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Under cover operations: Insuring live music in 2021

The fact that more than 350 delegates tuned in to participate in the specialist insurance session at this year’s ILMC underlines the live entertainment industry’s drive to return to normality, albeit with the reasonable caveat that their risks are insured should restrictions on mass gatherings be reintroduced due to Covid.

“Insurance in the past has always been a dirty word: nobody gave a damn and that was always reflected in the show contracts,” states Martin Goebbels of broker Miller Insurance. “Either nobody looked at, or perhaps understood the full implications of show contract cancellation and force majeure clauses until volcanic ash and a couple of instances after that – terrorism particularly.

“Obviously, Covid has just blown everything out of the water and people are suddenly realising that insurance can be important. But insurance runs in line with contract terms so it is vital to get both in sync.”

The business, however, has never been trickier. Insurers globally lost more than £8 billion (€9.3bn) in the past year because of the pandemic – £2.6bn (€3bn) of which was incurred by Lloyds of London alone.

“41% of Covid losses last year were as a result of event cancellation”

Understandably, insurers are, therefore, reluctant to offer any future Covid cover, leaving event organisers high and dry when it comes to including the coronavirus as part of their event cancellation coverage.

In a number of markets, notably Austria, Denmark, Germany, the Netherlands and Norway, the industry has been able to persuade government to set aside funds to provide an insurance stop-gap should events have to be cancelled because of a new wave of Covid cases, while trade bodies – and, indeed, the traditional insurance market – elsewhere around the world are lobbying authorities to create similar schemes that would allow the beleaguered live events business to get back on its feet.

Tim Thornhill of specialist brokers Tysers Insurance has played a lead role in the ongoing negotiations between the UK government and the country’s live music and event businesses.

He notes, “41% of Covid losses last year were as a result of event cancellation, so that is one of the key reasons that the commercial insurance market is not in a position at this moment and does not have the appetite to write Covid-related risks. That’s one of the critical reasons why we have been working alongside other brokers in the live music sector to ask UK government to provide a government-backed insurance solution.”

“Covid aside, over the past couple of years the contingency insurance market took some massive hits”

Tysers’ efforts have included employing professional lobbyists and PR firms, months of conversations with the Treasury and other government departments, and complex modelling developed with the live music sector, including umbrella trade organisation LIVE.

Goebbels explains that the landscape for live events coverage had already started thinning prior to the pandemic. “If you put Covid to one side, over the past couple of years the contingency insurance market took some massive hits,” he says.

“Certainly in the UK – which is generally recognised as the centre of the insurance industry – on the music contingency side and cancellation insurance side, there were about half a dozen insurers pulled out of writing that class of business prior to Covid, because their losses on adverse weather, illness and other reasons had increased in recent years.

“More insurers have now pulled out because of Covid. But there are glimmers of hope, as there are some new markets that have expressed an interest in coming in. [But] quite often in the past we’ve had people who want to get involved in what they see as a glamorous business, dip their toe in the market, find they have some losses, and then get twitchy and withdraw again.”

“The contingency market recovers well and they are already open for business”

That’s a dilemma underlined by Paul Twomey, director of contingency insurance at broker, Gallagher. “Some new companies have seen this as an opportunity to make money because rates are going up and exclusions are going onto the policies; there are definitely some chancers out there who can see this as a potential way to make a quick buck,” he warns. “But because nobody is buying, it’s very much up in the air as to whether these new players will stick around.”

Thankfully, the news isn’t all bleak. Edel Ryan, sports entertainment & media industry head of strategic business development UK&I for specialist brokers Marsh, observes that although a number of insurance companies have withdrawn from live entertainment cover, the expertise on the underwriting side has not been lost.

“While some key insurers have formally exited from the entertainment industry, those experts and teams have moved and turned up in new places,” Ryan tells IQ. “The contingency market recovers well and they are already open for business, providing terms where although the cover may have changed, the rates are kinder than we would have expected.”

The insurance industry’s losses amount to about 13 years worth of premiums

Long-term recovery
With the insurance industry’s losses amounting to about 13 years worth of premiums, EC3 broker James Davies sums up the dilemma that live events find themselves in: “Traditionally, the contingency market generates something in the region of between £500-600million [€580-696m] per year in premiums, so it’s going to take a very long time to recover that income,” he says.

Indeed, Twomey estimates it could take the insurance market an entire generation to claw back those sums. “If the insurers were to have a run with no other losses beginning today, they are telling us it would take 24 years to get back that money,” says Twomey.

Pragmatic in trying to encourage insurers to remain interested in the live music sector, Davies reveals why his company is in talks with government over a UK insurance scheme.

