Take Cover: The changing landscape of insurance
If these “unprecedented times” have proved anything, it’s that a robust insurance plan can be the difference between survival and extinction for many in the live music business. And while the industry is slowly but surely beginning to resemble its former self, the scars of the pandemic run deep.
“We had huge claims at the start of the pandemic, which led to a lot of change within the underwriting market,” says Tim Thornhill of specialist brokers Tysers Insurance. “Some insurers increased their rates, and many stepped out and no longer wanted to provide cover for any type of event cancellation or non-appearance insurance at all. We’ve seen that ongoing since live music has returned.”
Indeed, salvation came at a cost: insurers globally reportedly lost more than £8bn in the first year of Covid-19 – £2.6bn of which was incurred by Lloyds of London alone. A number of stopgap government schemes, meanwhile, were introduced around the globe in a bid to get the battered touring scene back on its feet, to varying degrees of success.
As a result, 2023’s new normal is that insurance firms are still currently unwilling to insure against coronavirus.
“We had huge claims at the start of the pandemic, which led to a lot of change within the underwriting market”
“We have seen more enquiries than ever,” says Steven Howell of Media & Music Insurance Brokers (MIB). “Some contingency underwriters have closed for business following large losses, some new markets have entered the space, and all underwriters have amended the policy wordings to exclude Covid and other communicable diseases.”
Furthermore, Howell argues it is no longer a question of how many insurers will offer cover but more of how much cover they will offer.
“Pre-pandemic, many underwriters were happy to take the whole risk or a major percentage of the risk for a large festival or tour, they now wish to limit their exposure for any one event by taking a smaller percentage of the risk,” he continues. “This means we need to source two, three, or four more markets to cover the same event as underwriters seek to spread their risk.”
“Due to losses in the billions, the landscape has changed,” says Charlie Connell, executive director of entertainment for international insurance group Howden. “Insurers are less willing to take on such high levels of exposure and so the capacity for larger events and tours has diminished greatly.
“The breadth of cover has also decreased with insurers extremely concerned of another systemic event causing great losses in the market, which in turn could affect people’s jobs, and even to the point where music insurance being available at all could be in jeopardy.”
“Due to losses in the billions, the landscape has changed”
In Germany, Christian Raith, managing director at erpam GmbH, says, “From our point of view, there are currently few challenges in getting risks covered in the market. Despite the large losses caused by the pandemic, there is sufficient capacity in the German market. Of course, there is still the exclusion of pandemics or Covid, but I think every event organiser understands that.”
Martin Goebbels of Miller Insurance suggests rising premiums could tempt some companies back into the market. However, he points out that prices were already on the increase pre-2020 since “losses on cancellation insurance had been huge for a number of years.”
“Prices are still less than probably 20 years ago and an awful lot less than 10 or 15 years before that, so they’re not at an all-time high,” he says. “But obviously they are nudging back up because of a number of factors, not principally Covid – the weather situation, globally, is having quite an impact on insurers. And not just bad weather but actually excessively hot weather in recent times.”
“It’s certainly tougher than it was three years ago, mainly due to the limited [number] of insurers. We hope some come back in, but they’ll only come back in if the price is right.”
“The weather situation, globally, is having quite an impact on insurers”
Raith comments, “We are already noticing that the market is very soft again and we have been able to give premiums to customers in isolated cases that are not far from the old premiums. This is due to the large capacity, of course, but also to the fact that we have never had so many insurers on the market in over 30 years as we do today. But many big players are also getting on a bit, so premiums are a little higher there, but that remains understandable.”
Elsewhere in Germany, independent insurance broker vR&S has specialised teams who consult promoters, artists, and venues around the globe in terms of insurance and risk management.
“In 2020, the insurers paid out a huge [number] of claims on policies where Covid was deemed to be insured, so as everyone can imagine, the whole market was very negative in terms of premium income related to the losses paid out,” says the Hamburg-headquartered firm’s CEO Johannes v. Rauchhaupt.
“On the other hand, only a [small] number of risks were placed during this time, so insurers had nearly zero income. Generally speaking, after the pandemic, insurers had to gain more income from their business, so they were forced to generally increase rates.”
“There have been two major changes since Covid: one is increased premium level, the second is less capacity. Insurers are more willing to underwrite vanilla risks than the shows [that] tend to come with a higher risk.”
“There have been two major changes since Covid: one is increased premium level, the second is less capacity”
Nevertheless, vR&S live entertainment broker Julian Wagner predicts that – as has been seen with terrorism cover in the past – stances on providing insurance for Covid will soften over time.
“After the pandemic outbreak, insurers reacted very quickly to the situation and revised the wordings or the terms and conditions – not only the exclusion for pandemics but also for cyber risks or similar avoidable major loss risks,” says Wagner. “We saw this after 9/11 as well. Terrorism was a risk that was considered to be ‘never insurable again.’ But there, too, after a reasonable period of time, insurers rowed back.”
“At the beginning of the pandemic, everyone was very afraid of the situation, and now we see on the market that the first insurers are slowly taking over attempts to insure corona risks again. In the future – and I am sure of this – Corona risks [will be able to] be insured normally, perhaps with a surcharge.”
“In the future – and I am sure of this – Corona risks will be insured normally”
As is well documented, the post-pandemic return to touring has been blighted by a slew of tour cancellations for one reason or another.
