Insurers pursuing their goal results in soft market

The Football season will soon be hitting fever pitch with the climax of the season approaching but it's been a slow season on the personal accident front.

The market is "extremely soft" owing to an increase in the number of insurers willing to take on injury cover for professional football players and clubs, says Duncan Fraser, partner at broker Jardine Lloyd Thompson (JLT) Sport.

"Prices are being driven down and cover is wider than it was a few years ago," he says.

Only five years ago there were 10 insurers that participated regularly in club and individual injury programmes. Now there are over 20.

But for all the talk of a soft market in football rates, it is still typically higher than your usual personal accident cover. Fraser adds: "Under-writing professional football and other professional sports is the high risk end of the accident and health market."

Accordingly, premium rates are higher. Insurers are keen to obtain a share of these premiums which can be substantial.

The increase in the number of market players has resulted in premium rates taking a significant dip. Fraser says a club buying insurance five years ago would have paid a price of 0.8% or 0.9% of the insured value. That has now plunged to 0.45% or 0.5%.

And rates will likely soften by a further 5% in the coming season, after having declined between 10% and 15% previously, due to the increase in capacity, David Evans the UK managing director of HCC Specialty Underwriters predicts.

Head of Hiscox's specialty division, David Bruce, responds to this by saying that if companies were already cutting rates by 10%-15% this early in the year, by the end of the year rates could be as low as 20% to 25%.

"The sports underwriting market has been good in the last five years. We are looking at between £100m and £200m of premiums to be written at the moment," says Bruce.

"But it's all about rates – it's a slippery road downhill once we start cutting margins, you don't realise you're losing money."  

Underscoring the need to maintain a stable level of rates is Michael Owen, divisional director of accident, health, sports and contingency at Lockton. He cites the example of former Nottingham Forest player David Johnson, whose career ended due to a back injury last year. The claim was in the six-figure region.

Relevant profit
"This shows that premium rates need to be kept at a stable level as it only takes one bad loss to ruin the profitability of an insurer's book. A balanced sum insured limit against a total premium income level will prove to be necessary to bring home the relevant profit insurers require," says Owen.

Stuart Love of Birmingham-based broker Perkins Slade also stresses the need to maintain stable rates.

"Sustainability of cover and premiums over the long term are of paramount importance as customers require consistent availability of cover at an affordable premium year on year. Being dirt cheap one year and unaffordable the next is not really treating customers fairly," Love says, adding that Perkins Slade has maintained competitive premium rates for more than 20 years.

Perkins Slade has been involved in sports since the mid-80s and has doubled its account in this area since 2000.

Evans believes that the market will remain stable. "I am optimistic that market conditions will remain relatively stable during the forthcoming football disability market [the major renewal period for insurance policies begins in June].

"We saw some new capacity last year which led to a softening of rates. However, capacity levels have been stable this year and we are hopeful this will be reflected in the pricing environment."

But while market conditions have been slow of late, it is around this time of year when things start to perk up. Owen comments: "The market is very buoyant at the moment as brokers prepare for the busy renewal season between now and July, where most professional clubs buy their insurance."

And the supporting market capacity has grown over the last few years. "More players are purchasing career-ending insurance as they are better educated by their agents or financial advisers to protect their future earnings within the game," adds Owen. 

Threatened income
And these earnings are significant sums. An average Premiership player can now expect to earn in the region of £5m during his short career – as the average weekly wage for a Premiership player stands at £12, 000 – and one bad tackle or car crash could threaten this income.

Owen says: "From a broker's point of view, football personal accident (PA) is generating interest because we can protect players against career-ending risk. Before Sky came into football, there wasn't much money to win. Being promoted from the Championship to the Premier-ship could mean £40m to the club from TV rights.

"On the back of this, insurance premium levels increase once the necessary clubs decide to purchase insurance for bigger sums insured than they would have done five to seven years ago. 

"This is protecting the club's interest in a player who gets injured and then the players obviously purchase their own insurance to protect themselves."

Additionally, clubs are looking at protecting themselves if a catastrophe was to happen – such as a plane or coach crash where the entire team were killed by means of an accidental death. This could potentially wipe out a total team whose value is in the region of £250m.  

Evans attributes the additional capacity to more insurers driving interest. "It [underwriting sport] is a profitable account. The market has enjoyed a good level of profit over the past few years.

"I think people are looking at it purely as a way to enhance their portfolio and give a bit of spread to the other areas of PA that they write – rather than to look at it as a dedicated class.

"There has been pressure with some players looking to expand that capacity. There are only half a dozen significant sports personal accident underwriters who seem to be under pressure to grow their portfolio and this is likely to put some pressure on rates."

Growing market
What is attracting new entrants into underwriting football PA? "People are seduced because there is a lot of premium to be written. They are seduced by the sportsmen because of the glamour. They forget that we write to make money. They will lose their shirts," says Bruce.

The most recent entrants are teams that previously wrote general accident and health business and have extended into sport and new capacity in both Lloyd's and the company markets.

"But in a specialist market, profitability can be wiped out with a handful of losses. If we lose a few high profile players to PTD (permanent total disability) among the highly insured players, it could have a huge impact," warns Evans.

To further boost the attraction to the industry, there haven't been many claims. This is attributed to the improved medical facilities.

"Top clubs tend to have the best medical facilities and the right people on the pitch to deal with injuries. This means that players recover faster than they did 10 years ago, leading to a reduction in career-ending claims.

"If we looked at all the professional footballers in the UK, numbering some 3,000, I would say a decade ago there would have been 35-40 players who saw their career ended in a year. Today that number is fewer than 30," says Evans.

So fewer players are leaving the game for PTD and medical improvements are such that players will continue to play and not make a claim.

Owen says: "There are fewer players finishing their careers due to injury. They will try everything possible to return since the money to be earned by playing a further two to three years is quite substantial."

And Dominic How, a placement broker in the personal, accident, contingency and entertainment team at Marsh adds: "A large amount of major claims would obviously cause a general rise in rates in the insurance market.

"However, in our experience, to date there is nothing to indicate this season has been any worse for major career-ending claims than previous seasons," he says. IT