Insurers involved in the sports and recreation niche are notimmune from competitive challenges as rates soften, but the specialnature of the sector's underwriting means inexperienced playerswill not find sustained success, experts in the niche warn.

Pricing in the sports insurance marketplace is “soft, much likethe [property-casualty] industry in general,” noted Lou Valentic,chief marketing officer for K&K Insurance Group Inc., based inFt. Wayne, Ind.

Mr. Valentic's firm is a managing general underwriterspecializing in sports and recreation since 1952, when it beganunderwriting motorsports. It is a subsidiary of Aon UnderwritingManaging Group, part of the Chicago-based insurance brokerage firmAon Corp.

The firm specializes in a broad range of coverage, includingmotorsports, events and attractions, venues and entertainment.

“Rates are at best flat,” he reported. “Rate reductions of 10percent are typical, with greater reductions for larger accountswith acceptable loss ratios. High-profile accounts are beingtargeted by the current industry players, with fierce competitionfor the larger premium accounts.”

“A lot of insurers are looking for new ways to generaterevenue,” observed Michael Dean, owner of Francis L. Dean &Associates–a managing general agent specializing in sports andrecreation out of Wheaton, Ill.

While recent entrants move in chasing a new market, such playersinevitably “leave in a few years,” he said, “because this marketneeds specialized underwriting. Sports and recreation is veryunique. This has different exposures that require greater attentionthan more traditional lines. We see new players coming in andmaking the mistakes that the old players know not to makeanymore.”

The sports and recreation market is less susceptible to pricecycles than general p-c insurance market experiences, according toDon Kasper, who recently retired as director of marketing for R.B.Jones, an MGA that developed a specialized underwriting unit inthis sector back in 2005.

Mr. Kasper, whose firm is affiliated with Burns & Wilcox,said the sports and recreation market is more stable because fewerinsurers pursue such risks.

“It's a unique business and it has unique public exposures, andyou need underwriters who understand this business and haveexperience doing it and know how to price it,” said Mr. Kasper.“There are a number of [retail agents] who do focus on this, andthey have more knowledge and can build bigger books ofbusiness.”

Knowledgeable underwriters, he said, “can pursue morealternatives in the marketplace, but generally it is a limitedmarket for your average retail insurance agent.”

Still, despite the inherent difficulty in underwriting themarket, it has not stopped new entrants from taking the plunge.

Mr. Valentic said there are at least three new players in thesports industry that were not there five years ago. He said thatgenerally, one can see 10 different carriers show up on a risk, onthe liability side–but that would be limited to risks such asintercollegiate or amateur sports.

Among some of the hot lines that insurers and managing generalagents are battling over, according to Mr. Valentic, are:

o Nonprofit directors and officers insurance for amateur sportsassociations.

o Businessowners policies for local leagues, clubs andassociations, which involve office exposures and a small amount ofproperty.

Both Mr. Dean and Mr. Kasper noted that the hot line they seecurrently is special events coverage for fairs, festivals oroutdoor markets. Mr. Kasper said summer activities related to theoutdoors are also an in-demand coverage.

Amateur athletic leagues–both youth and adult–stand out in Mr.Dean's estimation as lines that admitted-market insurers seek toenter because they are “staples of the American lifestyle”–nomatter what shape the economy is in.

However, he added, these are lines insurers will vacate oncethey realize unprofitable underwriting results within a fewyears.

To be an effective player in this marketplace, it still comesback to adequate underwriting and claims management, experts in theniche contend.

Mr. Valentic said he had one association that went with a newcarrier because they got coverage for $3,000, compared to theirpast premium of $30,000. While the price was a great savings forthe client, it was not a premium that was a true reflection of therisk. It was obvious, he said, that the carrier did not understandthe exposures they were underwriting.

“It's a soft market, but it's not that soft a market,” heremarked.

Mr. Kasper noted while capacity is not an issue in general forthis market, there are difficult classes of business–such aswhitewater rafting–where there is not a large amount of premiumvolume, but there are large exposures that can cause sizablelosses.

For underwriters, he added, a big focus is on riskmanagement.

A major tool in risk mitigation is the use of waivers andacceptance of liability on the part of participants, according toMr. Kasper, who said such legal protections have become standardthroughout the industry.

It is equally important, he said, that the insured add safetymeasures that emphasize precaution and equipment inspection forthese events.

Besides liability coverage, which is the major component of aprogram, coverage would also include property, marine, crime andother possible exposures.

Ultimately, the differentiator in the sports and recreation lineof business is handling claims, noted Mr. Valentic.

“People buy a policy because they might have a claim,” he said,adding that is what primarily differentiates the specialist fromthe novice. “People who handle our sports claims, handle them dayin and day out.”

A foul ball injury in the grandstands at an amateur event getshandled with expertise and experience that an inexperiencedadjuster lacks, he observed.

The same could be said about the underwriting of that business.“If you are not a regular player, it is possible you could overlookan exposure that exists more out of naivete than anything else,”observed Mr. Valentic.

At some point, the market will turn around, the expertspredicted–but not until the losses mount and new entrants begin torealize their underwriting is unprofitable.

“This market will remain soft at least until losses begin tocatch up to the price-players,” predicted Mr. Valentic.