It’s a Risky Business : Underwriting: Transamerica is the nation’s biggest provider of sports, entertainment and leisure insurance.
At a speedboat race two years ago on the Allegheny River in Pittsburgh, one of the boats crashed while traveling 120 m.p.h. and hurtled into a crowd of spectators along the shore. A 7-year-old boy died, and 23 others were injured.
The victims filed lawsuits against the race’s organizers, who were insured by Transamerica Insurance Co. Under settlement talks now being held, the victims would receive about $3 million in damages over a number of years. And Transamerica would foot the bill.
The Pittsburgh disaster was the kind of accident that makes insuring sporting events, rock concerts and other well-attended leisure events a high-risk business. But it is a business that can also be one of the insurance market’s more profitable lines, which is why Woodland Hills-based Transamerica Insurance has focused on it for the past several years.
Transamerica Insurance, a unit of the financial services giant Transamerica Corp. of San Francisco, is the nation’s biggest provider of sports, entertainment and leisure insurance, with annual revenue from those endeavors of about $205 million. It insures baseball and football stadiums, basketball arenas, auto racing tracks, rock concert venues, parades, state fairs and fireworks shows.
Transamerica insures the 27 teams in the National Basketball Assn.; 13 of major league baseball’s 26 franchises, including the Los Angeles Dodgers, and 20 of the 28 teams in the National Football League, including the Los Angeles Rams.
What does Transamerica insure exactly? Mainly venue owners and event promoters and sponsors against injuries to the fans who attend their shows. They’re all subject to getting sued for negligence, regardless of the fine print on the back of fans’ tickets that generally says the owners and promoters aren’t liable for spectator injuries.
So Transamerica insures the team owner against “injury to the fans or press or other people during the game, such as being hit by a baseball, or tripping or falling in the stands, falling out of the upper deck, or problems in the parking lot,” said Michael E. Grady, Transamerica’s senior vice president and director of commercial specialty insurance.
Case in point: Transamerica recently had to pay about $300,000 to a woman who was hit in the eye with a puck during a hockey game. (Grady won’t say which game.) It turns out that the plastic shield protecting fans at the arena “had not been raised to the new heights that the league had specified,” Grady said. So out came Transamerica’s checkbook.
The company also insures amateur sports, such as the Goodwill Games in Seattle last year, the annual Long Beach Grand Prix auto race and the Tournament of Roses parade in Pasadena. Recent concerts by Sting and the Grateful Dead also used Transamerica.
The Grateful Dead concert, held at the Los Angeles Coliseum early this month, illustrated how Transamerica’s involvement comes with a price. To protect against a big claim, Transamerica generally refuses to insure concerts using “festival seating,” or no reserved seats, because concert-goers have been killed in stampedes at some festival-seating events. So the Grateful Dead’s recent concert had reserved seating, even though the band is famous for its festival-seating shows.
Transamerica also is in the business of protecting producers of movies and television shows against mishaps on the set, such as an actor breaking his leg, that can cost a bundle if the problems delay shooting. (Another Transamerica division, Completion Bond Co., guarantees that movies are shot on time and within budget.)
Last year’s fire at Universal Studios cost Transamerica several million dollars because one of Transamerica’s policyholders--Walt Disney Co.--was filming the Sylvester Stallone movie “Oscar” using rented space at Universal.
“We ended up moving the entire cast and all the support people to Universal’s lot in Florida, where they had similar buildings,” Grady said.
Transamerica doesn’t like to release many details about how much insurance its customers need or what they pay for it. But Grady said it is not unusual for the promoters of a major auto race, for example, to pay $200,000 or more for up to $10 million worth of coverage for a weekend of racing. A baseball owner can expect to pay several hundred thousand dollars for a season’s coverage.
Generally speaking, Transamerica calculates premiums based on the number of fans expected to attend the event, the venue’s past history of injury claims and the inherent risk of the site. “It’s higher for an auto race than a classical music concert,” Grady said.
Transamerica Insurance also provides other insurance, including such bread-and-butter offerings as workers compensation, and the insurance unit accounted for a third overall of Transamerica Corp.’s $6.7 billion in 1990 revenue. But the insurance company is putting much of its focus on its specialty insurance group, which includes the sports and leisure lines.
Those lines “allow us to maintain our pricing integrity better than in areas that are more generic,” Grady said. Translation: There aren’t nearly as many insurers providing sports and movie coverage as there are providing car and home insurance, so there isn’t the price-cutting in sports and entertainment that’s rampant in the more mundane lines of property-casualty insurance.
And without massive price wars, Transamerica keeps its profit margins intact or, more accurately, keeps its insurance losses down. Like many other insurers, Transamerica does not make a profit on insurance per se, that is, its claims costs and expenses annually outstrip the amount of premiums it collects.
In fact, Transamerica Insurance had an underwriting loss of $221 million last year. But it still made a profit--$61 million--thanks to the income earned by investing its premium revenues, which is how most insurers make money. Grady said Transamerica’s specialty group--the division that includes sports and entertainment--paid about $1.05 in claims and expenses for every $1 of premiums it collected, making it one of Transamerica’s best performers.
Nonetheless, there is price-cutting in sports and entertainment, which keeps downward pressure on the earnings of Transamerica and its rivals.
That market “is facing the same soft pricing cycle that the rest of the industry is facing,” said Lou Valentic, vice president for sports at K&K; Insurance Group Inc. in Fort Wayne, Ind., which is the broker that arranges Transamerica’s sports business.
Transamerica’s ties with K&K; Insurance and its movie broker, Albert G. Ruben & Co. in Los Angeles, were important factors in catapulting Transamerica to the top of those markets.
In 1985, Gerald A. Isom, a 27-year veteran of Fireman’s Fund Insurance Co., was named president of Transamerica Insurance. Until then, Ruben had mainly used Fireman’s Fund as its underwriter, but Ruben followed Isom and moved its business to Transamerica. Once at Transamerica, Isom also signed up K&K; Insurance to bolster the company’s sports business.
Richard Barry, managing partner of Entertainment Brokers International, a Los Angeles broker, uses Fireman’s Fund to underwrite its movie insurance. Barry concedes that Transamerica “retains the lion’s share” of the movie insurance business; nevertheless, he says, many producers have stayed with Fireman’s Fund, a Novato, Calif.-based unit of Allianz AG of Germany.
“Our capacity to write business is substantially larger than Transamerica’s,” Barry said. He also claimed that Fireman’s Fund dominates certain foreign movie-production markets, such as Italy. Fireman’s Fund has also helped insure such U. S. movie hits as “Field of Dreams” and “Indiana Jones and the Last Crusade.”
The big claims that make this business risky aren’t usually Transamerica’s sole problem, however. It routinely buys reinsurance, which is simply more insurance from outside providers that help Transamerica pay off on catastrophic claims, such as the Universal Studios fire.
Nonetheless, Transamerica urges clients to keep improving safety at their stadiums and parks to keep its claims costs down. But accidents happen anyway.
“We get cases where a section of the grandstand will collapse, or somebody will fall down and trip, or somebody gets in a fight,” Grady said.
Transamerica’s most recent major payoff--again, several million dollars--involved the Long Beach Convention Center, where an escalator lurched the wrong way and several people were hurt, Grady said.
“It’s the things you least think of,” he said.
