Government-backed insurance won’t be a silver bullet
With the government announcement yesterday, it seems England will be “back to normal” in two weeks’ time. Of course that’s great news, although we must also respect others’ doubts – particularly from the medical side – that the overnight opening may be too sudden and liberal.
This inevitably opens up the long-standing question as to whether, or when, the UK government will provide a scheme to protect event organisers against further closures or venue capacities. (Note I do not use the word “insurance” as governments are not insurers.) It would be a scheme to provide some protection or – let’s be totally transparent and controversial – could be seen as a gamble with taxpayers’ money.
The call for UK government to follow other countries, or the UK’s film/TV scheme, has been loud and consistent, but many reports over the months have possibly, in my humble opinion, been misleading.
Film/TV was a far easier matter as the numbers of shoots are massively smaller and they are mainly in closed sets with no audience, so the risk is quite different.
While several European governments have confirmed they will look into protection, only a handful, maybe only three or four, actually have a facility in operation right now. Most others are yet to declare when or how a scheme would operate, and hence unlikely to apply to the 2021 summer.
It also has to be remembered that any facility provided by a government surely has to apply to all events in their country
They also come with limitations and conditions, such as a monetary cap on any one event, and some only covering a percentage of the costs (most common seems to be 80%) or a sliding scale. Would those limitations be sufficient for a festival, tour or event to proceed, or is it still too large a financial risk? The cost – or to use an insurance term, premium – involved has also yet to be considered and how much effect that may have on a budget, particularly for an event that is already on sale.
The talk has been about a scheme to protect event organisers/promoters, so where does the artist stand in this? Would promoters cover their fee as part of their show costs and, in which case, would any cap per event be sufficient – as surely artist fees are the major part of an event budget? Traditionally, many emerging artists have lost money while touring, particularly if it is restricted to a small number of shows within one country, so even if their comparatively smaller fee is paid, who covers the shortfall?
The new Dutch scheme apparently requires proof that an insurance policy including communicable disease cover was in force for the same event in 2019 – thus excluding new events or any that simply did not insure (including Covid-19) in 2019, and I wonder if similar rules were applied in the UK how many would fall into those categories.
It also has to be remembered that any facility provided by a government surely has to apply to all events in their country (it would still not protect overseas work) requiring an audience or spectators – not purely music – so there massive considerations to factor. This includes sports, theatre, conferences, exhibitions, charity events, carnivals, fairs and fêtes, among others, potentially all carrying different reasons for cancellation or audience reduction.
Any such scheme takes considerable planning, monitoring and collection of information, and those involved with lobbying the UK government have already stated it may take several weeks from agreement to implementation.
In most cases it has never been insurers’ intention to cover a global pandemic such as Covid-19
My final point – made as a broker and not an insurer – is the constant referral to “insurance market failure”. The principle of insurance is to protect against the unknown or unforeseen – so, for all insurers’ possible faults, is it really fair to say keep saying it is a failure for them to accept new policies for a situation that has affected every single person in the world, and will be with us for some time to come? On cancellation insurance alone, it is fact that in the last year UK insurers have already paid the equivalent of around 20 years’ premium in claims.
Every insurance policy comes with terms and conditions. In most cases it has never been insurers’ intention to cover a global pandemic such as Covid-19, purely as they have no control of their total financial exposure at any one time. Cyber risks are a current cause for concern for similar reasons. If they provide carte-blanche cover for such situations they would simply not have sufficient funds to survive and pay.
However some policyholders, largely for major outdoor events, with Wimbledon tennis being an openly stated UK example, paid extra premium to include communicable disease cover. A few insurers paid Covid-19 losses seemingly on a policy wording technicality but the majority did not, and perhaps some statements on how many were paid are misleading when they do not indicate how many were not paid.
We all hope the entire live events industry, whatever genre, makes a swift and full return. But I hope some of my points may cause consideration as to whether any government scheme will provide the immediate and 100% comprehensive protection expected for this summer and beyond.
Martin Goebbels is head of music and touring for Miller.
The financials of a pandemic: Brokers talk coronavirus
The continuing spread of Covid-19, earlier this week declared a pandemic by the World Health Organisation, has caused the cancellation and postponement of major festivals and concerts, and the delay of on-sales for a number of tours.
Just yesterday (12 March), a coalition of concert giants consisting of Live Nation, AEG, CAA, UTA, WME and Paradigm, issued a statement recommending all concerts be called off for the rest of the month.
