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cost of ownership
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horseshoer or farrier
do I need insurance?
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Do I Need
"To insure or not to insure"
is a question faced by all Thoroughbred owners. The overview below of the
various types of insurance that can be acquired. This material is provided
courtesy of Kirk Horse Insurance.
HORSE OWNER LIABILITY INSURANCE
MAJOR MEDICAL INSURANCE
FALL OF THE HAMMER INSURANCE
COVERAGE DIFFERENCES BETWEEN FULL MORTALITY POLICIES
MARE FERTILITY COVERAGE (Guaranteed Live Foal)
AIR TRANSIT COVERAGE
HOW PREMIUM RATES ARE DETERMINED
THE PLAYERS (AGENTS, BROKERS, INSURERS AND UNDERWRITERS)
STALLION INFERTILITY COVERAGES
APPENDIX A: LARGE CLAIMS BETWEEN 2001 AND 2004
One good reason for you to purchase insurance is that it is
priced very competitively and closely tracks what loss
experience you are going to have whether you are insured or not.
Instead of being subject to the vagaries of Mother Nature,
buying insurance breaks down the loss factor into predictable
increments. In a sense, it is a useful planning device to ensure
that you budget for the inevitable horses that die or foals that
don’t get born.
But, the best reason to insure is that Mother Nature is very
unpredictable, at least during the short term. Even the best
cared-for horses sometimes die just when they are reaching their
peak value. A partial listing of just the most famous and
expensive horses which died between 2001 and 2004 is attached as
Appendix A. This doesn’t begin to cover all the “ordinary”
$250,000 and $500,000 horses which died.
As a horse owner you should also protect yourself from the
unpredictable nature of horses who without warning may cause
injury, death or property damage to a third party.
Horse Owner Liability Insurance
Horse Owners Liability is insurance that covers injury or damage
to persons or property caused by the horse. It is the equine
equivalent of product liability or medical malpractice coverage.
Some people assume they are covered for this in their
homeowner’s policy, but homeowner policies almost always exclude
“commercial pursuits” from coverage. So, any obvious commercial
horse activity, such as a racing stable or show horse operation,
would not be covered.
Insurance experts consider this form of insurance really
mandatory for a horse owner as without it, your entire net worth
might be at risk if your horse accidentally injured or killed
someone. In today’s litigious society, you could be sued for
negligence and, even if the case is ultimately decided in your
favor, the legal expenses of defending yourself could be
sizeable. Most Owner Liability policies will cover any damages
you might be liable for and your legal expenses.
Horse Owners Liability Coverage is a standard part of a
Farmowner policy. If you don’t have a large enough operation to
justify a Farmowner policy, you can purchase coverage through a
Private Horse Owners Liability policy. The cost for $1,000,000
of liability coverage is currently $95 per horse, with a $190
minimum policy premium.
A Horse Owners Liability policy typically does not cover
injuries to employees of the horse owner who care for the
horses. A Workers’ Compensation policy will be needed for such
A Horse Owners Liability policy also does not typically cover
damages to horses boarded for other owners which are under your
care, custody and control. There is specialized coverage for
that exposure and the cost depends on the number of horses being
boarded and their values. For example, if you board twenty (20)
horses owned by others and the most valuable of the horses is
$200,000 or less, you could probably get $500,000 in Care
Custody and Control coverage for about $1,650 per year. If the
maximum value of any one horse was $50,000 or less, the premium
for this same number of horses would likely drop to
approximately $825 for $250,000 total coverage.
Anyone who has paid veterinary bills can appreciate how easy
Major Medical insurance is to sell. This relatively inexpensive
type of coverage is widely used for show horses and for
racehorses which have been retired to breeding. It is usually
not offered for horses being used for racing because of the
rigors of training. Typically, the cost of $10,000 of Major
Medical coverage is about $275 per year per horse.
It is very important to compare Major Medical policies to
determine what veterinary procedures are covered. Some companies
take the position that only life-threatening conditions are
covered, and, oftentimes, the diagnostic work-up to determine
whether it is life-threatening may end up not being covered.
The types of coverage which involve the most premium dollars are
mortality and fertility insurance which fall in the category of
“discretionary purchases”. That is because the typical horse
owner is usually wealthy enough to self-insure if the cost of
the insurance isn’t fair. In effect, this competition from
self-insurance is what has always kept the horse mortality and
fertility market very competitive.
