Extreme RISKS.

As recreational adventurers attempt greater feats of daring, they challenge underwriters of life, disability and commercial liability policies to cover them.

Bungee jumpers bob from cranes like human yo-yos. Snowboarders hurtle over mountain slopes. BASE jumpers soar like eagles from cliffs, waiting until the last heart-stopping second to pull their parachute rip cords.

This is the dizzying world of extreme sports, a world the insurance industry has only begun to navigate. But in recent years, the proliferation of extreme sports and games coupled with an apparent surge in participants for some of them, has prompted underwriters of life, disability and commercial liability policies to be even more exacting in analyzing these new exposures.

"The 'Do you do...?' section has expanded," said Al Friss, a California broker, referring to the portion of a life insurance application that queries applicants about their activities. "Insurers used to ask if you did any hazardous activities. Since they weren't specific enough, you could work around it. Now they're more aware."

Nevertheless, in this soft market, brokers say they don't have to beat the bushes too hard to find some insurer--be it a little-known niche company or a syndicate of the famed Lloyd's--that is willing to assume the risks facing participants and businesses in such sports as white-water ratting, race car driving, mountain climbing, scuba diving, snowboarding, skateboarding and paragliding.

Take the case of Hans Lehmann, husband, father, homeowner and electrical engineer in his 40s who has worked the same job for 10 years. "Pretty boring stuff," Lehmann said. He seems like a super-safe risk for life and disability insurers, except for one thing: He's been an active rock climber and mountaineer for the past 15 years.

Lehmann belongs to the Southern California Mountaineers Association whose members also include insurance salesmen, pool cleaners, medical technicians, restaurant managers and teachers.

About seven years ago, Lehmann said he realized he needed to augment the life insurance provided by his employer. He consulted Friss, owner of AA Friss Insurance Services Inc., Encino, Calif., who also is one of Lehmann's rock-climbing partners.

"Al knew going into it that some companies might not want to provide coverage for anyone who is involved in certain sports," Lehmann said.

Shopping the Risk

Years ago, finding insurers to write life and disability policies for a rock climber was a real challenge, Friss said. In Lehmann's case, Friss contacted various general agents and underwriting departments, reported in detail what Lehmann did as a rock climber and asked whether he could be covered.

Friss obtained a disability policy for Lehmann from Paul Revere Life Insurance Co., Chattanooga, Tenn., and a universal life policy for him from Pacific Mutual, now Pacific Life Insurance Co., Newport Beach, Calif.

Lehmann's term life policy came from First Colony Life, a GE Financial Assurance company. First Colony underwriters had asked if Lehmann climbed mountains overseas. When Friss told them he didn't, they agreed to the coverage. Friss said he found this query curious. "There's been a basic lack of understanding of the sport," he said. "They think if you go climbing in Europe, you've got to be climbing the Alps."

Insurers need to draw distinctions between the different levels of climbing and mountaineering, Lehmann said. "Spending a sunny weekend rock climbing at a nearby crag is far safer than going on an expedition to try to reach the top of a Himalayan peak," he said. "My impression is that most participants of so-called extreme sports want to give the impression that they are taking risks while actually expecting a guarantee of safety."

Friss has learned that the more information he supplies to underwriters, the greater the chances they will approve the applicant.

"In many cases, insurers will answer, 'Yes, we will do this,'" Friss said. "But they may stipulate with a scuba diver, for example, that he not dive below 75 feet. As long as he does less than that, they're OK with it."

Friss also has discovered that insurers are more tolerant of applicants who are members of a sports association. "Someone belonging to an organization generally is going to be more safety conscious," he said. Parenthood may favor the applicant, too. "I've found when people get kids, they tend to back off" from higher-risk activities, the broker said.

Life and Disability

Regardless of these considerations, life and disability insurers still draw the line at what they view as the most extreme of extreme sports.

BASE jumping falls into this category. BASE is the acronym for Building Antenna Span Earth, the places from which these parachutists jump. BASE jumpers have made headlines by plunging off the World Trade Center, El Capitan in Yosemite National Park in California and fog-shrouded Norwegian fjords. Often, their jumps from bridges and other public and private structures in the United States are illegal, and jumpers are embroiled in a long-running dispute with the National Park Service.