As restrictions imposed by national and regional governments around the world continue to affect the live music industry, IQ talks to Martin Goebbels from Miller Insurance and Steven Howell of Media Insurance Brokers to gauge the scale of the financial impact on festival and concert organisers, and share some top tips for limiting damage.
(Keep up-to-date on coronavirus-related restrictions in Europe’s biggest live music markets here.)
IQ: Coronavirus – are people covered?
Steven Howell: Event organisers can purchase insurance to cover their costs or revenue should their event get cancelled. In every policy there are exclusions – things like terrorism, communicable disease, war, civil commotion, lack of ticket sales, financial failure and national mourning.
Some of these things can be bought back as extensions. People that bought cover and included communicable disease before the end of January this year will have full cover if their event is cancelled for a reason directly or indirectly linked to coronavirus.
For policies purchase after that time there will be a specific exclusion for coronavirus and it is no longer possible to purchase the cover.
What would you say to those who claim it’s unfair that people can no longer get any cover for Covid-19?
Martin Goebbels: Typically, insurance does not cover cancellation due to a communicable disease like Covid-19, unless bought as an extension which has been extremely rare. This is due to the aggregate limit, or the total amount an insurer can pay out in a given year and on a single event or act.
With something like coronavirus, if insurers had given blanket cover, they would have no control over what their total losses could be, as it’s not limited by geographical region or anything else.
The virus also affects the same insurers for all events within the scope of entertainment including global sports events, exhibitions, conferences, theatre, film productions. It would have wiped out insurers if they had provided insurance across the board. That’s why its not included.
“Coronavirus would have wiped out insurers if they had provided insurance across the board”
If events are cancelled due to a government-mandated ban, that changes things, right?
MG: Wrong. A lot of people think that as long as they are covered for the government closing things down, then they are fine. However, it still doesn’t count as the insurance applies to the root cause of the problem – if this is coronavirus then it doesn’t change anything and insurance would not apply.
Many promoters are now postponing concerts or festivals, rather than cancelling them. How does this changes things with respect to insurance?
MG: It all depends on whether they had insurance to cover coronavirus or not. For an insured risk, insurers would normally pay out for rescheduling costs, provided they are not greater than the cost of cancellation.
With the coronavirus situation people are looking where they stand financially at various stages. Sometimes, it is cheaper to cancel or reschedule a few days or weeks out than wait until the last moment and call it off, but every situation is different.
What advice do you have for event organisers at this difficult time?
SH: The best advice to anyone planning an event now that does not have the cover is to ensure all contracts include an agreement to reschedule if they are forced to close. In this case, if they cannot agree on a new date, then all deposits are returned.
This way, the financial impact on all parties will be minimalised as much as possible.
“The best advice is to ensure all contracts include an agreement to reschedule if they are forced to close”
MG: My advice is always to get insurance in as early as possible, and the situation with coronavirus highlights this. It is debatable whether it would have made a difference in many cases as history confirms only a tiny fraction of clients would have bought the cover in the last 15 years.
People need to remember to leave room in the budgeting for insurance. Too often, it is not considered until it’s too late.
Is cancellation insurance still useful in wake of the coronavirus outbreak?
MG: Show cancellations have been happening for years and years, and for an infinite number of reasons. It’s a blinkered attitude to say cancellation insurance is useless just because coronavirus is not covered.
What this has highlighted is that people should read their policies and take the time to understand it – like any contract they are boring but you’re paying good money for it, so you need to understand how it works for you.
“My main concern is for the independent event organisers and the freelancers – it is frustrating we do not have any insurance solutions to help protect them”
How are these cancellations expected to affect the industry?
SH: If events are forced to close then it will not be good news for anyone in the live music industry.
However, if the spread mirrors that in China, it will be for a very short period of time and affect a very small proportion of the country. All the event organisers I have spoken with are being pragmatic and bullish about this and we all expect to get back to business as usual soon.
My main concern is for the independent event organisers and the freelancers who depend on them for the livelihood and it is very frustrating that we do not have any insurance solutions to help protect them.
Will we see changes to insurance policies going forward, to protect more organisers from a similar situation occurring again?
MG: This will certainly open up the conversation around cover for communicable disease. I expect everyone will ask insurers for communicable disease cover next summer, and then after a year or two their appetite to pay the extra premium will probably go away again. The same thing happened with the Sars outbreak in the early 2000s, and terrorism cover after 9/11 until the Bataclan tragedy.
I also expect insurers will tighten up the extension. This has highlighted that viruses like this can become worldwide within weeks, whereas it’s been more of a regionalised issue before.