There are two broad types of coverage against death of the
• Specified Perils (Fire, Lightning, Transportation, and
Windstorm) coverage starts as soon as coverage is bound --
examination of the horse is not required. It costs between ½%
and 1% of the horse’s value. It does NOT cover the most frequent
causes of death – colic, other sicknesses, diseases or injuries.
• All Risks (or “Full”) Mortality covers most causes of death
and the premium rate is usually about 3% to 5% per year. So, a
$100,000 yearling would cost about $3,000 per year to insure.
Larger stables often use an “annual aggregate deductible”
approach which gets the premium rate down to the 1.5% to 2%
range. The deductible is normally about 2% of the total insured
value on the policy.
Full Mortality coverage usually requires a veterinary
examination to prove the horse is in good health prior to
inception of coverage. Vet exams are frequently waived for
horses insured at “fall-of-the-hammer” at public auction (based
on the premise that a buyer has had a more extensive
“pre-purchase” exam done by a veterinarian prior to bidding on
Veterinarians should not delay completing an insurance exam
pending a horse’s recovery from a sickness or injury. There is
some debate between veterinarians and underwriters as to whose
job it is to determine if a horse is insurable. It is not really
the veterinarian’s job, although some still believe it is. The
veterinarian’s role is to use his/her expertise to accurately
evaluate and report on the horse’s health. It is then the
underwriter who ultimately must decide whether the condition is
acceptable. Naturally, opinions differ among underwriters.
Coverage Differences Between
"Full" Mortality Policies
• Renewability -- Most companies require evidence of good health
(via an updated veterinary exam) prior to each annual policy
renewal. If a horse is sick or injured at renewal, the companies
will provide an “extension of coverage” for 30 days to 1 year
(depending on the extent of coverage purchased by the horse
owner). If the horse dies during the extension period as a
direct result of the sickness or injury previously reported, a
claim is typically honored (assuming proper veterinary care was
If the horse is still alive at the end of the extension period,
there are typically three options:
(1) terminate coverage;
(2) continue coverage at a higher premium rate that reflects the
increased risk; or
(3) continue coverage with an exclusion for the (now)
Higher valued horses are generally scrutinized more carefully
before coverage is renewed if the horse has become impaired.
Some insurance policies contain a “Guaranteed Renewable”
provision (without any veterinary exam requirement) for horses
up to 14 years of age. The company specifically agrees to
continue coverage at standard rates regardless of the horse’s
health. After age 14, renewal is subject to an acceptable
veterinary exam just like most other companies.
• “Actual Cash Value” vs. Agreed Value – Many companies have an
“actual cash value” type of coverage, whereby they reserve the
right to pay the “actual cash value” (as they determine it)
immediately prior to the injury or sickness that leads to death.
Racehorse values fluctuate constantly depending on recent
“form”. Even the value of a broodmare can change sharply
depending on the stallion to which she has been bred (and
whether she is in foal or has aborted), and based on whether the
mare has an early or late “last service date”.
A policy with Agreed Value is superior to an Actual Cash Value
policy. There is no extra charge to have an Agreed Value policy
vs. an Actual Cash Value, you just need to request it in the
beginning and you and the insurance company need to come to a
value. If the horse has previously been insured for its full
value and the value declines, a new value can be negotiated.
Usually the insured will initiate a reduction in value before
the insurance company even notices the horse has declined in
value. Most people are not looking to over insure their horses
and want the premium refund that will result from a reduction in
insurance is not a separate type of insurance, just a term used to describe
the point in time that your mortality insurance coverage begins
when you purchase a horse at public auction. For owners that
already have policy in place they can have it set up to
automatically add horses purchased at public auction "at the
fall of the hammer" which is when, per terms of sale, most
auctions companies dictates ownership transfers from the seller
to the buyer. For those without an existing policy you need to
establish one up prior to the sale you plan on purchasing from.
It is important to be aware of this simple yet very
important clause because sales are a stressful hectic places.
Your new purchase could become injured walking back to the barn
after it leaves the sale ring, or loading on the van to leave
the sales grounds or it could fall ill shortly after purchase.
If you plan on insuring your new purchases make sure you have
"fall of the hammer" instructions on your insurance policy.