Mick Knutson, an experienced BASE jumper, said he and other people who engage in this sport can obtain life insurance, but their policies will rule out coverage under parachutist activities. Although Knutson maintains that the sport has become much safer in recent years with advancements in technology, insurers tend to focus on statistics. By Knutson's tally, nearly 1,500 people in the United States currently are active BASE jumpers, and another 300 jump occasionally. During the past 20 years, he estimates that 12 to 18 people have died in jumps worldwide. Other estimates put fatalities as high as 46 in the past 18 years.

In contrast, Knutson has encountered no major problems in obtaining a $1 million liability policy from one of the Hartford Insurance Group's property/casualty companies to offer him protection in his business activities-software development and distribution of information about BASE jumping.

"Basically, applicants participating in any of the extreme sports--and we get very few of these--are uninsurable from a life insurance standpoint," said Steve Matthiesen, director of technical underwriting for Hartford Life Insurance Co., Simsbury, Conn. As examples, he lists jumping from helicopters on snow skis onto uncharted ski runs, vertical rock climbing and parachuting from cliffs and buildings.

But Hartford Life sees many applicants who engage in what the company views as "hazardous sports"--mostly scuba diving and various kinds of motorized vehicle racing, such as auto, boat or snowmobile--and will issue them policies.

"Most of these applicants are insurable," Matthiesen said. "Many are insurable at what we call standard premium rates."

In other cases, Hartford Life is likely to provide coverage, but with some kind of extra premium rating. Hartford Life assesses these ratings based on the comprehensive underwriting manual of its largest reinsurer. Reinsurers have more experience in this realm because they see higher numbers of these types of cases from direct life insurance carriers. "The ratings are based on the reinsurer's mortality experience and overall general experience and are not assessed arbitrarily, "Matthiesen said,

UnumProvident, Portland, Maine, the nation's largest writer of individual and group disability income products, weighs an applicant's background and how often he or she engages in extreme sports.

According to the company's underwriting guidelines for individual policies, if a person is involved in an extreme sport by nature of occupation, then he or she would be uninsurable for disability purposes, said Catharine Hartnett, spokeswoman for UnumProvident. This would apply, for example, to guides or instructors. "If, in the application process, we learn that someone occasionally participates in an extreme sport, then we would ask the extent of training, experience and frequency of participation. And depending on the answers to these and other questions, we would make a decision at that point," Hartnett said.

Health Coverage

If the number of people who end up in emergency rooms is any indication, more and more Americans are participating in risky sports. For example, the U.S. Consumer Product Safety Commission reported in 1998 that 54,532 people were admitted to emergency rooms with skateboard-related injuries, an increase of more than 13% from the previous year. In 1997, that category had seen a 30% increase from the year before. The commission also noted that snowboard injuries had more than tripled, from 12,600 in 1993 to 40,667 in 1998.

For group medical plans, however, participating in these sports is not an issue. The federal Health Insurance Portability and Accountability Act of 1996 does not allow employer-sponsored medical plans to discriminate against individuals based on their health status and bans underwriters from excluding injuries that might result from high-risk activities.

Obtaining individual health insurance policies might be another matter, said Tom Wildsmith, policy research actuary for the Health Insurance Association of America. Still, health insurers could handle this kind of risk by increasing premiums or tagging on an exclusionary rider to the policy that would assure coverage except if the policyholder engages in an uninsurable risk activity, he said.

"In most cases, it would be more of an issue for life or disability insurers than for medical insurers because--let's face it--if something goes wrong with most of these activities, it's either catastrophic or fatal," Wildsmith said.

Property/Casualty Coverage

While life and disability insurers say they are seeing no increase in applicants who engage in extreme sports, property/casualty insurers report a surge in extreme sports insurance products and in the number of policyholders who provide venues for these sports.

Burns & Wilcox Ltd., an independent insurance wholesaler and managing general agent for specialty insurance products, draws on its large carrier network to locate insurers willing to offer coverage for higher-than-normal risks. If it comes up dry, it often will develop its own policies.

