The Economics Of Sports Insurance

January 25, 2013 in Daily Bulletin

Economics of Sports Insurance

In its latest issue, The Economist looked at the economics of sports insurance:

  • Teams now pay hundreds of millions of dollars for key players. They then buy insurance policies on these players so that if the player gets injured, the team gets reimbursed.
  • This creates moral hazard – players have no incentive to get back into playing form, and teams might encourage the player to draw out their recovery so that the team continues to get a steady infusion of cash from the insurance company.
  • Certain leagues such as the NBA and NHL have set up leaguewide insurance requirements so that risk is pooled, and insurers don’t have to worry about getting stuck insuring only the most injury prone players.
  • In contrast several athletes in golf, tennis, and soccer are uninsurable. Those who can be insured have to pay for their own insurance policies.

Read more about the economics of sports insurance, and why insurance companies are underestimating the likelihood of a player getting injured over here.

Source: The Economist