“Anything can happen to a tour,” reflects Tysers’ Thornhill. “They can be cancelled because of illness to the artist, adverse weather, strikes, [which are] captured within all risk policies, with exclusions for things like cyber and communicable disease.”
Howden’s Connell notes that the business has experienced “sizeable losses in the non-appearance and cancellation space” due to artist illness or adverse weather, which he says highlights “the validity of the insurance products available beyond Covid.”
Miller’s Goebbels believes the rise in cancellations has acted as a further deterrent for insurers getting back into live music.
“They don’t see it as an attractive proposition,” he contends. “Long gone are the days where insurers saw the music business as glittery fun; they are a business like everybody else, and they’ve got to make profits. If there’s suddenly an increase in show cancellations for whatever reason, they have to look at it very carefully.”
“Long gone are the days where insurers saw the music business as glittery fun”
“In some cases, insurers are applying deductibles to tours, a one-show deductible would mean that in the event of an artist missing one show there would be no cover,” reports MIB’s Howell. “In the event they miss two or more shows, then the claim on the policy would be from the second missed show onwards. In all cases, insurers are asking for more information upfront in regard to previous cancellations, illnesses, and pre-existing conditions.”
Additional complications arise from the age of some of the artists hitting the road, particularly those in the autumn of their career.
“Many artists are still touring into their 70s and even 80s these days, and that’s a tricky one for insurers,” says Goebbels. “When you say, ‘I’ve got a band of 75 year olds going on a world tour for nine months,’ insurers are going to want to know an awful lot of medical information. Sometimes, the band push back and say, ‘It’s confidential,’ and insurers’ attitude is, ‘If you don’t want to tell us, then you can’t expect us to insure it.’”
“Not only age increases the likelihood of a claim, we have [also] seen many cancellations [that] are caused by mental illnesses in the last year,” offers Rauchhaupt. “Moreover, climate change obviously leads to more unforeseeable weather conditions across the world. Adverse weather remains the biggest risk for outdoor events.”
“Not only age increases the likelihood of a claim, we have [also] seen many cancellations [that] are caused by mental illnesses”
Rauchhaupt advises that it’s worth having a good broker by your side to make sure the risks you want to insure against are fully covered in the policy being taken out. “You wouldn’t go to a judge without a lawyer or wouldn’t pay your taxes without a good consultant – and the same applies to insurance.” he insists.
“We’d always encourage them to speak to us as early as possible, particularly on things like rates,” says Thornhill. “If you get in there early, then often it can be cheap. Also, it’s possible to declare your shows on a minimum deposit basis. Any adjustments can be made for activity later in the year.”
“It saves the time and hassle of dealing with financial administration when their time is better spent in the run up to an event in delivering the best service to the participants and the gig-goers. If they get the admin done early, it could be financially beneficial, but it’s certainly going to be time beneficial.”
“Speak to a specialist broker as early as possible to allow time to approach a number of markets and obtain the best terms,” concurs Connell. “Look at the option of an annual policy rather than one-off event policies, as this may be more economical. Check the contracts and only insure for the risks that you are exposed to. For instance, if your contract says that you do not pay the artist if they fail to perform, then you may not need to include the artist’s guarantee in your insured costs.”
“You wouldn’t go to a judge without a lawyer or wouldn’t pay your taxes without a good consultant – and the same applies to insurance”
Of all the misconceptions about the insurance industry, there is one issue in particular that everyone is keen to set straight.
“One general thing I’ve heard a lot in the last years is that insurers aren’t paying out when it comes to the moment where they need to,” stresses Rauchhaupt. “I think Covid showed that this is not true. We have handled more than 1,000 cancellations in 2020, and none of them went to court.”
“Most insurers are happy to pay claims as they have to prove to the regulators that the policies they provide are fit for purpose,” says Howell. “If the policies provided never paid out, then they would get in trouble with the regulators and ultimately face fines or closure. At the same time, they also have to meet internal checks to ensure that the policy triggers and the quantum claimed is correct, and this is not always straightforward and will involve a third-party loss adjuster.”
At erpam, MD Raith notes, “We sometimes see that brokers, due to their networking with large corporations such as Live Nation, DEAG, Eventim, etc., have problems in making favourable offers. After all, the broker’s main client should feel that he is getting the best premiums.”
“But, especially in framework agreements, all eventualities have to be priced in, and thus these are often worse premiums, but also conditions. Fortunately, we are independent of these groups and can therefore agree on an individual premium with each client. This sometimes also has a positive effect on the conditions.”
“The broker’s main client should feel that he is getting the best premiums”
“The product is still extremely reliable and caters for a wide range of risks that are taken when putting on an event,” adds Connell. “Especially as brokers, we are here for the clients, and we work on behalf of the clients and not the insurers, so engaging with us will hopefully get the results that clients want from their insurance policy.”
In closing, Goebbels remarks that while the present climate is “not the rosiest,” the market should start to level out in the wake of completing a full year of post-Covid touring.
“It’s certainly not all bad,” he says. “Insurance is still there to help where it can, and it always has been. Just please make your broker part of your team at a very early stage. Don’t hold them at arm’s length and expect them to jump in and bail you out at the last minute.”
“Too many people leave it too late and are then shocked at the price or the policy terms. People look at the weather forecast and think, ‘Oh Christ, it’s not looking too good next week. I better get some insurance in place.’ Well, insurers also look at that weather forecast and say, ‘No, it doesn’t look good, so I’m not going to cover it.’”
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