The Farmington Hills, Mich.-based firm issues nearly 20% of its policies through Lloyd's. It also works with more than 200 domestic and international providers, acting as liaison between the carriers and some 25,000 insurance agencies in 49 states.

Senior Vice President David J. Price has found that these days almost any aspect of extreme sport businesses can be underwritten--for a price. "We're getting to a point where, if you have a nonadmitted carrier, you can carve out of the coverage the extreme undesirable section of it," said Price, who heads the company's Special Risk Division.

For a large program of fishing and hunting guides in Alaska, for example, Burns & Wilcox "didn't want the aviation liability where these guide pilots would pick someone up at the airport, then fly them to some remote location to take them fishing or hunting," said Executive Vice President Steve Allen.

Allen, whose duties include product development, said the company "excluded that portion from the policy and included everything else." Guides who wanted aviation coverage then had to apply to a specialized aviation market, he said.

"Even with outdoor shooting galleries, which can be extremely dangerous, you can work around that," Price said. "You can either engineer it [for greater safety] or you can cut out the portion of coverage that nobody likes."

Price said Burns & Wilcox tried to fashion a program for hot-air balloon businesses. Ultimately, however, the company jettisoned that project.

"Most of these are commercially operated and take people for rides," Price said. "Unfortunately, their experience has been very poor, so there are only a very few carriers that will write them."

The big problem is sudden changes of wind speed when the balloons are close to the ground, trying to land, he said. "What happens is they land on the ground hard or they drag, causing people to be thrown out of the basket," he said.

Along with public liability coverage, the wholesaler also deals in finding coverage for some extreme sports participants. "For example, you can buy a policy on a short-term basis for a race car driver on a first-party medical, accidental death and disability," Price said.

Carriers who choose to insure extreme sports businesses usually are not the mainstream domestic carriers or the mainstream excess and surplus carriers, Price said. "They are likely those that are highly specialized and have had past experience in these kinds of coverages," he said.

One is Colorado Western Insurance Co., Wheat Ridge, Colo. Colorado Western writes recreational policies in 42 states, providing coverage for white-water rafting businesses; commercial rentals of jet skis, kayaks, roller blades and snowboards; race horses; hunting grounds and fishing grounds; climbing walls; bike and hiking tours; and water parks. The company also will write for special events, providing spectator liability at general sports gatherings.

The big insurance companies won't serve these policyholders "because it simply takes time. They leave it to niche companies like ours," said President Morris Nelson. For example, a farmer who wants to lease part of his acreage as a hunting area will find that his farm insurance policies won't cover this. "But we will," Nelson said.

Typically, Colorado Western writes limits of $100,000 to $1 million. The limit can be increased beyond $1 million with the addition of facultative reinsurance, Nelson said.

Started in 1986, Colorado Western has been in the recreational insurance business since 1991. In that realm, the company writes about $9 million to 10 million in premium a year, Nelson said, and business has increased 10% to 15% annually in the past few years.

A larger carrier, Frontier Insurance Co., Rock Hill, N.Y., is known in property/casualty circles as a company willing to take on unique risks. But Harry Rhulen, Frontier's chairman and chief executive officer, emphasizes that the company never takes on a policyholder that it perceives as risky.

"We only do business that we feel we can underwrite to a profit. So we don't really look at any of our business as being risky, per se," he said.

Generally, Frontier writes $1 million limits for its outdoor recreation activities and has found that most claims for injury resulting from these sports can easily be settled within a $1 million limit.

When the bungee-jumping craze hit the United States about eight years ago, Frontier at first turned down several individual operators who needed insurance. The company finally agreed to consider the account after the North American Bungee Jumping Association approached the insurer.

"That really is the issue. You need to have a large enough sample that you've got a spread of risk," Rhulen said. Insurers also need to have an expert in the particular sport so they can determine what the exposures are and properly underwrite them, he said.

In this case, that expert turned out to be a Frontier agent who was an experienced bungee jumper. He helped the company design the policy form and the underwriting criteria. He also performed inspections and tested safety measures by bungee jumping at each site.

