From Promotions to Sport Pros, Special Events Insurance Covers it All

During the playoffs between the Seattle Mariners and the New York Yankees preceding the 2001 World Series, the National-Hole-in-One Association provided insurance coverage for a promotion sponsored by a Seattle-based automobile dealership. The deal was, if a customer bought a car from the sponsoring dealer during the playoffs and the Seattle Mariners went on to win the World Series, the car would be free to the customer.

According to Sam Schachter, special events marketing manger for Dallas-based National-Hole-in-One Association, the premium for that account was very expensive, but the insurers still had cause for many sleepless nights. “The odds were stacked against us,” Schachter said, because at the time the Mariners were considered the best team in the nation.

Of course Seattle didn’t win the World Series, but things turned out well for the car dealer and Schachter anyway. The promotion racked up an immense amount of publicity for both the dealership and the National Hole-in-One Association, and the dealer sold “a ton of cars.”

While Schachter’s company specializes in special events coverages, not all special events cause such nail-biting intrigue. In fact, according to Larry Williams, with the Specialty Programs Division of U.S. Risk Insurance Group Inc., with some exceptions the only thing unusual about special events is that they generally occur for a short period of time.

A wide net
The special events line of insurance is one that links such otherwise unrelated phenomena as Santa Claus, professional golfers, Internet lotteries, Austin’s Pecan Street Festival and childrens’ soccer leagues. The coverage casts a wide net, encompassing a long list of usually short-lived activities, from win-a-car contests from the local auto dealership to river rafting trips to wrestling matches and beauty pageants. And for professionals who specialize in this niche coverage, the market can be a steady book of business.

Each season brings its own batch of recurring festivities. During the winter there are Christmas tree lots, arts and crafts fairs, gift bazaars, and Santa at the mall. In the fall, pumpkin patches, beauty pageants and kick-the-field-goal contests occur year after year. Spring and summer bring street festivals, Little League baseball and Fourth of July parades.

While individually these events usually have relatively low premiums, for a business that handles a high volume of these types of accounts, special events can be a successful line.

“We write a lot of special events,” said Cheryl Trevino, senior underwriter at Vista Insurance Partners. “I quoted one in early October for Crawford, Texas—their annual festival, a three day event…I recently quoted one for a championship wrestling match—spectator liability only. Special events covers all kinds of activities, some have very little exposure, some have quite a lot.” For instance, when a rodeo comes to town, “we never do the participants but we will write spectator coverage.”

Vista writes special events policies through contract markets—surplus lines companies that specialize in the coverage. Premiums are rated in various ways by different insurers. Rating factors may include the number of people attending an event, the number of days an event is running, or estimated overall receipts.

Trevino said that like the rest of the market, premiums for general liability coverage have gone up, with minimums running around $350 – $400 for a small festival, compared with $250 minimums just last summer. Availability is not an issue as insurers are still willing to write the policies. Trevino added that if liquor liability is involved, minimum premiums jump to the $750 – $1,000 range. Limits generally run about $1 million per occurrence with a $2 million aggregate. Anything over that amount requires umbrella coverage.

RPGs pump up the volume
U.S. Risk offers coverage for small special events, with a concentration on sports/recreational coverage, through its nationwide risk purchasing group (RPG), All American Purchasing Group. All American’s policies are underwritten by an “A+IX” carrier and are available for all kinds of sports events, such as youth soccer, river guides, basketball tournaments, hole-in-one insurance and hunting trips.

These activities add up to lots of small policies with $500 premiums, so pumping up the volume is a must in order to increase profitability. According to Monte Stringer, marketing director for U.S. Risk, RPGs are one way to create that volume. “Through risk purchasing groups [companies] can handle more volumes and operate in different states and still comply with each state’s rules,” Stringer said.

Larry Williams noted that many “standard admitted insurance companies cannot consider this type of business because they are limited by the rules, rates and forms they are required to file in each individual state. Their filed minimum premiums do not respond to short-term policies.” Williams added that it “is generally not cost effective for an agent to solicit and handle this type of account with the normal commissions paid by the admitted companies.”

