Specialty Lines

Play ball

Sports-related activities offer both challenges & opportunities
in a tough economy

By Dave Willis

“One result of the economic downturn is that sports and recreational activities are often thought of—and used as—a substitute for more expensive alternatives, such as a family vacation,” notes Sheila Morton, sales director for managing general underwriter K&K Insurance Group in Fort Wayne, Indiana, which specializes in sports, leisure and entertainment risks.

From her vantage point, the amateur sports market continues to grow. “The variety of sports activities available for both children and adults is expanding,” she says. With continued media focus on the importance of healthful lifestyles, combined with the popularity of youth sports, Morton expects the trend to continue. “Recreational activities are becoming a must-have option for health and fitness reasons,” she adds.

Nora Stransky, CIC, CPIW, president of Special Markets Insurance Consultants of Stevens Point, Wisconsin, a student accident, special risk and related programs MGU, has seen the same trend. “The market is growing substantially because the economy has affected families in such a way that they’re doing more together, and they’re getting more involved in activities closer to home,” she explains.

Judging by quote volumes in Stransky’s shop, soccer activity is increasing significantly, especially in warmer climates where play is possible nearly year-round. “We are also seeing growth in lacrosse,” she says. Baseball, basketball and youth football are holding their own, she adds. While the industry overall is strong, areas hit hard by job losses or housing market issues are sometimes struggling to maintain participant levels, she notes.

The economic downturn and uncertainty in job markets are affecting certain pockets of the market as well, adds Michael Dean, vice president of Chicago-based Francis L. Dean & Associates, Inc., an MGU that specializes in sports, student and entertainment-related risks.

“Dance studios, family fun centers, roller rinks and certain other entertainment venues are among those affected,” he explains. “They’re continuing to monitor their bottom-line revenues very closely.”

Some fair and festival business is also feeling the crunch. According to Dale Johnson, CIC, CFEE, who manages Francis L. Dean’s Fort Wayne office, “Some of these events are scrambling to retain sponsorship dollars. They are also seeing a varied response from the public in terms of attendance at their events.” It’s not a universal trend, though. “The average festival and fair has seen attendance numbers stay the same or increase, compared to prior years,” he notes, as people forgo travel and spend money closer to home.

Squeeze on corporate events

Large corporate and private events are also being squeezed. “It’s a very economy-sensitive type of risk,” explains Darren Lewin, CPCU, CPA, CMA, program development vice president at Los Angeles-based Abacus Insurance Brokers, Inc., whose online MGA offers specialty products for events, productions, entertainment and other business.

“Businesses have scaled back on the caliber and quantity of events, in part to conserve money,” Lewin says. Personal, private events also tend to track economic trends. “We are still seeing that folks don’t have the extra cash to draw on for an event,” he says. Those that do take place, he notes, are often smaller and less extravagant.

Another factor he cites is a spate of negative publicity from the media, the public and even the Administration about corporate extravagance. “Las Vegas and Newport Beach have been singled out,” Lewin says. “It affects the whole industry, at least on the corporate side.”

One bright spot is the fund-raising arena, where events are still taking place. “Fundraisers often pop up around specific causes, like the earthquake in Haiti this past January,” Lewin explains. “Those kinds of events continue to go on, but again we see that the caliber and the amount of money being spent to host them have been dramatically reduced.”

Stransky sees continued interest in smaller-scale fundraisers. “We are seeing more biking events, walking events, even things like three-on-three basketball tournaments,” she remarks. “More and more nonprofits are holding such events to raise money, because they combine the public’s interest in physical well-being with their desire to support worthy causes.”

Risks of cost cutting

As with other industries, the economic issues that affect sports, recreation, and event sponsors have insurance implications. “Most organizations are looking to cut costs,” Morton says, “and some of these measures could have negative risk management implications. For example, cutting staff is a common response to budget reductions; however, that may lead to larger participant groups with less supervision—and a higher potential for accidents and injuries.

“On the flip side,” she notes, “an organization may decide to offer fewer services or close some portion of its facility—a swimming pool, for example—and by reducing services, it could lower insurance costs, assuming the agent knows and shares this information with the underwriter.”

That’s why Morton believes it’s important for agents and clients to thoroughly review all risks each year so they can adjust for any reduced or additional exposures before the underwriting process takes place.

