Insuring the flesh

Risk & Insurance, April 15, 2005 by Steve Yahn

Did Jennifer Lopez really insure her most famous asset? Ask the man who underwrites celebrity body parts coverage for Lloyd's of London. Jonathan Thomas talks candidly with Risk & Insurance[R] about his high-profile clientele and how he decides which stars are good risks.

Jonathan Thomas is a popular luncheon guest and an A-lister for many social gatherings in London. Partly it's because he's volubly outgoing and charming. And it's partly because of his job.

Thomas, at 44, has one of the highest profile positions in the insurance world today. He's Lloyd's celebrity/body parts active underwriter.

As such, among other things, Thomas is well positioned to squelch certain celebrity rumors. For instance, the media has made much of Jennifer Lopez insuring her precious "bottom" for astronomical amounts of money. "Myth," declares Thomas, and that's that.

On one occasion, Thomas wrote a policy for Princess Diana. Adding a footnote to the lore of the storied royal family member, Thomas confided to Risk&Insurance[R]: "I once insured Princess Diana because a South African soap commercial utilized a look-alike!"

In another instance, Thomas created a policy covering the loss of chest hair on an unnamed male model. A valid claim would have required that the insured, in the opinion of two independent medical consultants, suffered a loss of more than 85 percent of the hair covering the front part of his torso.

In yet another case, Thomas insured the legs of statuesque model Heidi Klum, but only in a one-shot situation. "Braun had an insurable interest in her legs for an ad contract when she endorsed its epilator product."

Thomas is a dedicated statistician as active underwriter of a group he founded in 1998, Thomas Syndicate 1607, a Lloyd's syndicate managed by Creechurch Underwriting Ltd. and a leader in London Market accident and health insurance. But in making celebrity/body parts decisions, Thomas also must possess the steely, nervy instincts of an experienced gambler.

There's perhaps no better example of this than when Thomas and his group considered insuring Mark McGwire's fragile ankle as an exclusion during the St. Louis Cardinal's record-setting home-run season. After examining medical data in similar cases and other sources of applicable information, Thomas and his group forged ahead and wrote a policy, paid for by McGwire's ball club, to cover the slugger's problematic ankle--but only for that one year.

For millions of baseball fans, that season became a historic landmark when McGwire belted his legendary 70th homerun. And it was a good season for Lloyd's, as well. "We came clean on that one," says Thomas. But that was the last policy Thomas and his group wrote on McGwire. "We felt that an accumulation of stresses on him could lead to unforeseen deterioration of other parts of his body," says Thomas. Which turned out to be prescient, because after hitting 65 home runs in 152 games the following year, McGwire's playing time and home-run production fell off dramatically in the next two seasons, after which he retired.

The McGwire case furnishes an insider's look at how Thomas' group calculates risk and arrives at overall policy decisions. "The underwriting process and rating on these unrepeatable types of cover involves extrapolation from medical data about failure rates on reconstructions of similar tissues," says Thomas. "These rates are then typically loaded for the additional wear and tear put out by a pro athlete. Contingency and profit loads sit atop this to ensure the variance from the law of large numbers operating across this thinly insured population.

"Risk selection is driven by physical and moral hazard," adds Thomas. "Players at the end of their careers are less good risks, as are players in high-contact positions. Similarly, celebrities with problem pasts due to sickness or criminality are less good risks."

Moral hazard, says Thomas, "is everything in sports disability." It is associated with the financial circumstances conducive to making a fraudulent insurance claim. "We always try to ensure that no player is better off claiming than continuing to play."

Many star athletes are not as fortunate as McGwire in receiving team financial backing for body-parts coverage. Future Hall of Fame baseball player Juan Gonzales, while a free agent, reportedly bought a $50-million personal liability policy that was designed to go with him to whichever team signed him, thereby offering assurances to those concerned about his history of back troubles. In the end, he signed again with his former team, the Texas Rangers.

Stars in professional football, where there are no guaranteed contracts, have been known to pay for their own coverage. Kurt Warner, for one, purchased a policy immediately after he took over the all-important position of starting quarterback with the St. Louis Rams.

Then there's British soccer superstar David Beckham, who is insured in so many ways, beyond just coverage for his legs and feet, that even he probably doesn't know how much all the policies are worth.