Many agents turn to surplus lines companies for special events coverage, since those companies are able to modify their coverages to fit the needs of the account. Additionally, the agent can tack on a policy fee to supplement the commission they receive from the surplus lines provider. However, Williams cautioned that surplus lines companies, since they are outside the regulated environment, are sometimes more expensive and, with the added agent fees, the cost to the insured is often driven up further.

Williams explained that RPGs offer sports related accounts and other recreational, leisure and entertainment classes of business “broad-based products tailored to fit their activities and generally at a low or competitive cost.” He recommended that agencies interested in special events classes have access to an admitted RPG, adding that an RPG allows an admitted, licensed insurance company the ability to tailor coverages without being restricted to the filed rules, rates and forms used with their standard business lines.

You may already have won
“They pay us to sweat for a couple of days,” Schachter said about what the National-Hole-in-One Association does.

When it comes to sports events, golf tournaments are the biggest sweat-generators for Schachter and his company. But the company also writes policies for other types of sports contests, promotions (i.e., the Seattle Mariners), and athlete incentives, among other things. “If we can figure out the odds, we can write the insurance,” Schachter said.

For hole-in-one golf tournaments, the company, with 25-plus years of experience in the field, has calculated the odds of winning such a contest to be: -1 in 12,600 shots for amateurs; -1 in 7,500 shots for club pros; and -1 in 3,500 shots for tour pros.

Premiums vary for each particular tournament, but they are based on variables such as the value of the prize, the number of players, and the distance of the shot. Particulars of the golf course are also taken into consideration. Premiums can range from very inexpensive ($175 for about $10,000 worth of coverage) to fairly expensive ($30,000 for $1 million in coverage). The latter is an amount that would be associated with a tournament involving for a tour professionals.

Schachter said a big area for the company this year has been athlete incentive bonuses. For instance, the National Hole-in-One Association handled an incentive program for Dockers and a PGA professional, who had an endorsement deal with Dockers. The company wanted to add an incentive bonus to the endorsement deal—if the pro wins a tournament, Dockers pays the golfer $100,000 over the tournament prize and beyond his regular endorsement fee.

Noting that it takes a great deal of research to write these types of policies, he added the company writes quite a few of them. They cover all kinds of sports professionals, including NASCAR drivers, and even sports teams. “We raise the bar for them,” Schachter said. With sports teams, the owners commit to paying a certain amount of money to the players for each game they win or for winning some number of games. “What makes that a great risk is that the bonus is attainable, but difficult to achieve,” Schachter said.

“This has been a pretty decent year. I can’t speak so much to golf because I haven’t seen the numbers, but for non-traditional coverage, this has actually been a pretty good year,” Schachter said. “The bad economy won’t really hurt us.” He noted that in fact, last year, with the better economy, people were giving away cars and prizes without taking out coverage, but now they are looking for help.

What if it rains?
One specialty area within the general category of special events insurance is that of cover for lousy weather. These policies, written in addition to general special events coverage, are often handled by companies that concentrate on weather-related risks.

One such company is the Good Weather Insurance Agency, located in Salem, Mass. Good Weather’s policies, which are underwritten by Royal & Sun Alliance, cover not only special events but can also be used to provide year-round income stabilization to outdoor-oriented businesses, such as golf courses.

“For fairs, festivals, concerts, fund raisers…we insure the threat of bad weather,” said Good Weather President Laurie Tillman, because the threat of severe weather may keep people away even if the weather never occurs.

Calculation of premiums for weather insurance is very specific. The premiums are determined by location, date and hours of the day, the kind of peril, and the amount to be insured. For example, a client can insure an event for a certain amount against 1/2 inch of rain between noon and 5 pm on a specific day. Since weather policies are written as agreed-value policies, the client selects the amount to be insured. For instance, if a fair is expecting an income of $100,000 but has to have $50,000 to cover expenses, the client might request a contract with just the $50,000 insured.

For severe weather cancellation polices, cancellation of the event is required for the policy to kick in, but for rain-only policies, cancellation is not required.

When skillfully managed, the opportunities and challenges presented by the special events classes of insurance could be advantageous to any agency willing to handle the risk.

Topics USA Auto Agencies Excess Surplus