Many sporting bodies already have a system whereby small organisations group their resources in order to benefit from a larger premium pool e.g. insurance programs that include all affiliated clubs of a particular sport on a state or national basis.  This does have merit, as there is some advantage through the benefit of bulk buying power.  It has been suggested that by including further numbers in the group, further savings on conventional insurance will be obtained.  Whilst this philosophy does have some substance, the savings are not to the extent that many may imagine. 

Insurance premiums are based on actuarial calculations, with the incident rate (e.g. the number of claims occurring as a percentage of the total participants) and the average cost of claim being central to the calculation.  Once you have a situation where there are a sufficient number insured to prevent distortion of incident rates, there is no further benefit from the perspective of risk exposure and claims loss ratios in having a greater number of people insured.  For a hypothetical example, say the incident rate of injury for a sport is one injury per 500 participants.  Whether the insurer has 5,000 insured or 50,000 insured, the incident rate is still one injury per 500 participants – the extra 45,000 participants will not improve the underwriting result for the insurer.

Therefore extra numbers alone provide no incentive for the insurer from a risk exposure perspective to charge a lesser premium – in fact, if the insurer has a loss ratio of 134% (as applied for liability insurance in 2000) additional insureds would be the last thing they would seek as it would just increase their losses.  Some insurers may be tempted by the lure of extra premium, but that is the attitude that contributed significantly to the demise of HIH and the current state of acceptance and rating that the industry is applying.

The other issue that needs to be considered in the situation where insured numbers are increased, is that those extra numbers may well include higher risks than those already insured.  This does not just relate to where the new people are involved in a higher risk sport, but also where the additional numbers may have a less disciplined approach to player safety and the like.  It has not been uncommon in schemes with which we are currently involved, even within the same sport, for one area of insured participants to be unhappy with another area of insured participants because their claims have resulted in premium increases that would not otherwise have been necessary. 

Actions that will result in sustainable reductions in premium are those that will have a positive effect on the incident rate of claims and the average cost of claim; in other words those actions that will see an improved loss ratio for the insurer.  These actions best fit under the general title of effective risk management programs.

A group insurance program will only be of benefit if it is linked to an effective risk management program being mandatory for every organisation participating in any form of a group scheme.  This includes having mandatory risk management requirements that are audited both internally and externally.  It will involve considerable education, training and the provision of risk management resources within the industry.

Along the lines of group insurance, there has also been some support for group pooling with a self-insurance component (i.e. a mutual pooling of funds to meet the cost of claims).  This proposal does have merit, with the obvious self-insurance downside of the financial exposure of shortfall between premium pool collected and the ultimate claims cost being able to be addressed via appropriate re-insurance placements.  Cost savings come from lower allowances for expenses and profit as compared to conventional insurance.  However, such a pool must be based on very sound foundations, requiring detailed claims history statistics and of course very effective risk management programs as have already been discussed being in place within all participating organisations.   

Central to effective risk management is incident analysis, including injury data collection.  A tried and true management philosophy is “if you cannot measure it you cannot manage it”, and this is just as relevant for sporting injuries as it is to retail sales, cash flows etc.  How can you manage the incidence and severity of sporting injuries unless statistical data is collected in this regard; how can you evaluate the success or otherwise of prevention programs unless you can compare the number of injuries occurring before the implementation of the program compared to after implementation?  

Organisations that are serious about providing safe sport for their members take all measures they can regarding injury prevention, but often collect little injury data – even to the extent where only very limited information, if any, is available regarding claims and injury detail.  An effective injury data collection program will provide,  information that is  invaluable for the identification and implementation of appropriate intervention strategies.  

It is recognised that sport and other not for profit organisations in many cases have limited resources in terms of finance and personnel, and therefore implementation of such programs is a real challenge.  However, like it or not, our society has changed dramatically over the years.  Best practices are demanded across all activities. Like any commercial operation, sport administrators have best practice demands made on them, whether it be by sports participants, by sponsors, by paying spectators or by insurance companies.  All are looking for a return on their investment.  The fact is that any organisation that cannot provide that return via delivering best practice management is going to struggle to survive in the long term.

Continued ....