claim? Surely his right leg is fit enough to be covered again!
But let’s get back to the game, shall we? The batter has come to the plate. Ooh, he’s a lefty. Here comes the first ball. Strike. Here comes another, and it’s a fast one! He swings! He hits! It’s out of the park! The crowd is roaring! The home team pulled it off! It’s unbelievable!
Take me out to the ball game, take me out with the crowd…
