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Critical Injury Insurance Gains Value Amid NIL, NCAA Changes

Daniel Libit
·7 min read

If NIL is the dominant college athlete acronym of the moment, CI is the coinage riding close behind.

With more money in players’ pockets, and fewer restrictions on how schools can cover their “education-related” expenses, critical injury insurance—a relatively young product that pays out to athletes who suffer certain kinds of injuries, regardless of the career implications—has become de rigueur at the start of the 2022-23 college football season.

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As the NCAA still bars compensation for college athletes, school purchases of insurance may just be the nearest permissible form of pay-to-play.

Critical injury coverage has effectively supplanted the once-popular but exceedingly fraught loss-of-value insurance. LOV offers protection to elite athletes, projected to land at a certain range in the upcoming pro draft, who fall significantly enough on account of an injury to trigger the insurance benefit. This rider flooded the college sports market throughout the 2010s before bottoming out at the end of the decade; how to properly determine the lost value led to many disputes between policyholders and underwriters, several which ended up in court.

In 2019, around the same time that LOV was falling out of favor, Pro Financial Services, a Chicago-based underwriter and Lloyd’s of London cover holder, actively began selling critical injury coverage to pro and college athlete clients.

“It wasn’t designed to replace loss-of-value, because we weren’t a big [LOV] provider,” said Dan Burns, Pro Financial Services’ CEO. “I think the loss-of-value experiment may have left a bad taste in people’s mouths, and that is why we came up with something that is not so ambiguous.”

Given the drama and confusion surrounding LOV, critical injury has been praised for its matter-of-factness.

“Critical injury is the lowest-hanging fruit when it comes to disability insurance, because it is so black and white,” said Eric Chenowith, the former Kansas basketball star-turned-athlete-insurance-broker. “You have the injury, you have the surgery, you get paid your benefit.”

David Brookbank, an insurance consultant who advises dozens of Division I athletic departments, echoes the approval. “It is nice to have claims out there that do exactly what the consumer thinks they are going to do,” he said.

Although often mischaracterized as standalone policies, CI and LOV are, in fact, riders that can be added to underlying Permanent Total Disability (PTD) policies. To obtain the extra CI or LOV coverage, an athlete first has to qualify for PTD; for collegiate consumers, that means the athlete must be viewed by an insurance company as a legitimate risk for the professional leagues.

Typical critical injury provisions define two categories of bodily harm on which the policy holder can cash in. Category 1 injuries—which, for college athletes, typically pays out $250,000—include high-grade ligament tears, torn rotator cuffs and heart attacks. For “Cat 1” tears, reconstructive surgery within a certain period of time is required for the policy holder to receive the benefit. Category 2 injuries, which usually come with a $100,000 benefit, are mostly muscular injuries, such as torn triceps or pecs. One current underwriter has a third category, paying up to $50,000 benefits, for injuries such as herniated discs.

Unlike LOV, critical injury does not stipulate that the athlete’s future career be harmed in order to receive a payout. In fact, while many of the listed injuries are serious, athletes can reasonably be recovered and ready to play before the start of the next season.

While there are variations to the cost of the coverage based on an athlete’s sport and pro potential, annual premiums for total disability policies with critical injury provisions will usually run a college athlete between $18,000 to $25,000. The bulk of that expense is from the riders, with the underlying PTD costing between $5,000 and $9,000 annually for $1 million of coverage.

Burns estimates that since 2019, PFS has seen approximately a 50% year-over-year increase in the CI riders it has executed. He says that between pro and collegiate athletes, his company is currently insuring “hundreds” with a critical injury provision. Last year, Burns estimated PFS paid out about a dozen critical insurance claims to both pro and college athletes. This included “several” NFL prospects who, despite their injuries, still managed to get drafted high in the first round, according to Burns, who declined to name names.

Chenowith says that out of the top 30 prospects for next year NFL’s draft, at least 20 currently carry critical injury coverage.

Though Pro Financial Services currently underwrites the lion’s share of the CI coverage, two other cover holders—Exceptional Risk Advisers and Tokio Marine HCC, the long-time insurer of the NCAA’s Exceptional Student-Athlete Disability Insurance Program—have also joined the fray.

The riders are typically purchased before the start of the relevant sports season (for example, the season before a college player intends to be drafted). But as new pro prospects rise and fall during the season, new coverage is purchased throughout.

And who is purchasing it? More often than not, it’s the schools.

Earlier this month, the NCAA Division I Board of Directors adopted a number of proposed rule changes to benefit athletes, which included allowing schools to pay for players’ injury insurance out of their operating budgets. Previously, programs were allowed to only use the monies annually allotted to their own Student Assistance Fund or NCAA Student Assistance Funds, which rarely exceed six figures. The deregulation was prompted, in large part, by the Supreme Court’s unanimous ruling for the athletes last summer in NCAA v. Alston.

Since the D-I bylaw reforms, Brookbank says he’s seen some schools “jumping out ahead and saying let’s spend a lot of money” on athlete insurance, while others are still taking a wait-and-see approach.

Chenowith says “99%” of the critical injury riders he’s sold to college athletes this year have been paid for by universities. And in situations where schools aren’t footing the bill, Chenowith says, athletes are already beginning to allocate NIL monies toward their critical injury coverage, which, unlike LOV, is designed for more than just the likely first-rounders.

“It has expanded the insured pool,” said Burns. “A product like this can be offered to later-round prospects.”

While LOV hasn’t gone completely extinct, purchasing it has become a rarity. In addition to being confusing, its current coverage thresholds are exceedingly unlikely to be met by football players.

“Guys aren’t falling that far [in the draft],” said Chenowith. “Even if the top guys get hurt, [they] are still going in the first round.”

Chenowith points to the example of former Alabama quarterback Tua Tagovailoa, who sustained a dislocated and fractured hip during his junior season but was still picked fifth by the Miami Dolphins in the 2020 NFL draft.

This year, Brookbank says he’s seen only about a dozen football players get offered LOV coverage by insurance companies, and only one athlete who actually purchased it. Chenowith has only written three LOV policies this year, all for basketball players.

Burns says he could see the pool of yearly CI coverage holders expand to around 300 collegiate athletes, before maxing out. As with all kinds of disability insurance markets, the sustainability of the coverage will ultimately come down to its profitability to Lloyd’s of London, which is still reeling from billions of dollars in COVID-related losses.

To that end, a number of other coverholders that serve the college athlete market remain on the critical injury sidelines.

“The capacity of the markets are not what they used to be,” said Brookbank. “You have cover holders and carriers who have been restricted, who could have written $10 to $20 million, having been cut back to writing $2 to $5 million.”

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