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The NCAA has dipped into its reserves to come close to fully insuring its basketball tournament after lacking complete coverage in the past, the association's internal documents show. The association's move appears to come in the wake of the COVID-19 pandemic leading to the cancellation of the 2020 tournament.

In January, the NCAA Board of Governors voted unanimously to spend $175 million to establish an insurance "captive" that addresses, among other things, a shortfall in its event cancellation insurance. A captive is a form of self-insurance where the buyer essentially establishes its own company, in part to save money as opposed to paying expensive premiums to a third party.

In this case, the NCAA may not have had another option. Major events have become more difficult to fully insure following the COVID-19 pandemic because there is virtually no insurance carrier in the market offering a policy that would cover communicable diseases.

"The communicable disease [policy] is basically not available at all," said Warren Harper, a 35-year industry veteran who is currently the global sports & events practice leader at Marsh McLennan, a global insurance firm. "Some people have said it's gone forever and will never come back."

That concern, combined with rising premiums, have made big-event insurance even pricier. The sports and entertainment industry endured losses between $6 billion and $10 billion amid COVID-19, Harper added. As such, premiums in that space have risen between 25% and 50% in the post-COVID-19 world. That means, for every $1 million of coverage, an entity like the NCAA would pay in a range of approximately $10,000 to $14,000.

While the NCAA did not state specifically the captive was established amid a lack of communicable disease coverage, it provided the following statement to CBS Sports: "One of the risks included in its captive is event cancellation after an analysis revealed lack of coverage, limited access to markets and the increased cost of event cancellation insurance available in the commercial insurance marketplace."

The money for the captive is coming from "the current budget for third-party legal fees and insurance premiums, the current balance of the litigation reserve and additional dollars from other NCAA reserves," according the October 2021 report to the NCAA Board of Governors.

The self-insurance policy, labeled "The 1910 Collective" in documents, took effect March 1, 16 days before the beginning of the 2022 NCAA Tournament. The $175 million that was set aside will also cover liability insurance for NCAA officers, according to the report.

"There's virtually no [major] events right now that are fully insured," NCAA president Mark Emmert told reporters late last year.

Insurance didn't fully cover cancellation of the 2020 tournament, though the NCAA did receive a $270 million payout, which its broker, at the time, said was the largest event cancellation insurance payout in history. That figure represented approximately 40 cents on the dollar for the NCAA's 1,200 schools who depend on tournament revenue for their budgets.

Since then, the COVID-19-impacted 2021 Tokyo Olympics may have received a larger payout, Harper said.

The COVID-19 pandemic is the most severe since the 1918 global influenza pandemic that killed an estimated 50 million people worldwide.

There was a loss of ticket revenue (approximately $100 million) resulting from the 2021 NCAA Tournament being played in front of only a fraction of fans in Indianapolis. With its coverage, the NCAA was able to assure a full $613 million payout to members last year.

The three most important categories that a major event must insure are media rights, ticket revenue and sponsorships. The NCAA was able to collect its media rights money because all 67 tournament games were televised.

Last year also marked the end of the NCAA's three-year insurance policy. That exposed the NCAA to the task of accounting for communicable disease coverage. Since 2006, the NCAA has retained global risk manager Willis Towers Watson as its consultant on event cancellation insurance.

"When the NCAA looked to renew coverage for the 2022 tournament, a lot of it was going to look similar," said John Beam, a broker for Willis Towers Watson, "but there is not coverage for communicable disease right now."

Beam added: "No one bought more insurance for event cancellation. There is not a higher limit out there than what they had."

The NCAA did not provide chief financial officer and risk manager Kathleen McNeely for comment. McNeely and NCAA legal counsel Scott Bearby are among those listed as managers for The 1910 Collective.

When asked if there is any danger of the membership payout not being fully protected, Emmert said, "There is always a danger of that."

Industry sources told CBS Sports the limit for big-event insurance is current being capped at $250 million to $300 million. The NCAA Tournament is the largest revenue producer for the association's 1,200 members. The NCAA generated $1.15 billion in revenue in 2021, according to its latest financial statement.

Self-insurance could be a future option for the Big East as it looks to insure its lucrative basketball tournament, commissioner Val Ackerman told CBS Sports. The league got a $10.5 million insurance payout for the loss of the 2020 tournament from Chubb Limited, a Zurich, Switzerland-based global insurance provider. The Big East is covered for communicable disease this month due to a three-year policy taken out in 2020.

"The question [for self-insurance] would be, if you had enough in your reserve fund, could you set some aside there?" Ackerman said. "That way you get out of the premium. We're going to have some different options because the communicable disease coverage is going to be impossible."

Self-insurance is described as a risk management technique in which a company sets aside a pool money to address unexpected loss. One example: A building sits on a large hill next to a floodplain. Instead of paying costly premiums for flood insurance, the building's owner sets aside money that would cover repairs of the building in the unlikely event flood waters crept up that hill.

"You have to think about it as a large deductible, honestly," Harper said. "You're choosing to retain some of that risk."

Veteran insurance executive Pat Kilkenny, formerly the athletic director at Oregon, further described the process this way: "Harrison Ford is in a movie. Well, he gets COVID. The $100 million production shuts down. The banks won't finance [the movie] unless they have COVID coverage. I was able to help facilitate some coverage for TV and movie industry that got the industry back operating modestly."

The University of California system has used multiple captives for insurance over the last decade. According to UC documents obtained by CBS Sports, there are more 7,000 captives worldwide and between 40% and 50% of U.S. corporations use them.

"You basically own an insurance company that you also control," said insurance expert Richard Giller, a partner at business law firm Greenspoon Marder. "You can write insurance policies, but you're basically only writing insurance policies for yourself. By creating an insurance company, you do a couple of things: You put money into the company, and you invest the money. … It probably makes a lot of fiscal sense."

That NCAA risk manager, Willis Towers Watson, is listed as the UC captives' consultant and manager.  

"The other interesting angle there is, why didn't the NCAA think about this 10 years ago?" Giller said. "Would it have fully insured the 2020 losses?"

Giller speculated the insurance for NCAA executives could be so-called "D&O insurance", which protects the assets of high-level employees in the event they are "personally sued by employees, vendors, competitors or customers", according to one insurance website.

It is not uncommon in class-action lawsuits against the NCAA to include Emmert and the board. In the event of such a suit, D&O insurance would pay the defense costs.