IPM 13: Don’t Stop Me Now: The consequences of show cancellations
Eps managing director Okan Tombulca introduced the session explaining that, although production-related cancellations were to form the bulk of the panel, the issues thrown up by the coronavirus (Covid-19) were now impossible to ignore.
Two of the panellists were forced to drop out for coronavirus-related reasons, as GMC Events’ Graham MacVoy was called to an emergency meeting and Benjamin Hetzer of FKP Scorpio joined by Skype due to a travel ban.
ASM Global’s Tim Worton said he was “blown away” by the number of reasons for event cancellations nowadays. Worton referred to the “fairly significant” bushfire crisis that gripped Australia until only a few weeks ago. Events including Lost Paradise, Day on the Green and Secret Sounds’ Fall Festival were cancelled due to poor air quality as a result of the fires.
Although not much can be done to prepare for this kind of natural disaster, said Worton, promoters and others have to be aware that cancelling may be the only option.
Hetzer spoke about different kinds of weather-related cancellations, referencing the storms that lead to the axing of Scorpio festival in 2016 and 2017. Hetzer stressed the importance of cooperation between organisers and the authorities in these situations to ensure the safe evacuation of any site.
“We want to work out how to sort things out before getting to that point”
In terms of deciding to call off an event, Martin Goebbels of Miller Insurance Services said insurers have to trust the judgement of production crews, promoters and local authorities. “I would always advise getting insurance as early as possible,” said Goebbels, emphasising that insurance should be used as a backstop, and not relied upon too much. “This is not an insurance panel, but an anti-insurance panel,” said Goebbels. “We want to work out how to sort things out before getting to that point.”
Worton said there is much more emphasis on verifying who goes in through the back door nowadays, as well as security and safety measures in general. “Productions are getting so big and complex, that the potential for problems increases exponentially,” he said.
Delegates from countries in Eastern Europe discussed the variations with health and safety practices in different countries, with issues such as corruption, market size and local regulations affecting events of all sizes.
Talk then turned to coronavirus, which has caused recent show cancellations in Asia, as well as in France, Switzerland and Italy. Tombulca stated the virus is throwing up lots of questions but no answers at the moment.
“It’s such a nuanced subject,” said Worton, referring to the different restrictions on mass gatherings and cancealltions of some shows. The on sales for a number of tours are being pushed back, said Worton, which “looks like it is going to be a recurring theme.”
Tour accountant Mike Donovan spoke from the floor saying that even losing a fraction of shows in a tour has a massive impact on profits. “It’s impossible to say what’s going to happen, but we will likely have a very serious downturn,” he said.
“As an industry, we should set a positive example and not overreact”
ITB agent Steve Zapp said it is very much about approaching the situation on a daily, or even hourly, basis at the moment.
Tombulca asked that if it came to a worst case scenario of shows being stopped for the next six months, who would be prepared? A resounding no came from the room, as different delegates explained that although board-level meetings, new procedures and hygiene standards were being put in place, uncertainty remained high.
“This is an unprecedented worldwide situation,” added Goebbels. Asked how the insurance industry is reacting to coronavirus, Goebbels explained that most UK insurers are excluding coronavirus from cancellation insurance cover from now on, saying that he imagined it would be the same for a lot of insurers elsewhere.
Tombulca wrapped up summarising the effects that coronavirus is having across different sectors of the industry, but shared information from a senior UK medical advisor saying there is “no clear rationale” for closing events to prevent the spread of the virus.
“As an industry, we should set a positive example and not overreact,” said Tombulca, stressing that currently in most countries, such as the UK, Germany and the Netherlands, no cancellations are being made because of Covid-19. “Let’s hope we can resume normal business soon.”
Tombulca added, “we need to prepare ourselves as much as possible for all potential scenarios, but at the end of the day, people need us and we are a very positive industry – we are working in the best industry of the world and make a lot of people happy every day.”
Cover Story: the cost of event cancellations
From Kanye West to Justin Bieber, Ariana Grande, Cardi B and a host of festivals, the tail end of the 2010s has seen no shortage of big-name cancellations and postponements – with illness, civil disorder and, especially, severe weather all doing their part to torpedo major live music events in recent years.
All touring productions are team efforts, and when it becomes clear a show won’t go ahead, the first person to receive a call is a stakeholder that’s otherwise largely forgotten about, jokes insurance broker Steven Howell: “When something goes wrong, we suddenly become the most influential and important people in the chain – but before that we’re just another P&L.”