"We figured if the agent was willing to jump the location and had certified the procedures that were being followed, we were fairly confident that what we were doing was well thought out," Rhulen said.

Rhulen, a hunting and fishing enthusiast, said he drew on his own expertise in starting Frontier's hunting and fishing outfitter and guides program when he was a company underwriter.

But even expert advice can't foretell every exposure. In its bungee-jumping program, for example, Frontier "had a claim where one of the bungee-jumping operators who used a crane for the jumps drove the crane through a set of high-tension power lines," Rhulen said. "How could anyone have ever anticipated that? We wound up paying a significant amount of money on a property-damage claim."

Rhulen also said no one at the company had envisioned the court ruling declaring that employees who were bungee jumping after work would no longer be considered employees but invited guests. "And we wound up getting claims that resulted from employees being injured, and they had not signed a waiver;" he said.

In its bungee-jumping program as well as its other outdoor recreation programs, Frontier requires its commercial policyholders to have participants sign waivers, a typical move by insurers that write policies for extreme sports risks. This is a good way of limiting an insurer's exposure to lawsuits because it shows that the participant knew what the risk was and voluntarily encountered it, Rhulen said.

Most of the carriers offering this kind of coverage exclude the participant completely, said Price, of Burns & Wilcox. "So the only coverage is if the participant fell on somebody or something, and they offer only a defense cost based upon the waiver that the person has signed."

Frontier no longer insures bungee jumping because the activity has been legislated or otherwise regulated out of business, Rhulen said. "It's no longer a program for us because there aren't enough operators around to do it any longer," he said.

That development could be merely an aberration or a hint of things to come in insuring extreme sports.

Price thinks economic realities will determine how this sector plays out. If, indeed, as some indicators show, the property/casualty industry is emerging from the long-running soft market, then extreme sports enthusiasts and businesses could find it a lot more difficult to get past insurers' probing questions and obtain coverage at reasonable costs.

"The way the market is going," Price said, "people will find pricing might be increasing and terms might be getting tougher when the marketplace recognizes these hazards."

                            The Risks Are Real
            The U.S. Consumer Product Safety Commission tracks
              statistics on sports injuries that patients say
                are related to the activity, the apparel or
                                equipment.
                                Number of    Percent Treated   Percent
Sport                           injuries [1]  and Released   Hospitalized
Mountain and all-terrain biking  19,662           94.3           5.7
Mountain climbing                 2,994           81.2           17.5
Scuba diving                      1,646           92.6           7.3
Skateboarding                    54,532           96.7           3.0
Snowboarding                     40,667           95.8           4.0
Snowmobiling                      8,393           89.1           10.9
Snow skiing                      81,787           93.7           6.0
Snowtubing                        1,578           95.7           4.3
Two-wheeled, powered
  off-road vehicles              39,339           91.7           8.1
Water skiing                     14,487           94.1           4.4
(1.)Estimated total for 1998, based on a sample
of hospital emergency rooms.
Source: U.S. Consumer Product Safety Commission

Underwriting to the Extreme

Carriers such as Hartford Life Insurance Co., Simsbury, Conn., weigh a host of factors in determining whether they will issue a life insurance policy to an extreme-sports enthusiast.

For example, if an applicant participates in motorized vehicle racing, Hartford Life will consider the type of car, boat or snowmobile used, said Steve Matthiesen, director of technical underwriting. When underwriting those involved in auto racing, even the condition of the racing surface, be it asphalt or dirt, can make a difference in the insurer's assessment, he said.

Experience counts for a lot, too. If an applicant has a long track record of safe activity, that's positive. But a beginner would receive lower marks.

"If the proposed insured is a pilot, we would look at experience as a primary factor," Matthiesen said. "This is done by reviewing the number of hours flown 12 months previous to the application date, how many are planned for the present year and those that are planned to be flown in the next 12 months."

Also, certain designations and flight ratings are reviewed. "A pilot with only a visual flight rating is not assessed as favorably as one who has an instrument flight rating," he said. Pilots with an instrument rating are qualified to fly when visibility is low, requiring them to rely exclusively on their instruments for navigation.