“One of the reasons we’re trying to structure something is to involve the insurance market so that they can still generate some income to recover, and they can underwrite some of the non-Covid risks that we need them to cover,” he says.

“With gov-backed insurance for costs aligning to the roadmap, the flow of money to the supply chain will unlock”

For his part, Tysers’ Thornhill observes, “Live music events and festivals are, understandably, unwilling to be the first to walk the plank and cancel their events in light of the unprecedented pent up demand and ticket sales following the announcement of the [UK] roadmap.”

Thornhill adds, “No festival wants to cancel, but might be forced to because of the result of the [UK’s Events Research Programme], safety concerns of organisers or a lack of confidence in the ability to pay suppliers in time and release deposits to the supply chain. With government-backed insurance for costs aligning to the roadmap, the flow of money to the supply chain will unlock, bringing many out of furlough to plan events in their industry.”

Government backing
On 16 March, Denmark became the latest nation where the government proactively stepped in to assist promoters and event organisers, when it created a DKK 500m (€67.2m) safety net for festivals and major events, allowing organisers to plan for this summer without the financial risk posed by a potential Covid outbreak.

The safety net will cover organisers of recurring events with at least 350 participants (such as music festivals, sports fixtures, conferences and markets), as well as events that were planned before 6 March 2020, but will not include new events created during the pandemic.

“One of the problems insurers have for insuring something like a pandemic is the global losses”

Denmark’s move mirrors similar schemes in Germany (which has announced a €2.5bn fund); Austria’s €300m ‘protective umbrella’; a similar €300m pot in the Netherlands; Belgium’s €60m festival cancellation fund; Norway’s €34m festival safety net; and Estonia’s €6m risk fund for large-scale events.

A government scheme is also under consideration in France, it is reported. Although some of the announced schemes have delayed their start dates, to varying degrees the government support provides event organisers with peace of mind in case the Covid-19 situation results in cancellation, postponement or significant changes to their event. In effect, governments are plugging a hole that the traditional insurance market is not prepared to cover, at least in the short-term.

That’s a stance that Goebbels fully understands. “One of the problems insurers have for insuring something like a pandemic is the global losses – they’ve got no cap on how much they can lose, whereas on a regular tour it’s pretty much a finite amount. That’s why they are having an issue with it – they can’t just have a blank, open cheque book.”

EC3’s Davies agrees. “There are still policies in place that are covering Covid-related cancellation risks into the next three years, so insurers are still on risk for long-term policies. So that’s why the insurance industry has stepped back from underwriting Covid-related risks for cancellation,” he explains.

“Covid cover is actually available for individuals, but it only covers them”

Detailing some of the exclusions in the current insurance market, Davies states, “Covid cover on cancellation abandonment insurance for live events is not available. Forms of communicable disease insurance is available, while Covid cover is actually available for individuals, meaning you could buy individual Covid cover if you had a superstar who is going to attend, but it only covers them: it does not cover the cancellation of the event.”

In conjunction with Tysers, which has been leading efforts, EC3 has joined forces with some of the UK’s live entertainment trade associations in lobbying the Treasury and the Department for Digital, Culture, Media and Sport (DCMS) over the past nine months in the hope that they will fund a scheme similar to the one they have rolled out for film and TV production in the UK.

Crucial to that process, says Davies, is the collaboration of the insurance industry. “We feel that the insurers need to be engaged in order for them to create an element of premium income outside of Covid – in other words the bits that they can underwrite,” he says, noting that without any premiums more insurers will exit from the sector.

“We’re in discussions with gov about the details, but the aim is for it to cover costs across three specific areas”

Tysers’ Thornhill comments, “We’re in discussions with government about the details, but the aim is for it to cover the costs across three specific areas: a local authority shut down; the artists or crew not being able to turn up to allow the show to go ahead; and the third would be an enforced reduced capacity, so if, for example, the government limited maximum mass gatherings to 500 and 5,000 tickets had been sold, the policy would respond at that point.”

Film & TV compensation scheme
One company with invaluable experience in partnering with government is Marsh, which is administering the UK government’s Film and TV scheme.

Expressing her admiration for that scheme, Marsh’s Ryan tells IQ, “The DCMS and Treasury really did their homework with regards to engagement with the insurance industry – brokers and insurance companies – as well as engaging directly with the client sector, associations, broadcasters and independent production companies. They spoke to us because we have clients active in this space and it’s an area where we have expertise, as is live music, as is sports.”