The value of horses purchased at public auction are usually
based on the purchase price or RNA price.
Vet exams are
usually waived for horses insured at “fall-of-the-hammer” at
public auction based on the premise that a buyer has had a more
extensive “pre-purchase” exam done by a veterinarian prior to
bidding on the horse.
Insurance is a special pricing of mortality insurance for
yearlings only and can be purchased on a 12 month plan that can
prove economical during the first year of ownership for sales
yearlings before your horse actually races. If a yearling
purchased in the fall makes its first start in June of its
2yr-old year, it would still be covered under the yearling rate.
These policies are full mortality plans and typically
cover losses due to accidental injury, illness, or disease, or
you can opt for non-comprehensive coverage and address specific
risks such as fire or transportation. Plans may also include
coverage for colic surgery or other emergencies.
the most economical premium rate there is. The premium rate for
a yearling is about two-thirds the rate of an already racing
horse. If you buy full mortality coverage on a
yearling/potential racehorse, and that horse begins racing
before the fall of the following year, then you're enjoying the
benefits of the policy at a much-reduced rate.
Mare Fertility Coverage (Guaranteed Live Foal)
Stallion seasons are usually purchased on either a “live foal”
(LF) or “no-guarantee” (NG) basis. With a NG season, the
purchaser bears all the risk of his mare failing to conceive or
produce a live foal. In fact, even if the stallion dies before
ever covering the mare, the NG season owner is usually not
entitled to any refund.
There are different versions of LF contracts, but the common
thread in all is that the purchaser gets his/her money back (or
does not have to pay it in the first place) if his/her mare does
not produce a LF which can “stand and nurse”.
An NG season is typically sold for much less than a LF season.
If the discount is great enough, it could save you money if you
purchase the NG season and use an insurance policy to convert it
to the equivalent of a LF contract.
This can be done via what we call a Conception and Prospective
Foal (C & PF) policy.
With the use of insurance, the NG contract can actually be made
superior to the LF contract. This is because the LF guarantee in
a LF contract is usually not transferable if the mare is sold.
In fact, there are some LF contracts that terminate the LF
guarantee as soon as the mare shows up in a catalog for a public
auction. In contrast, if you have purchased a NG season and used
insurance to guarantee that a live foal will be produced, the
coverage can be transferred to a new owner. Obviously, this
could be an inducement for the prospective new owner to pay a
higher amount for the mare.
Alternatively, as the original owner of the mare, you could
simply request termination of the insurance policy once the mare
has been sold. In this case, you would be entitled to a refund
for the unused portion of the insurance coverage.
Air Transit Coverage
Broadly speaking, there are two types of mortality coverage
during an air shipment between different countries. Some
policies provide coverage only for death during the transit,
due, for example, to a crash. Other, more suitable, policies
also provided coverage for illnesses contracted during shipment
which lead to death after the transit is completed.
note regarding Air Transit Coverage
In order to reduce the risk of disease transmission, almost all
countries have quarantine requirements for newly arrived
animals. Our USDA has certain blood tests that must be performed
during quarantine which must be passed before an animal is
released for permanent entry in to the USA. It is possible to
purchase insurance to protect against a horse being denied entry
into a country (called Frustration of Import coverage).
Whoever wins the draw in a claiming race is completely
liable for the horse they are claiming as of the instant it leaves the starting gate. If
the horse has to be destroyed as a result of injuries sustained in the race (within 24
hours or 48 hours, depending on the terms of your policy and with cause confirmed by two
licensed racetrack veterinarians), the claiming owner must still buy the "dead"
horse for the pre-agreed claiming price, and even pay the expense of having it removed
from the racetrack. In terms of insurance, there is nothing "automatic" or even
probable about reimbursement in this case. IF you already have a horse (or horses) at that
track which are covered by an annual policy, ask your broker whether or not your policy
extends to other horses you may suddenly acquire (i.e., claim). If not, you may want to
take out Claiming insurance before you enter a claim on a new horse. One problem: you may
not be able to get it. Claiming insurance is the loss-leader in equine insurance. It is
extended only as an accommodation to owners with large stables already insured, or to
trainers with good histories and good relationships with the insurance carriers. IF you
can land Claiming insurance, it will cost only .85% to 1% of the claiming price listed for
the horse (obviously, a good investment).