It looks much better on the application if the enthusiast belongs to a sanctioned club or association.

"When underwriting those involved in scuba diving, hang gliding, auto racing and mountain climbing, being a member of a sanctioned club assures that certain safety standards are being met that would not exist outside of the organization," Matthiesen said. "If the proposed insured is not a member and they just go out and participate somewhere once or twice, they are not assessed as favorably as a sanctioned club member." The insurer weighs group events vs. individual forays and would look more favorably on a scuba diver, for example, who dives with partners rather than solo.

Hartford Life also looks at degree of difficulty in hazardous sports participation. "Speeds obviously are a big factor when underwriting those involved in motor vehicle racing. In underwriting scuba diving, we look at the depths that are attained, and in mountain climbing, we look at heights," Matthiesen said.

Frequency of participation also matters, with more credit given to a regular participant with a good track record of safety, Matthiesen said. "If they scuba dive to 100 feet, and they only do it once a year, their relative risk is much higher, and they are assessed accordingly."

AIG Life Cos., the U.S. life insurance operation of American International Group Inc., New York, provides activity-based coverage for participant groups, both low- and high-risk, said Susan Clarke, assistant vice president and profit center manager.

"We would write coverage for the member of a certain association while performing or participating in an activity," Clarke said. "We are comfortable writing a high-risk policy, which might, for example, cover all members of the National Bungee Jumping Association during an annual bungee-jumping contest?'

The average policy offers $50,000 in accidental death and dismemberment coverage and $25,000 in accident medical coverage. But the company can offer significantly higher limits given its financial strength, Clarke said. Rates are determined based on a number of factors, including claims experience, type of activities, age of participants, experience of participants, frequency of activities and level of competition, if any, she said.

AIG Life collects a variety of information to underwrite these accounts. First, it evaluates similar risks with regard to activities and losses. "We often use research available from the National Safety Council to gather statistics on injuries and/or deaths," Clarke said.

Another mainstay is the corporate research department and its access to a number of sources. Finally, AIG Life will contact "the relevant national association, which can help us determine if there is additional data to be considered," Clarke said.

Taking Cover for Extreme Operations

Mick Knutson, a technology consultant who has worked for PriceWaterhouseCoopers and Oracle Corp., is president of BASE Logic Inc., Tahoe City, Calif. While the company's Web site, www.baselogic.com, provides Knutson's extensive resume, it's sandwiched in among thousands of topics related to BASE (Building Antenna Span Earth) jumping, or fixed-object jumping. That's really Knutson's passion.

A longtime skydiver who said he gave up that sport because it was dull, Knutson has been BASE jumping for 10 years. "The only injury I've gotten is a scratch on my hand," he said. "It's really not as dangerous as the media keeps hyping it to be."

His corporation operates three lines of business related to BASE jumping: the manufacture of gear; the distribution of information and instruction to jumpers via the Web site; and leadership and coordination of expeditions and events.

BASE jumpers' equipment is still classified as experimental gear, Knutson said. "Most manufacturers do not get insurance to cover liability due to improper handling of gear," he said.

In regard to software development and the distribution of information, Knutson is covered by a $1 million liability policy if he is found negligent. His Web site includes a bold disclaimer and guidelines that inform visitors that BASE jumping is "a very dangerous sport" and that BASE Logic is not responsible for the usage of any information on the site. Elsewhere, visitors can click on "Base Jumping 101" and such topics as technical information, safety rules, and proposed written and practical tests for beginning, intermediate and advanced jumpers.

"What I have to deal with is making this information very explicit," Knutson said. "I have to be careful what information I put out there. I'm continually struggling to make the information accurate and complete."

As for BASE-jumping events, Knutson is plugged into the International Pro Base Circuit, which includes more than 70 competitors on 10 teams. They make more than 1,500 jumps at each of the meets, which can be held anywhere from Venezuela to Norway. Most countries permit BASE jumping, but it remains illegal in most U.S. locales.

