Professional football is a multi-billion-dollar industry. From an entertainment perspective, the NFL practically owns Sundays from September through January. It’s a league that thousands of young football players dream of playing in one day. NFL players are physically gifted athletes, from their speed and strength to their coordination. It’s no surprise, then, that a player’s knee or shoulder is just as critical to their career as the tools a surgeon uses. Because of that, Lloyd’s of London increasingly is insuring the physical attributes of these athletes. In fact, it is becoming more the norm for top collegiate football players to have a loss-of-value insurance policy before they ever step foot on a practice field.

The 2016 NFL draft will be held on April 26. More than 250 players will be selected over seven rounds, in hopes of fulfilling their dream of becoming a professional football player. The first overall pick will make approximately $20 million with his first contract. Even the last pick in the first round will make approximately $7 million. As the rounds progress, however, that salary continues to decrease, so that a drop to the lower rounds can cost a player millions of dollars.

Loss-of-value policies have been around for decades — for David Beckham’s soccer legs and Bruce Springsteen’s voice, for example. But the manner in which they are written is continually evolving and not only impacting NFL players, but NCAA football players as well.

Policy Changes Over Time

The NFL’s loss-of-value policy has changed considerably over the last 15 years. In 2003, former University of Miami running back Willis McGahee tore his ACL in the last game of his college career. Literally days before the game, he had bought a $2.5 million policy that he would collect on if he suffered an injury that prevented him from ever playing professional football. McGahee was not able to collect on the policy, because he did end up getting selected in the NFL draft — though in a later round than he would have if he not suffered the injury.

Today, things have changed. A player now can collect on a policy even if they just fall back in the NFL draft due to an injury. A few months ago, Notre Dame linebacker Jaylon Smith tore ligaments in one knee during his last collegiate game. But his loss-of-value policy is written much differently than McGahee’s was. If he falls out of the first round, Smith’s policy will pay him an estimated $5 million. A projected top-10 pick leading up to the game, Smith now must wait to see when he is selected in the draft. Either he will be selected in the first round and receive guaranteed money that exceeds his $5 million policy, or he will collect on his policy.

Years ago, only the super stars in college football even thought about taking out a Lloyd’s of London insurance policy. Now, at least the top 100 prospects have one. Certainly the change in what is actually insured has played a large role; while an injury may not be career-ending, the risk of falling in the draft remains.

How these policies are paid for is another major change. A policy can cost upwards of $100,000 for $10 million in coverage — an amount most college student-athletes cannot afford. However, the NCAA created a waiver in 2014 that allows athletes to pay for premiums by borrowing against their future earnings. Also, schools are helping players pay for the policies using Student Assistance Funds. College football generated over a billion dollars in revenue last season, so the investment these schools make in their players is critical to their success and a huge component of recruiting.

Claims Payouts and Rejection

Last year, former University of Oregon defensive back Ifo Ekpre-Olomu became the first NFL payer to collect on a loss-of-value policy, after tearing his ACL and dislocating his knee near the end of his senior season. The former All-American purchased the policy before spring practice that year, when he was projected to be a top-12 pick in the 2015 NFL draft. After suffering the injury, he was selected with the 241^st pick.  Of course, it was far from an open and shut case. Lloyd’s of London spent months investigating the injury to determine if that was the main reason behind Ekpre-Olomu’s draft fall — and not other factors such as behavior issues, failed drug tests, lack of production on the field, or previous other injuries. Ekpre-Olomu ended up collecting an estimated $3 million.

As in all insurance contracts, certain conditions must be met to follow through with a loss-of-value policy. Former USC wide receiver Marqise Lee tried to collect on his $4.5 million 2014 policy when an injury caused him to be drafted lower than initial projections. His claim was rejected, however, as Lloyd’s of London stated that he did not disclose his full injury history. As a result, Lee sued Lloyd’s of London last year. He was refunded his approximate $95,000 premium, but that was all. Now players and their schools are providing notices to Lloyd’s of London for every injury-related piece of information, so that insurers cannot claim they were never noticed if a future claim is made. Sound familiar?

Questions to Consider

It will be interesting to see if Jaylon Smith gets drafted in the first round. If not, will he collect on his policy? Will we see more and more student-athletes purchase these types of policies? How will NCAA recruiting and funding be affected by loss-of-value policies? Will guidelines and specific data points be created to better analyze the impact of an injury to a player’s future in the event of a claim? Is that even possible? These are all interesting questions to consider as coverage complexity becomes part of the game.