Industry-Owned Insurance Company: Can It Work?

An industry-owned insurance company could be one way to tackle skyrocketing premiums in racing, but officials admitted formation of such a company would be a daunting task. One obstacle, they said, is unwillingness by industry participants to report accurate financial information.

During an all-day meeting Dec. 10 in Tucson, Ariz., industry officials and insurance experts met to devise a strategy to handle insurance coverage, with an emphasis on workers' compensation. The National Horsemen's Benevolent and Protective Association and the American Quarter Horse Association sponsored the session.

The challenge is great given the fragmented pari-mutuel industry. But some officials nonetheless called for a national plan for a variety of policies to cover everyone from grooms to racetrack office employees.

"We need to do this as an entire industry," said John Roark, president of the National HBPA, chairman of the Texas Horsemen's Partnership, and a member of the board of directors of the National Thoroughbred Racing Association. "We need to spread the risk, because we're all in this together. We need to form our own captive (insurance company). We need a contracted agreement where everyone is involved."

David Hoskins, senior vice president of the Andreini Co., said he has been in the insurance business for 38 years and has "never seen a national industry with as many stakeholders (as racing). I've never seen an industry with so many issues. I'm not even sure I know who your customers are."

Hoskins said contractors, truckers, and health-care workers are among those with similar insurance problems, but those fields have an advantage: They can pass costs along to customers. Though a few states take a small percentage of pari-mutuel handle to help pay workers' comp premiums for jockeys, the industry in general has resisted a levy on handle to support insurance programs.

Hoskins acknowledged that insurance companies aren't interested in working with racing because it is a dangerous sport. Indeed, Jockeys' Guild chairman Tomey Swan said there are 5,000 injuries and two deaths per year on average among jockeys in the United States.

"The most important issue facing the racing industry today is protection of the athlete," Swan said. "It's time for a reality check."

Swan said six states -- California, Colorado, Idaho, Maryland, New Jersey, and New York -- provide workers' comp insurance for jockeys. The Guild, in conjunction with the Thoroughbred Racing Associations, also provides $100,000 in medical coverage for jockeys under a policy that will expire at the end of the year. Another policy will then take effect, but the Guild and TRA continue to talk about other insurance issues.

"Most jockeys ride from paycheck to paycheck," Swan said. "This is a $17-billion industry. Every other professional athlete is protected by insurance during competition."

Swan said the Guild formed the Disabled Jockeys Endowment to support injured riders. The fund has received about $600,000 in seed money, but it needs $10 million, she said, to maintain programs.

"This crisis is about to escalate," Swan said. "Our industry must find the balance of the principal immediately."

Officials said a major problem in obtaining workers' comp insurance is that insurers can't gauge industry costs. If they can't assess the risk, they back away.

"Don't assume you can gather the information," said Ed Halpern, executive director and general counsel for the California Thoroughbred Trainers, which worked for almost two years to get a reasonable workers' comp plan in place. "It's almost impossible to get accurate information. Trainers won't provide it, for many reasons."

"It may become a case of people having to rat on each now and then," Roark said of the failure to accurately report backstretch payroll. "If a trainer with horses under the same shedrow is cheating on his payroll, he's cheating you."

Randall Hampton, an insurance broker for 12 years and vice president of McGriff, Seibels & Williams, said insurance companies don't understand the racing industry, and therefore are reluctant to work with it. He said a reduction in premiums is possible, as plans in the works in Florida suggest, but that it all comes back to proper reporting of information.

"The reason the loss rate is so high is because proper payrolls are not reported," Brampton said. "Insurance companies are in the business of risk. They are banks. The more 'knowns' they have, the more willing they are to proceed."

Chris Scherf, executive vice president of the TRA, said the racetrack trade organization at one time had a captive plan that did not survive. Among the challenges for a national, industry-owned insurance company would be having to set its own rates, multiple programs for various aspects of the business, and the investment of funds.

"It's very difficult to bring this industry together," Scherf said after the panel discussions. "If you're going to get it done, you had better be a very young man. This industry is so diverse, with so many different contractors, there's going to be a lot of herding of cats."

Roark said later he believes all industry organizations could come together to attempt to form an insurance company. When asked whether the NTRA would be directly involved, Roark said probably not because the issue could put it in conflict with dues-paying members.