At a watershed moment for college athlete earning potential, the insurance industry is reducing access to a once-popular product designed to protect the future income of professional prospects.
The market for loss-of-value (LOV) insurance, which for decades has been sold to athletes to guard against injury and illness during their college careers, has quietly undergone a major contraction in the last two years, industry experts tell Sportico.
“There were so many guys getting loss-of-value that should have never got it,” said Eric Chenowith, the former Kansas basketball star who runs a health and life insurance brokerage that caters to athletes.
Chenowith estimates that while upwards of 45 college football players were insured for loss-of-value coverage heading into the 2018 NFL draft, only about a half dozen prospects have taken out policies ahead of this year’s. Experts say full LOV coverage for top football prospects now easily tops $100,000 in annual premiums, a four-fold spike in the past three years.
All of this comes in the wake of what brokers and other industry representatives describe as a period of recklessness in the market, but which enabled a greater number of players to get payouts for injuries and illnesses.
The massive market correction could mean LOV insurance for college athletes will go away entirely, according to some insurers. The reason, they say, is that the syndicates participating in the Lloyd’s of London marketplace, who assume the policies’ risk, have grown weary of the heavy losses and high-profile court cases they endured over the past decade.
Chris Lack of Exceptional Risk Advisors, one of the remaining Lloyd’s coverholders that writes loss-of-value coverage, says the period between 2013 and 2019 represented one of the “softest insurance markets in history.”
“There was a ton of capital and a lot of people being hired and told to write premiums to justify their existence,” said Lack. “The claims were an afterthought, and the claims have been catching up for a while. And now you throw on the icing of COVID, and it is a huge deficit.”
As LOV policies have receded, a newer injury-specific insurance product for pre-professional athletes has gained popularity, though it provides lower payouts for relatively higher premiums.
LOV insurance can only be purchased as a rider on an existing permanent total disability policy, not as its own stand-alone product. There is no official standard for the coverage’s terms, exclusions or thresholds—leaving those determinations up to the specific carriers. Typically, the policies have coverage limits between $1 million and $10 million and thresholds set around 60% of the projected value of an athlete’s rookie contract.
The risk is taken on by syndicates of Lloyd’s of London, the British insurance market. There are currently four U.S. Lloyd’s coverholders—companies authorized to write insurance contracts on behalf of those syndicates—selling LOV coverage.
Another Lloyd’s coverholder, the Chicago-based Pro Financial Services, says it recently decided to take LOV coverage off of its platform altogether. Dan Burns, the company’s CEO, told Sportico that he has simply lost faith in the product.
“The terms have been made very restrictive,” Burns said in an interview. “I am not comfortable underwriting [policies] with exclusions like degenerative conditions and cumulative trauma.”
Although it has been around since the 1980s, the profile of LOV insurance elevated in 2014 when it was reported that former Florida State quarterback Jameis Winston had obtained the coverage as part of a $10 million disability policy. FSU used money from its NCAA Student Assistance Fund to cover Winston’s premiums, which were estimated to be around $60,000 at the time. Since 1991, the NCAA has distributed monies to designated funds at each Division I member institution for the purpose of covering athletes’ non-athletics-related expenditures.
Around the same time Winston got his LOV coverage, Texas A&M let it be known that the school had spent $50,000 on income protection insurance for offensive lineman Cedric Ogbuehi—thereby establishing LOV as a new armament in the college recruiting wars.
“Overnight, it amplified everything,” recalled Chenowith.
By the beginning of 2015, the NCAA had adopted new legislation allowing athletes to take out loans to pay for the insurance premiums themselves—further expanding the potential pool of applicants. (Athletes or their families can also pay for the policies out of their own pockets, but this rarely happens.)
Some in the market responded by continually dropping their LOV insurance premiums to the point where $1 million of coverage for a college football player could be purchased for around $6,000.
Although the policies were complex and caveat-ridden, a general misunderstanding took hold—egged on by the market—that LOV insurance effectively guaranteed millions of dollars to any pro prospect who believed he had slipped in the draft on account of an injury.
This expectation, experts say, contributed to high-profile litigation against the Lloyd’s syndicates and certain American coverholders. From 2017 to 2018, there were at least four lawsuits filed by star college athletes over LOV claims. Although none of these disputes went to trial, the legal wrangling was nonetheless troubling to an industry that desperately tries to keep its business out of public court filings.
“You start to run into concern that the client base is going to perceive that the products don’t respond,” said Burns, “that you pay what are significant dollar amounts and, in order to collect, you have to go to court.”
Inculpatory fingers point in many directions: at pushy retail brokers looking to make easy commissions off of 21-year-olds; at wholesale brokers who wrote policies to athletes who had no use for them; at the naïveté of the Lloyd’s syndicates, who missed signals of problems until things got out of hand; at the NCAA, which fostered a specific insurance market, with specific limitations, but then declined to administer it; and at the member institutions that turned disability coverage into a recruiting confection.
Keith Lerner, a Florida-based broker who specializes in sports-related coverage, said the proliferation of college athlete LOV policies also tracks with ballooning compensation for pros.
“It wasn’t necessarily justifiable,” said Lerner, “but what happened when the professional salaries started getting guarantees going through the roof, we felt that a third-rounder in the NFL really was going to get a $2 million or $3 million or $4 million, and we can do an insurance contract. … It is kind of a copycat business where, once one underwriter will do it, then the next will follow because they don’t want to lose the business.”
One Power 5 athletic director, who said his school has never paid for LOV premiums, described the product as a “scam.”
“It’s expensive, the criteria for claims was very narrow, and it was hard to prove,” the AD told Sportico. “One could be misled easily, and I think a number of student-athletes fell into that trap, in some cases with the universities paying the bill.”
Although the NCAA is not actively involved in helping schools or athletes obtain LOV coverage, an NCAA spokesperson noted that the national office has provided “guidance and best practices” in a recent white paper.
Chenowith, who works with about 60 Division I schools, mostly in the Power 5, said the COVID-19 pandemic has added a new layer of complexity to the industry. LOV insurance includes illness, so unless otherwise specified, an athlete who contracted the virus while under policy should be covered if it results in economic harm. One problem: timing. Many college football players returned to school in June and contracted the virus within the first few weeks back on campus. Chenowith said these insurance policies are typically purchased in July or August, meaning athletes who had COVID prior to signing were more likely to have it explicitly excluded from their coverage.
As a new substitute for LOV, underwriters have been selling more and more critical-injury insurance to college athletes, a product Pro Financial Services first introduced in 2016. The rider specifies a list of injuries that will trigger a claim. Although the policies have relatively high premiums ($25,000) for payouts that max out at $250,000, their advantage is in their straightforwardness.
“It is almost impossible to have a dispute, because you cannot misunderstand the product; you either tore your ACL and you needed surgery or you didn’t,” Burns says. ”I believe that given the clientele you are dealing with—20-year-olds—you should have a clearly defined, ‘If A happens, then you get B.’”
Will the LOV market continue to contract?
The answer might depend on whether you ask a wholesale or a retail broker.
“I would say it is too early to give you a verdict on what the status of the industry is,” said Lack, the wholesaler. “The tray tables are up and the flight attendants are in their jump seats and it is too turbulent.”
Chenowith, on the other hand, believes prophecies of doom are overstated, that the industry has finally found its footing. “Honestly, I think it is setting up for what it needs to be,” he said, “which is where the elite of the elite (athletes) are getting them.”