Knutson said the circuit obtains a $1 million liability policy for each event. "It's easy to get a policy, but it's not necessarily cheap," he said. Often, insurers will require that medical and rescue personnel be on call during the event. "They've had a couple broken ankles in the past several years," Knutson said.

Advancements in technology, mainly in the design of parachutes and rigging, have improved the sport's safety record, Knutson said. "From 1980 to 1990, if you made it past 100 jumps, it was an historical landmark," he said. "Then after 1990, we hit the 500-jump mark." It's not unrealistic for enthusiasts to set the bar much higher now at 1,000-plus jumps, he said.

Could that mean there could be a bigger appetite among insurers for BASE-jumping business? Maybe not right away.

The prospect of insuring BASE jumping doesn't interest Frontier Insurance, Rock Hill, N.Y.As Harry Rhulen, the company's chairman and chief executive points Out, Frontier insures commercial operations, and that eliminates BASE jumping since this extreme sport--for the most part--is not a for-hire or for profit operation.

But Rhulen said he wouldn't hesitate to consider a program for parachute operations. "We've never been approached with one, but if there was a significant group [of parachutists] with sufficient critical mass that we thought we could get enough premium, that would be exactly the type of program that we would look at," he said.

ASU International, Stoneham, Mass., writes disability and accidental death policies on top athletes in standard sports, such as football, basketball, baseball and ice hockey, and works closely with the Lloyd's market. In the past few years, it also has written policies for champions in snowboarding, a sport that many regard as extreme risk. These disability policies insure against permanent injuries that would prevent the snowboarders from meeting their contractual agreements to endorse a sponsor's products, said Candace Hallett, executive vice president of ASU.

Would her company consider insuring big-name BASE jumpers, too?

"It's an interesting area," Hallett said. "We never discount what could happen in the future. When we embarked on insuring basketball players, $1 million seemed like a lot. Today, it's much higher."

Hallett thinks the future of extreme sports "will depend on public interest." If sports such as BASE jumping attract more broadcast time and more exposure for the participants, sponsors might be willing to spend money for endorsements. "And if there's a lot of money involved, we might be a market," Hallett said.

Risky Sports Gain in Popularity

Americans have more recreation choices today, but few actively participate in traditional sports, let alone extreme sports, say the authors of a new book.

Academics Rodney B. Warnick and John R. Kelly have written Recreation Trends and Markets: The 21st Century, which looks at the way Americans spend their leisure time. Warnick is a faculty member in the department of hotel, restaurant and travel administration at the University of Massachusetts in Amherst. Kelly is a professor emeritus at the University of Illinois at Champaign-Urbana.

In writing the book, the two studied participation trends in 103 leisure activities, drawing their data from annual market-research surveys of 15,000 to 23,000 households. They concluded that despite the mountain biking and snowboarding images that abound on television and in glossy magazines, American adults are far more likely to golf, walk or gamble in their spare time.

A lot of the activities they looked at have participation rates of less than 10% of the population, Warnick said. One reason could be the fragmentation of leisure activities. For example, activities once classified under the general heading of "bicycling" now would be broken down into the categories of "road or tour cycling," "off-road mountain or on-road biking."

"However, within selected activities and within the actual portion of people who do participate, you could have a very committed core of participants," Warnick said.

That may be true of certain extreme sports, where the number of participants also has increased in recent years. Warnick cited these examples:

* Snowboarding: During the 1990s, the number of snowboarders rose from about 1.8 million to 3.6 million.

* Skin diving and scuba diving: From 1979 to 1996, participation in these activities rose 75%, from 2.6 million to 7,5 million enthusiasts.

* Rock climbing: An estimated 5 million Americans were rock climbing in 1993, and their numbers grew to 8.3 million in 1997.

* Mountain biking: During the 1990s, the number of people engaged in off-road mountain biking rose about 15% a year, increasing from less than 4 million in the early 1990s to more than 8 million in 1997-98.

* Riding personal watercraft: An estimated 7.2 million Americans ride personal watercraft, but a large percentage of them (72%) do so infrequently, often while they are on vacation, Warnick said.