It is, of course, yet another spiralling cost on a tour’s balance sheet. But with artist fees and production values trending ever upwards, and inclement weather conditions apparently becoming more common, insuring against a tour or show’s cancellation can be worth every penny.
Howell, of Media Insurance Brokers (MIB), which has offices in London, Glasgow, Dublin and Los Angeles, says that while he doesn’t necessarily see an increase in the number of cancellations, the size of claims is rising (in tandem with rising performance fees and production costs).
“Every year we have lots of claims – there’ve always been cancelled shows – but the claims we’ve had [in 2019] are bigger than before,” he explains. “You’re also getting bigger production going into festivals as they try and differentiate themselves from each other, but it’s mainly because artist fees are higher.
“When something goes wrong, we suddenly become the most influential and important people in the chain”
“The value of claims is getting bigger year on year. And that’s not just by 5%, 10%, even 20% – recently we’ve seen some artists who were earning hundreds or low thousands [of dollars] per show, and they’re now earning hundreds of thousands. Then at the top end, you’ve obviously got the people who earn two or three million a show.”
The result is, of course, higher premiums, with experts telling IQ that premiums have increased, on average, 20-30% in the past year alone. And there are indications cancellation insurance could cost even more in the next 12 months.
“This year has seen an increase in cancellations compared to previous years on both sides of the Atlantic,” says Tim Thornhill of international insurance brokerage Integro (which is set to rebrand as Tysers in 2020 after a recent acquisition). “The US has been hit by strong winds, storms and fires, and when these happen during a tour – particularly a big one – or any mass-participation events, it will have a big bearing on the level of claims that insurers are liable to pay out.”
“There have been an awful lot of large claims, which has had a big impact on the insurance market,” agrees Miller’s Martin Goebbels, speaking to IQ from London (the company also has offices in Paris, Brussels, Singapore, and Ipswich, UK). “Whether the number of claims as a percentage has increased I don’t know, but certainly on the weather side they are growing.”
The impact of this cluster of large pay-outs, says Goebbels, is that premiums have increased recently, and several large insurers have pulled out of offering cancellation insurance altogether.
“This year has seen an increase in cancellations compared to previous years on both sides of the Atlantic”
This, explains Integro’s Tim Rudland, is “what’s called a ‘hardening market,’ where insurers have increased their premiums due to a number of losses in the contingency market.” (Examples of ‘contingency’ insurance products include policies covering event cancellation, non-appearance, terrorism and prize indemnity.)
“Some insurers have reduced the amount they are able to write, and some have stopped writing this type of business altogether,” Rudland continues, “which means that the size of the market is shrinking.”
According to Howden’s Robert Barron, formerly vice-president of accident, health, sports and contingency at US insurance brokerage giant Lockton, in 2018 loss ratios incurred by non-appearances reached the highest level since records began in 1999.
“As a result of such losses, there has been a scaling back in lines, and three market exits since last summer ,” he wrote last year. “Barbican and Travelers both exited the standalone contingency business for 2017, while ProSight Specialty Insurance, which wrote contingency as part of its media and entertainment book, placed its Lloyd’s operation into orderly run-off last June.”
“In the past 12 months, there have been five or six decent-sized insurers that have pulled out of event-cancellation insurance altogether,” adds Goebbels, who notes that there have been a number of high-profile, non-music cancellation claims in that period, too, including severe weather-hit rugby and cricket fixtures. “All those claims go into the same book of business,” he explains, “so insurers have a much wider view of the risks.”
“There’s a larger pool of artists who could cause an issue for insurers”
The same is true in continental Europe, says Matthias Grischke, the founder of Novitas based in Ahrensburg near Hamburg. “Some major companies, like Swiss Re, have left the market, and a number of mergers have also reduced the total number of insurers,” Grischke explains, although he notes, “we aren’t really feeling a lack of capacity yet.”
This, in turn, he says, drives up prices. “The insurers have united a lot more,” Goebbels says. “They have their associations and they get together and they say we can’t sustain this – we either cut each other’s throats or we close ranks to make sure we maintain a market standard.”
Other factors can also push up premiums – although, contrary to popular opinion, Goebbels says he isn’t seeing a disproportionate amount of cancellations by artists of a particular genre (urban acts are often described anecdotally as being especially cancel-happy), suggesting insurers are rather “keeping a watching brief in a lot of areas. Something like when Krept was stabbed, for example [the rapper, one half of Krept and Konan, was attacked backstage at BBC Radio 1Xtra Live in Birmingham in October], they’ll be keeping an eye on – but it hasn’t yet had any impact.”
