ASK THE MXPERTS: (09/17/09)

Dear MXA,
    Can you explain the insurance policy that Chad Reed took out at the beginning of the AMA National series? I missed the details when it was mentioned during one of the race broadcasts.

    Chad took out an insurance policy on his National bonus. Every factory team and clothing company does it. It works like this: If you run a company and agree to pay Davi Millsaps a $1,000,000 bonus if he wins the 2010 AMA 450 Supercross Championship, you can contact the Lloyds of London insurance company and ask them how much it would cost to insure that one million dollars. The going rate is between $200,000 and $300,000 (although the amount of the payment varies on the rider’s chance of winning the title).

   Lloyds’ claim adjusters evaluate the rider’s possibilities and then indemnify the manufacturer against having to pay the bonus. If Millsaps wins, Lloyds pays the million, if he doesn’t win they keep your $300,000 dollars. It is even possible to insure a rider’s base salary against injury. The team or clothing company takes out an insurance policy that will pay the rider’s salary if he get injured. Under his plan, if a team agrees to pay a rider $800,000 and he gets hurt at round three, the insurance company picks up his salary payments for as long as the rider is out of action. When you spread all the insurance policies out across a wide range of riders and circumstances, Lloyds (or any other underwriter) makes money. Under this plan, the manufacturer is out $300,000 win or lose, but they aren’t out a million. Chad bought his own insurance policy for $300,000 that would pay him $1,500,000 if he won (and he did).