How Premium Rates Are Determined
Underwriters develop rate tables by charting historical trends
and these are the rates filed with the various State Insurance
Departments. But, in the final analysis, competitive pressures
in their rawest form often forge rates. For example, from 1986
to 2002, rates for horse insurance were under considerable
downward pressure and many companies consistently lost money.
Some experts believe there were simply too many companies
wanting to write horse insurance. It took the combined onslaught
of Mare Reproductive Loss Syndrome in 2001 and 2002, numerous
and huge Stallion losses all over the world, the terrorist
attack on the World Trade Center and the collective D&O coverage
debacles at Enron, Tyco and World Com to turn things around.
There were no less than six MAJOR markets for horse insurance
that ceased writing coverage between 2001 and 2004. In addition,
most underwriters at Lloyd’s cut back on their maximum exposure
per horse during this same period.
One of the most frequent mortality insurance disputes arises
because the owner fails to provide proper notice of sickness or
injury to one of their horses. Insurance carriers almost always
require immediate notice of life-threatening injuries or
sickness. Generally, it is not a valid defense that the owner
was unaware of the condition requiring notice. It is the owner’s
obligation to inform the people taking care of their horses that
they are insured, and that the insurance company must be called
immediately if the horse is sick or injured. The reason
insurance companies are very sensitive to this provision is that
they want to be certain that proper (and sufficient) veterinary
care is being provided.
What constitutes “immediate notice” depends somewhat on the
severity of the problem, but is generally in terms of minutes or
hours rather than days
One rule of thumb on what is a “life-threatening” condition is
any condition where the veterinarian cannot reasonably give
assurance that the condition is not and likely will not be life
Another possible coverage dispute arises if a horse is
transported to another country without informing the insurance
company. Most mortality policies have a defined coverage
territory and if the horse is transported to a different
country, the owner must notify the insurance carrier, and
perhaps be subject to an additional premium. After all, the
hazards one might face in Iraq might be a bit greater than
The Players (Agents, Brokers, Insurers
Some insurance brokers go to great lengths to stress the
difference between themselves and insurance agents. Technically,
a broker represents only the customer and is supposed to have
access to many different insurance companies, whereas an agent
is thought to represent the insurance company’s interests.
The fact of the matter is most of the leading horse insurance
agents now represent multiple companies. The agents find this is
a competitive necessity, and they routinely get quotations from
two or more companies before making a recommendation to their
The Lloyd’s of London “market” is actually made up of about nine
underwriting “entities”. The entity may be an insurance company
such as XL Capital or the Lexington Insurance Company (a
division of AIG) or they can be syndicates which issue coverage
only under the Lloyd’s of London banner. Each of the nine
entities at Lloyd’s has a maximum capacity per individual horse
depending on their financial backing and appetite for risk.
Every admitted company must file their premium rates and policy
forms in compliance with the Insurance Department regulations in
each state where they transact business. Premium rates vary by
age and use of the horse. For example, a horse currently racing
commands a premium rate of roughly 4.5 – 5.5%, whereas the rate
for a young broodmare, stallion, or yearling is about 3.25%.
Some leeway in rates is generally permitted by the company’s
rate filing. The simplest example of this is a volume discount
for large amounts of coverage. In addition, each underwriter
will generally have his own view as to which category of horses
offers the best profit potential and will tend to be more
“receptive” to horses in those categories. Since there are only
a relative handful of underwriters, the better agents know the
type of risk each underwriter prefers and will direct his
business accordingly. For example, underwriters who have had a
long and profitable association with a particular farm may be
extra competitive for any client who boards at that farm, even
if the client might not qualify on his own for a volume
Underwriters at Lloyd’s can choose to work together on a
particularly high valued horse, or group of horses, or they can
choose to compete with one another just like they would do
against an American company. Some underwriters prefer to go it
alone, or at least be the “lead underwriter” (and, typically,
take the largest share of the exposure) even when they are
working in cooperation. Others prefer the exact opposite and
almost never take the lead. Some Lloyd’s brokers, however, will
occasionally bypass the agents and deal directly with the retail
The two largest American companies insuring horses are North
American Specialty Insurance Company (Swiss Re Group) and Great
American Insurance Company.