If anything, he adds, of more interest to insurers is the increasing average age of performers: “There’s a larger pool of artists who could cause an issue for insurers,” Goebbels explains. “Paul McCartney is 78, Patti Smith is 74… the implications [of artists getting older] is much, much higher premiums.”
Continue reading this feature in the digital edition of IQ 87 2019, or subscribe to the magazine here
National mourning: A state of commotion
The increased risk of event cancellation has led to growing concern for insurers in recent times, but how much are event organisers and artists – or other rights owners and broadcasters – aware of the implications? This applies not only to music events but also to sports, theatre and family shows.
National mourning (NM) is something often not considered by many, but in certain territories this may have a huge impact on all types of live events. Of course, NM can be triggered by the death of a president, a member of a royal family or another kind of leader, or a major natural disaster or tragedy causing large-scale loss of life. For a number of reasons, this has occurred more regularly in recent years.
One problem for event organisers and insurers alike is that nobody seems too sure exactly what impact any mourning period could have on live events, or how long it may last. For example, would events be cancelled immediately after the bad news is released, or would it only apply to a period of time around a funeral – and if so, how long?
Maybe that depends on the venues or type of event involved, and – appreciating IQ has international readership – I use the UK purely as an example by asking: Would Royal Parks or the Royal Albert Hall or Royal Ascot or Wimbledon possibly be more affected than a local theatre event? Would such venues or maybe other stadia be taken over and used to televise the funeral, resulting in cancellations? Or possibly, if vast crowds were expected to gather (either to show respect immediately after a death, or to line the funeral route) would police and medical patrols be pulled from other live events to control these numbers?
Nobody seems too sure exactly what impact any mourning period could have on live events, or how long it may last
Information is sparse around the protocol in these circumstances. Earlier this year, a death in one of Europe’s royal families triggered a 12-day national mourning period in the country involved. That country is not one of the most high-profile touring territories, but it does highlight how quickly problems could occur for live events.
I realise it may sound flippant to say, but the old adage is that the one certainty in life is death (and tax – but I won’t go there!), so my points above will become reality to us at some time.
One further question is what happens for a coronation: would a country close live events for this – or, as mentioned above, would parks/stadia/venues or police and safety teams be utilised, resulting in event cancellation? In the UK, sadly, this will happen in the forthcoming years, and, of course, in other countries, too.
While most cancellation insurance policies will automatically include NM cover, often for those up to age 70, it is extremely hard, if not impossible, for insurers to know exactly to whom NM would apply in different territories – for example, the UAE and the countries of the Far East have more than one national figurehead whose demise would trigger a national mourning period, and sometimes for longer periods than in other parts of the world. The age limit could also be a concern as, for example, Elizabeth II (who is queen of 16 countries, as well as head of the Commonwealth), and the current US president are both over the age of 70, and other countries have leaders of similar ages. That is something perhaps agents/managers do not factor in when booking tours or insurance.
Weather and other risks
The world’s erratic weather patterns have caused increasing problems to touring parties and live events, and in areas not previously badly affected. Hurricanes, tornados, storms and heavy snowfall are obvious reasons, but, increasingly, so are extreme high temperatures, resulting in a risk to audiences.
It is extremely hard, if not impossible, for insurers to know exactly to whom NM would apply in different territories
Civil commotion seems to be an increasing risk to events. As I write this, the situation in Hong Kong remains hugely volatile; France, and Paris particularly, have had problems; and they are not the first cities to have such problems in very recent years.
Terrorism, or the threat of, is and always will be a concern to everyone, as it can occur anywhere in the world these days. These risks are excluded under standard cancellation insurance policies, but offered as an optional extra coverage with premiums calculated by insurers on each city and country.
The term “lone shooter” has had reason to become too common but confusion often surrounds whether that person acted totally alone, for their own “vendetta” reasons, or are aligned with a terrorist organisation. How does that affect responsibility under show contracts especially if it doesn’t happen at a venue but results in venues being closed however far away they may be from an incident?
I have not intended to scaremonger, but hopefully provide some food for thought. I will, however, reiterate comments I have made many times in the past: that show contracts are absolutely crucial in determining who would be responsible for paying who in the event of any of the above circumstances. I still see contracts with confusing or very vague versions of the dreaded force majeure clause.
I strongly urge everyone to take the time to consider the implications before the event – not afterwards, when it is too late and only creates business and relationship problems.