A recent study by Lloyd's of London on the cost of personal accident insurance for Formula One drivers estimated that Michael Schumacher, the sport's top prizewinner, is covered by a policy in excess of $20 million. The next six highest-ranking prizewinners, including Mika Hakkinen, Jacques Villeneuve and David Coultard, have policies estimated at between $5.5 million and $10 million.

But is determining the premium on a Formula One driver simply a matter of measuring earnings? Or are other factors at play? For example, does the element of risk diminish or increase if a driver is a leader or a loser? 

"Past experience has shown that the success of an individual racing driver has little bearing on the risk to an insurer," said Jonathan Price, a specialist Lloyd's underwriter at BF Caudle Agency. "The tragic deaths of some of the greatest talents in the sport are proof of this."

Over the past few years, other trends in motor sports have become apparent to insurers. The number of accidents in races is increasing, for instance, mainly due to the increased speed of the vehicles. But the number of recorded driver deaths has decreased significantly, as has the percentage of injuries or deaths occurring as a result of accidents. (See chart)

"The cars are becoming safer, and safety procedures are protecting the drivers in crashes more effectively, even though there are more accidents," Mr. Price said. Drivers are not the only ones at risk in motor sports. Earlier this month, for instance, flying debris following a significant crash at the Formula 1 race in Monza, Italy, killed a track crewmember. Ten bystanders have also died since the Indianapolis Motor Speedway opened in 1909. The most recent accident occurred when a tire struck a fan in 1987.

Then there are the risks to the racecars. Generally, they are insured while in transit between races through the Lloyd's market, but once they are on the track, the cars are on their own, and any damage incurred is at the team's expense. This reflects the fact that it has become increasingly difficult to place a monetary value on a motor sports car and in particular a Formula One car.

In addition, one of the main features between Formula One cars' performance is the technical expertise used to design them. This may make teams reluctant to have outsiders, such as loss adjusters, study their cars in detail after a crash.

The events themselves are subject to risk and loss, too. Sponsors, however, can purchase cancellation and abandonment coverage, which guards against the risk of the event being cancelled or not broadcast on television and any resulting loss of income.

Source: FIA

ST: New York