Tuesday, 5 June 2012

Sporting Costs

This weekend's addition to the social cost of sport in New Zealand:
Motocross riders pushed themselves "to the max" at the annual Michael Godfrey Memorial Motocross this weekend, with nine riders having to be flown to Christchurch Hospital with injuries.
The 29th Michael Godfrey memorial event was held on Saturday and yesterday at Omihi, attracting 300 riders from around the country.
Nine riders had to be taken to Christchurch Hospital by the Westpac rescue helicopter.
All were treated for moderate injuries, ranging from concussion to limb fractures.
Race director Graeme Allan said it was ''an amazing weekend''.
''We had an incredibly strong depth of talent there. It's just the strongest team we've ever had.''
He said the number of injuries was not surprising given it was a ''national-calibre event''. [emphasis added]
The Accident Compensation Commission charges levies on employers that are adjusted by the employer's industry and history of workplace accidents [the Employer's Account], a 1.7% levy on all earnings* [the Earner's Account], levies on car registration,** and a separate levy on petrol. Finally, the government kicks in a bit for those not in employment. It looks like normal sporting injuries are covered out of the earners' or non-earners' accounts, depending on the employment status of the injured person; injuries to professional athletes as part of their job would come from the Employer's Account.***

What does this all add up to?
Figures released under the Official Information Act show that ACC paid out $56 million for rugby-related claims in the past financial year, making it the costliest sport for injuries.
The Wellington region generated $5m worth of rugby injuries.
The total cost to ACC for sport-related claims in the 2010-11 financial year was $333,995,252, of which $29,356,295 was paid out for injuries in Wellington.
Some of that will be injuries to professional athletes and would consequently come out of their paid levy on earnings. A professional rugby player's employer pays pays a 6.46% ACC levy on payroll, but with discounts of up to 58.7% if the employer agrees to self-fund some workplace accident costs. " For comparison purposes, central bankers pay 0.09% and universities pay 0.14%, both with similar access to the discount plan above-linked.

I'd be curious how the total above spilt between professional and amateur athletes; while the article gives the top-costing broad sporting categories, it didn't split those by whether they came out of employers' or earners' levies. Few of this weekend's motorcyclists would have been riding as part of their jobs, so they'd likely have had rides in the Westpac chopper paid by ACC out of the Earner's or Non-Earner's accounts.

A few points:

  • While underpricing of sporting risk will yield some distortions in risk-taking in sport and in choice of sport, ACC here mostly funds a transfer from those who don't participate in sport to those who do.
  • It doesn't seem like it would be ridiculously hard to knock out a sizeable portion of those transfers by having sporting clubs and major sporting events like the motocross race treated as quasi-employers for ACC purposes, assessing a fixed per-club levy with experience-rated premiums that varied with the type of sport.  
  • But, there are many other sports for which it would be almost impossible to charge (bouldering, rock climbing, swimming, skateboarding...). Assessing levies on easy-to-levy sports and not on others might induce minor distortions in choice of sport.
  • There are some sporting events that would likely die under actuarially fair pricing. It would be efficient that they cease, but the political costs could be high. The Motocross rally's spokesman indicated that the incurred injuries were on par with those he expected. An actuarially fair premium then would have been somewhere around the cost of the incurred expenses. If flying nine injured motorcyclists from Omihi to Christchurch on the emergency chopper and treating all of their injuries came in at less than $45k, I'd be reasonably impressed; $45k in insurance cost would be $150 per rider for the event. Some amateur rugby clubs that would probably also shut down under fair insurance pricing. 
  • It's not easy to tell outside of a market system what risks would explicitly be priced within a market system. Socialising risks means a lot of private behaviours get seen as imposing social costs. Whether a risk gets priced seems more to do with popularity and acceptability than underlying characteristics.

* Maximum individual levy $1934 - no ACC levy is charged on earnings over $113,768. 

** About $200 per vehicle, but not adjusted by driver accident history or correlates of vehicle riskiness other than broad classes like "petrol vehicle" and "motorcycle over 600cc". John Small pointed to some problems in risk pricing across ACC vehicle classes a couple of years ago.

*** Injuries to Motocross drivers *might* come out of the Motor Vehicle Levy, if the dirtbikes are registered and if ACC deemed that to be road accident rather than sporting event. In that case, it's largely a transfer from road motorcyclists to dirt bike enthusiasts.


  1. The Government focus on the employer's account is ridiculous, IMO. I'm self employed, and my employer's levy is less than $100, while my earner's account is the max of $2k. Ok, I'm in a relatively safe occupation of IT, but the kerfuffle about competition around the employer's account completely misses the elephant in the room.

    ACC is a bit special because it replaces the ability to sue. But it does encourage risk-taking behaviour where the injured person would have no-body to sue but themselves.

    Why not introduce a voluntary excess at the very least to reduce the earner's levy? Pay for the first week off work, the first 2 physio sessions, etc? May be an option to reduce a large bill and provide some incentive to avoid risky situations.

    1. They're likely reckoning that it's harder to put excesses on the earner's levy because they'd wind up bailing out anybody who took the high excess option then went crying to the public health system in case of injury.