“[DCMS and the Treasury] have proven that they listen and will find a way, if there is a way to do it”

She explains, “What we’ve done, which is a little bit different to how we would work with our clients, is that we’ve assembled a team who are not necessarily experts in this space but are experts in the intention, the purpose, the rules and the criteria of this scheme, and that’s what was important. We were also able to put plans in place should there be a tsunami of enquiries, which we were primed to expect.”

However, the Marsh team was not initially inundated with calls. “The applications in the beginning were slow, but they’ve picked up because of the extensions that have been put in place, which have made the application much more feasible for production schedules,” says Ryan.

Describing the scheme as a compensation scheme, rather than insurance, Ryan says, “For the industry it’s a first. It’s set the standard and I am not at all surprised that live music and live entertainment is looking toward that and appealing to the DCMS and Treasury to replicate it or extend it beyond its scope.

“The film scheme is far easier to underwrite because film sets by their very nature are enclosed environments”

“If the government were to do it, I think they have a model to be able to shape it very quickly. And what the DCMS and Treasury have also proven is that they are willing and able to work with industry. They’ve already extended the film and TV scheme four times, and they’ve extended some of its cover beyond the original intention to things like the over 70s. So they’ve proven that they listen and will find a way, if there is a way to do it.”

50-50 chance
While the UK government’s stop-gap for the film and TV sectors provides a glimmer of hope for the country’s live events business, brokers are at pains to stress that the industries operate to very different standards, with those IQ spoke to believing it is 50-50 as to whether government departments will establish a similar programme for concerts and festivals.

Goebbels observes, “The film scheme is far easier for the government to underwrite because film sets by their very nature are enclosed environments that don’t rely on the public or an audience. So for film it’s far clearer as they can put themselves into a bubble or isolated set situation and carry on their business. Any event reliant on an audience is a very different proposition.”

“We need everyone in the supply chain to be supported and [a government fund] would do that”

Davies believes that even if a government scheme is approved, it will still take some time to establish. “If the government gives a green light, we then have to work on the structure in order to put the indemnity scheme together and we’ve been advised that would take between six to eight weeks from the green light,” says Davies.

Thornhill is hopeful. “The government does understand, from the conversations that we have had, that there is a need, so we are hopeful that something will come out,” he says. “We need everyone in the supply chain to be supported and [a government fund] would do that.”

At Marsh, Ryan is also hopeful that the government could provide the live entertainment sector with the same kind of support it has extended to film and television production companies. And she sees a series of upcoming pilot shows as being crucial to persuading politicians.

“There seems to be a determination by the industry and the government to make this happen,” says Ryan.

“I think those [test] events will set the standard in regards to how things can be done safely”

“I believe there are test events planned, and I think those events will set the standard in regards to how things can be done safely. They will influence things like capacity and audience numbers. I also think the speed and success in the way the vaccinations are being rolled out is going to be a significant factor.”

Making a compelling case for state-sponsored help, Thornhill says, “The commercial insurance market does not have an incentive to put its neck and money on the line when there is so much insecurity around Covid. But the gov- ernment does have an incentive.

“If it put down a fund now, then it would only have £400m [€463m] of exposure, but that could generate £9bn [€10.4bn] in economic value added to the UK economy across the course of the year. So the government’s risk reward is much greater because it will be rewarded by companies not going out of business and economic activity in certain sectors.”

“Communicable disease and Covid are going to be at the forefront, and other areas coming into it now”

Backing up that assertion, Ryan says, “What I read recently from the [British Film Institute] was they believe that close to £1bn [€1.2bn] in production costs have happened because of this scheme, supporting over 25,000 jobs.”

The main difference between industries is obvious, but there are other factors at play according to Ryan. “Of course, film and TV is not reliant on a mass audience,” she says, “but prior to the fund being announced they had also proven that they were able to get back to work. However, the single barrier that was preventing other projects was insurance,” she adds, again drawing parallels with the situation in which events organisers find themselves.

Other concerns
Covid aside, the insurance market for live events has never been more complex. “It’s going to be a tough market, certainly for the next year or two,” warns Goebbels. “Communicable disease and Covid are going to be at the forefront, and other areas coming into it now are things like cyber insurance, where insurers can see potential global losses and they have to find a way to cap their losses as they go along.”

“Everyone is going to have to work out where their responsibility lies with the person they are contracting to”

Goebbels also notes with interest the way in which the industry has made fundamental changes in its operations. “Live Nation made a clear statement by announcing proposed changes to their show contracts: if the show happens, the artist gets paid; if the show doesn’t happen, for any reason, they don’t. That’s it. It’s very clear and skips all the grey areas from previous contract as to when a promoter must pay an artist or not.