There are other reasons to communicate before renewal—probably several times. “As cash flow is sometimes compromised because of decreased sponsorship dollars, event organizers are more apt to shop their insurance than in years past,” Lewin explains.

Dean concurs. “Insurance and other risk management expenses continue to be reviewed,” he notes. “This provides a huge opportunity for agents to obtain new customers. At Francis L. Dean & Associates, we continue to see a large number of submissions from clients who are shopping their current coverages.”

Competition goes beyond the agent level. “We have seen new carriers enter the marketplace that weren’t there a couple of years ago,” says Stransky. “Of course, many insurers have served the events and recreation business for years, but the market really has seen an influx of carriers recently.”

Morton notes that, while competition is strong, variation exists among programs. “There are differences from company to company in coverage and pricing,” she explains. She’s seen clients asking for higher limits. “We’ve responded by offering five options up to $5 million for leagues and associations, with higher limits and coverage options offered for larger leagues and associations with more complex needs.”

Another trend Morton sees is greater use of technology. “It’s possible to get coverage online, and it’s quick and convenient,” she notes. “Some Web sites generate certificates of coverage immediately when someone pays by credit card.” Her firm offers this functionality, which also is available to agents.

Market opportunities

The need for insurance products developed specifically for youth and adult amateur sports will continue to grow, Morton notes, including those that cover everything from camps, events and facilities to teams, leagues and associations. “And the need for experienced and reliable agents managing those risks will grow, too,” she adds.

Agents and brokers who understand the needs of these risks can capitalize on current trends. “For instance, schools used to let their coaches use school facilities to host camps,” explains Stransky. “Now, when someone is running a camp or clinic at their facility, schools require them to have insurance.”

In addition to accident insurance for participants and liability coverage for coaches, sports organizations often want equipment covered and want D&O protection for their boards, Stransky adds. “They’ve raised funds for youth programs, and they want to make sure their directors and officers are handling these funds appropriately,” she says.

Morton recommends that retail agents take time to fully understand and verify each organization’s potential exposures. “Agents new to writing these risks are sometimes unaware of gaps in coverage,” she explains. “We often get calls from agents looking for just medical coverage or just liability; actually, our program for smaller teams, leagues and associations offers both.” When risks call for complex coverage, underwriters are available to discuss options.

Lewin also stresses the importance of agents being educated about products and programs—and the intricacies of certain policies. For agents who are new to the business, he says, “Start with a small event, and find a program you can access that is completely automated.” Lewin says that his firm’s proprietary online, interactive system can take agents who know little or nothing about events and “make them instant experts. The system is sophisticated, yet simple to use.”

The system features an interactive electronic conversation that prompts agents on what to ask, how to ask it and how to select coverages for specific types of events and related risks. “Of course, we complement this with marketing materials, real-time communication, telephone access and training,” Lewin explains. “It all depends on what the agent wants.”

Stransky encourages agents to use A-rated carriers that have a good track record in this market. “Those in the business for the long haul tend to have very competitive products, rates and commissions,” she notes. What’s more, she adds, they’ve often automated the process and are able to offer quick turnaround on claims and on quotes. “That’s important because it’s not unusual for people to come to us on Friday when the camp will open on Saturday morning,” she says. “That’s just the nature of the business.”

There’s good reason for agents to develop expertise in the recreation and event marketplace. “Nearly all prospects in the sports and entertainment industry are looking to reduce their expenses,” notes Dean, “and insurance is an expense they will gladly shop.”

Adds Stransky: “It really is an untapped market. In every community and every corner of the U.S., there is some sort of special risk activity going on. If they aren’t covered, they should be. There are ways to do that.”

Her advice is simple: “Talk to the people you know. Every one of us knows someone who is coaching children or grandchildren or the neighbor’s little guy. Sports are happening all over.” Churches and schools are other potential business sources. “To find the business, all you have to do is walk out your front door,” Stransky says.

Lewin concurs. “Every client will have some type of event throughout the year. Whether they choose to self-insure or purchase insurance is their decision. But every client a retail broker serves has the potential for requiring some kind of event policy.”

An added plus is that the business is rarely boring. “We’ve been at it for 25 years and are constantly finding new and unique things to find a carrier for,” says Stransky. “From a pig roast to a tractor pull to…who knows? It’s just a fun business.”

The author
Dave Willis is a New Hampshire-based freelance writer and regular Rough Notes magazine contributor.