Bases covered: despite a tightening in the marketplace, disability insurance is still the "designated hitter" when it comes to protecting baseball talent in the major leagues

Risk & Insurance, Oct 15, 2006 by Dan Aznoff

Yankees owner George Steinbrenner isn't one to be pushed around, not by the competition, not by stellar ball players with outsized egos, not by the steroid scandals, not even by the commissioner of Major League Baseball and certainly not by the tightening marketplace for specialty disability insurance.

Based on his experience over the past five years, Steinbrenner and the Yankees believe in the use of disability insurance more than ever, despite the fact that coverage is getting harder to find at an affordable price, according to Yankees spokesman Howard Rubenstein.

"Our position on the use of disability insurance in every possible scenario has not changed," Rubenstein said. "If anything, we are even more passionate about the benefit it provides to the Yankees as a team and the Yankees as a business." With tens of millions of dollars at stake, who wouldn't, except perhaps, for those teams who prefer to self-insure?

The Yankees, for example, used a provision in their disability policy to file a claim in 2004 on the $70 million still owed to first baseman Jason Giambi. The claim was filed after the former Most Valuable Player admitted to using steroids before he signed his seven-year, $120 million contract with New York before the 2001 season.

Giambi missed the majority of the 2004 season with a variety of ailments, culminating with the treatment for a tumor. Yankees General Manager Brian Cashman said any money recovered from the insurance claim would have been used to sign another player to replace or back up Giambi.

As it turns out, the Yankees eventually withdrew their claim when the controversial first baseman reported for spring training in 2005 with a renewed commitment to the team. Giambi has remained relatively healthy over the past two seasons.

In light of the fact that player salaries are guaranteed, it's no surprise that the Baseball Players' Association has no formal policy on the use of disability insurance. "It's a nonissue for our members," said MLBPA spokesman Greg Boris. "But from strictly a player's standpoint, management would be foolish to be without this type of insurance."

On the West Coast, the Los Angeles Dodgers had relied on disability insurance even before signing pitcher Kevin Brown to baseball's first contract valued at more than $100 million in 1999. The Dodgers did so even though the policy that safeguarded the right-hander's seven-year contract included numerous exemptions and restrictions over the final three years of the agreement.

And still, the team continues to depend on disability insurance, said Camille Johnson, the Dodgers' director of communications. The coverage is especially attractive to teams with veteran players, such as the Dodgers, Johnson also said.

The business side of America's pastime has changed in many ways since the Boston Red Sox sold the rights to Babe Ruth in 1920 for $125,000 to underwrite cost of the Broadway musical, "No, No, Nanette." Specialty disability insurance has become a staple of the business plan for team owners who make use of risk management to protect the financial integrity of their investment.

Lately, the disability insurance marketplace, particularly for top stars, has tightened, brokers say. Stratospheric salaries, due in part to expensive television contracts and bloated corporate endorsements, have contributed to the trend. Shrinking capacity for reinsurance in this specialty marketplace has also played a part.

To cope, Major League Baseball teams have in the past tried to reduce the price of coverage by increasing the qualifying deductible from 90 to 182 days--the length of a full season. In recent years, however, this provision has disappeared.

A HIT IN SMALL MARKETS

Disability insurance coverage is popular not only with teams in the nation's biggest markets, but in smaller markets too.

The Atlanta Braves, who have won 14 consecutive championships in the National League East, swear by it for the team's most valuable players, according to the Braves Executive Vice President and General Manager John Schuerholtz. He pointed out that the cost of disability premiums jump in direct relation to the length of the contract.

"Whether it's a new contract, or an extension given to a player on your own roster, insurance speaks directly to the length of the contract," Schuerholtz emphasized. "We look for policies that will fit into our annual budget, especially on contracts of two, three or more years. We consider the cost of premium just another element in the expense of running a competitive major league team."

He said sharing the financial responsibility with a third party has been the team's basic philosophy since salaries began their inflationary spiral 15 years ago. tie noted that the team continues to purchase disability insurance despite the nearly impossible task of finding affordable policies.

"Only once in my quarter of a century with the Braves can I remember a player signing a significant contract without an insurance policy in place," he said.

Schuerholtz added, "We swallowed very hard when the insurance company refused to cover a pre-existing condition for one of the most popular players on the team."