Insurers involved in the sports and recreation niche are not immune from competitive challenges as rates soften, but the special nature of the sector's underwriting means inexperienced players will not find sustained success, experts in the niche warn.

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

Mr. Valentic's firm is a managing general underwriter specializing in sports and recreation since 1952, when it began underwriting motorsports. It is a subsidiary of Aon Underwriting Managing Group, part of the Chicago-based insurance brokerage firm Aon Corp.

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

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

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

While recent entrants move in chasing a new market, such players inevitably “leave in a few years,” he said, “because this market needs specialized underwriting. Sports and recreation is very unique. This has different exposures that require greater attention than more traditional lines. We see new players coming in and making the mistakes that the old players know not to make anymore.”

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

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

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

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

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

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

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

o Nonprofit directors and officers insurance for amateur sports associations.

o Businessowners policies for local leagues, clubs and associations, which involve office exposures and a small amount of property.

Both Mr. Dean and Mr. Kasper noted that the hot line they see currently is special events coverage for fairs, festivals or outdoor markets. Mr. Kasper said summer activities related to the outdoors 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 to enter because they are “staples of the American lifestyle”–no matter what shape the economy is in.

However, he added, these are lines insurers will vacate once they realize unprofitable underwriting results within a few years.

To be an effective player in this marketplace, it still comes back to adequate underwriting and claims management, experts in the niche contend.

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

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

Mr. Kasper noted while capacity is not an issue in general for this market, there are difficult classes of business–such as whitewater rafting–where there is not a large amount of premium volume, but there are large exposures that can cause sizable losses.

For underwriters, he added, a big focus is on risk management.

A major tool in risk mitigation is the use of waivers and acceptance of liability on the part of participants, according to Mr. Kasper, who said such legal protections have become standard throughout the industry.

It is equally important, he said, that the insured add safety measures that emphasize precaution and equipment inspection for these events.

Besides liability coverage, which is the major component of a program, coverage would also include property, marine, crime and other possible exposures.

Ultimately, the differentiator in the sports and recreation line of 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 from the novice. “People who handle our sports claims, handle them day in and day out.”

A foul ball injury in the grandstands at an amateur event gets handled with expertise and experience that an inexperienced adjuster 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 overlook an exposure that exists more out of naivete than anything else,” observed Mr. Valentic.

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

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

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