Cheap Cost May Be A High Price To Pay ...

"HIH wrote a lot of policies on long term risks - from which claims may not start to flow for years.  But the claims inevitably do come in.  And the former head of one major insurer said this week: 'Such claims can be a bit like a snowball rolling down the hill.   Once they start, they quickly get bigger - and pick up speed'."

HIH was one of a few companies who wrote substantial amounts of sports insurance.  Generally speaking, insurers do not see sport as a source of insurance business they wish to pursue.  There is no argument that sport is beneficial to society, nor is there argument that participation in sport and recreation has a positive effect on the nations health costs.  Yet participation in sport does provide exposure to injury, and when injury occurs there is the potential for litigation and therefore claims on liability insurance policies.

It has been reported since the HIH collapse that those policyholders who need to replace insurance cover they had in place are finding alarming increases in the amount of premium they have to pay.  This is not surprising; there is no doubt that undercharging by HIH played a significant role in their demise - why would another insurer allow themselves to go down the same path?

What effect will the HIH collapse have on insurance for the sport industry?  It has reduced one of the few insurance markets available to insure sporting risks, and one suspects that it may discourage other insurers from providing supply to the sport and recreation industries.  Basic economics tells us that when supply decreases price increases.

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The collapse of HIH is being recognised as Australia's largest corporate financial disaster.  For their unfortunate policyholders I am sure it has brought home the message in no uncertain terms that basing buying decisions on price alone is extremely false economy.  Sport is well known for it's clichés and anecdotes; one that comes to mind is that all is not lost if we learn from our mistakes.  Lets hope that at least we can extract one benefit from the demise of HIH.

Written by Rod Hughes - Joint Chief Executive Officer 

IEA Sport 

IEA has offices in every state.  National freecall number 1800 SPORT 1 
           (1800  77678  1)
Email:info@ieasport.com.au

The editor of the IEA Sport Monthly Update is  joint Chief Executive Officer, Rod Hughes.

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