As teams and leagues manage the impact of lost ticket sales and reduced media payouts from COVID-19 as well as uncertainty in the year ahead, there’s another problem to add to the pile for 2021: higher insurance premiums for games, often 50% to 100% more, according to executives at NFP, one of the largest insurance brokers in the world.
“We’re calling 2020 the perfect storm, and it’s definitely had a negative effect on the insurance marketplace,” said Marc Blumencranz, managing director of NFP’s sports and entertainment group, which writes policies for more than 100 pro sports teams. “We have carriers looking for substantial rate increases, cutting back on coverages and generally behaving like it’s a seller’s market.”
Across industries, insurers may pay out $100 billion from the pandemic, the largest single-event loss ever for the industry, Lloyd’s of London CEO John Neal said this spring. It’s difficult to ascertain how much of that is sports-related, but no doubt it’s significant, with at least $5 billion and probably well more than that attributable to event cancellation, Blumencranz estimated. Wimbledon, for example, expects to receive $232 million from its insurers stemming from the cancellation of the tennis championships this year. That’s about three-fifths of the $390 million revenue Wimbledon generated in 2019, according to its financial disclosures to U.K. regulators.
In other cases, insurers, teams and leagues are litigating a number of cases over pandemic coverage. As a result of the payouts and court disputes, some insurers simply aren’t writing policies for sports in 2021. Another tennis tournament, the Australian Open, was unable to find insurance for its 2021 tournament as of mid-summer. It’s proceeding with its event in February. Representatives for Tennis Australia, which runs the open, didn’t reply to requests for comment.
“Before COVID, the majority of event cancellation plans were weather-related. Now, carriers are excluding communicable diseases and COVID because they are still settling claims on those,” said Leigh Ann Rossi, chief operating officer of NFP’s sports and entertainment group. “Everybody wants coverage for COVID, but it’s not available.”
Even with COVID-19 carved out of any policy, premiums are rocketing up. Where typically a team would pay 1% of gross revenue as its premium for event cancellation coverage, that rate simply isn’t seen any longer. “On new coverage going forward, rates have definitely doubled—if not more—and terms and conditions have narrowed a little bit,” added Rossi.
Still, in the near term, event organizers are trying to avoid the extra expense. “Some folks are looking at it like, ‘I just need a team on the floor and a camera crew,’ so they might be taking a pass on event cancellation coverage for the moment,” said Rossi. Even so, premiums on fan-less events haven’t dropped as much as might have ordinarily been expected.
In the medium-term, as fans return, event organizers are likely to bite the bullet and pay more for coverage while also trying to mitigate the hit by accepting larger deductibles or even narrower coverage.
In the long run, coverage offerings and rates will likely ease back to almost normal—but it will take years. “For the event cancellation market, it was a catastrophic year. For the rest of the insurance marketplace, it may take some time to figure out what 2020 was,” Blumencranz said. “That is very strange, because for insurance companies, when the books close at the end of the year, they usually know down to the penny whether they made money or not.”
What is certain? “Insurance companies view sports these days as higher-risk.”