“So the artist will then have to draw up their own deals with suppliers and the promoter in turn, whether that’s with venues or advertisers or sponsors or whatever else it may be. Everyone down the line is going to have to work out where their responsibility lies with the person they are contracting to. That’s going to be a lot of work and maybe needs some legal input somewhere down the line.”

Thornhill points out that it’s not just the contingency market that is seeing an increase in premiums – it’s many classes of business. “We’re going into a hard market now, which means that the premiums are going to be increasing across many of the insurance policies that those in the industry purchase,” he says.

“This is not a competitive market, so my message to clients is choose your broker well and talk to them early”

“There is a lot of change going on in the insurance market at the moment and we, as brokers, have got to be mindful of that and we have to make everyone who is buying from us aware of the changes that are happening.”

That’s a sentiment Marsh’s Ryan echoes. “This is not a competitive market, so my message to clients has not changed since day one: choose your broker well and talk to your broker early,” she advises.

“With our clients, we make sure they have a relationship with their market, as well as having it with us. We make sure the client is involved in making sure the underwriter has a very good impression of what the event is, rather than what they think it might be. Those are significant factors in how underwriters will rate it and price it. And while rates are going up you want to make sure the client has as much faith in their market as they do in their broker.”

One monumental change of tune amongst the insurance community is the way they are working with clients to refund premiums. Gallagher’s Twomey explains, “One of the biggest issues that clients are concerned about is getting the money back if Covid does shut things down. They know they cannot claim for it, but can they get their premiums back?”

“Our message to clients is buy early”

That flexibility is proving helpful. “Pretty much everyone in the contingency world has agreed to premium cancellation clauses that work in favour of the client,” says Ryan. However, she says clients remain “hesitant” for fear of exposing themselves to sunken costs, meaning she and her colleagues are bracing for a deluge of enquiries as events begin to announce a return.

She adds, “Because the pandemic was declared so early in the year in 2020, many festivals were able to avoid a lot of sunken costs. That is a positive, but many festivals also were not insured because of their practice of purchasing insurance closer to the event. So our message to clients is buy early. The price is the price and each day closer to your event doesn’t reduce the cost – the cost is always going to be the same. So you should make insurance one of your first to-do’s.”

The fact that brokers’ phones and email inboxes are becoming more active again signals that confidence is slowly returning to the live entertainment industry.

Twomey says, “We’re starting to be hopeful for the back end of 2021. We’re quoting on some US events, dependent on the state where the event is taking place because of the way they are doing things: Texas has opened up; Florida never seemed to close down in the first place.

“Covid has certainly opened people’s eyes to the benefit of insurance”

“European-wise, international touring may be a no-no for this year, whereas UK artists doing a UK tour or French acts touring in France may be feasible. Later on this year I think we’ll see some of those starting to come through and that’s the way it will run for this year.”

But Twomey believes the increase in prices may dissuade some promoters from hosting events until 2022. “Margins were quite tight anyway for promoters, and if insurance is the thing that tips the margin into the negative because the rates have increased, then that’s going to be an issue,” he says. “On the other hand, Covid has certainly opened people’s eyes to the benefit of insurance, because with billions paid out, a lot of clients have benefitted from policies, so I like to think it’s concentrated minds on things.”

As for other areas of concern, Goebbels suggests that with the Queen in her 94th year, the prospect of a period of national mourning is becoming more of a reality – not just in the UK but also around the world in Commonwealth nations.

“It’s a sad reality that’s never happened in our lifetimes so we don’t know the full impact, but when it happens everyone will be looking to be paid. But I try to point out it is excluded by all standard cancellation policies as they have an age limit. We don’t know for sure whether the USA would have national mourning for a serving president but Biden now also exceeds insurers’ age limit. These are matters that many clients don’t take note of but no doubt when it happens will expect insurance to pay.”

“The market has failed, so the government have to step up”

And, of course, Brexit has also created untold issues, with many insurers having to establish European offices to adhere to legal requirements.

“As and when touring starts, we’re going to run into issues with visas and travel, because it is a requirement of all insurance policies that all arrangements are made in advance,” says Twomey, regarding Brexit. “If we arrive at a situation where a UK band cannot enter Germany because they don’t have the correct visas, or whatever, then the insurance policy would not respond because it’s warranted that all arrangements are made in advance.”

At EC3, Davies concludes that the entire future of insuring live events is in the balance, unless governments intervene. “The market has failed, so the government have to step up and insure this element of the contingency insurance policy that is not covered at the moment. The future of both the contingency market and UK live events relies on this,” he says.


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