As we near the most exciting Sunday on the National Football League (NFL) schedule, I can’t help but reminisce about the year that wasn’t for my fantasy football team. I had high hopes this year, after drafting Arian Foster, Doug Martin, and Randall Cobb; I thought I was in great shape to finally win the league after years of just sneaking into the playoffs. Anyone who followed football this year knows that injuries crippled my team and dashed my hopes. I couldn’t help but think that there had to be some way to protect my $100 investment against these unfortunate events. So after briefly searching online, I discovered that I actually could insure myself against losing my precious superstars to injury with a product called fantasy football insurance.
Fantasy football insurance is currently offered by just a few insurance companies (and note that, perhaps due to its new nature and initially small but growing market, some of this coverage is only available at certain times of the year). The premium a policyholder pays to the carrier varies based on the probability of a given player getting injured during the year and generally averages around 10% of the league buy-in for coverage for a single player. In my case it would have cost me approximately $30 to insure all three of my stud fantasy football players who landed on injured reserve.
Like any line of insurance, there is an underwriting process to determine the appropriate premium to charge for the claim exposure of a football player missing significant game time during the season. Clearly, some players like Percy Harvin or Rob Gronkowski have a lengthier injury history than other players, warranting a higher premium for these types of players. These insurance companies crunch the numbers to determine the likelihood that a given player will get hurt and determine the payout to the policyholder given that player’s expected value to the fantasy team. Depending on which insurer you decide is best for you, the amount of coverage can vary so it’s good to get a couple quotes. Even the well-known Lloyd’s of London is an active participant as underwriter in this line of business.
Pricing this exposure requires identifying the players who will have a key impact on generating fantasy points and then applying a distribution on the likelihood of injury. Because each position has a different distribution for the likelihood of injury, pricing this type of product has its challenges.
From an actuarial perspective, starting with historical injury information is a good start. Using historical data, an analyst could track injury rates by position to determine statistically significant variances between positions. Standard and advanced actuarial methods could then be incorporated to project expected injury occurrences in the upcoming season. Adjustments would also need to be made for any rule changes the NFL implements between seasons along with significant trends that could alter the path of the rate of injury for a specific position. As an example, if the NFL changed the rules to allow quarterbacks to ground the football under any circumstances, then the historical injury rate of quarterbacks could drop significantly. Carefully considering the risks of fantasy football insurance can help refine the premium rates to balance expected loss costs with profitability. Insurers can obtain a greater market share if their pricing hits the sweet spot and helps them remain profitable in this line of business.
As the next football season approaches, I’ll be keeping my eye on the policies available to me to ensure I protect my investment in case I should draw the short straw again and lose key players to injury. However, I won’t fork over too much cash if I feel the price isn’t right.