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.

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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All write now? Insuring events in the age of Covid

This summer’s events and festivals may have been largely wiped out due to the ongoing pandemic, but live event organisers are determined to return to some kind of normality.

With large-scale event bans due to lift before the winter, the live music industry is daring to plan for the future – but at what cost?

Organisers are still reeling from the economic impact of this year’s cancellations, and few are willing or able to risk shows without cancellation insurance in place for Covid-19. Even with government go-ahead for venues to reopen, without insurance, the industry is at a standstill.

So what might live event insurance look like over the next 12 months? Insurers from two of the biggest global markets, the UK and the US, tell IQ why a government-backed insurance fund is needed (but problematic), what’s causing many underwriters to quit offering cancellation insurance, and how policies may change in the months ahead.

When it comes to insurance for future live music events, there’s only one question on the industry’s lips: When will insurers provide cancellation cover that includes Covid-19?

The answer is, according to brokers in the UK and the US, not any time soon – if at all.

The problem, as Steven Howell from Media Insurance Brokers (MIB) in the UK explains, is that it’s impossible for underwriters to put a price on Covid-19 cover while we’re still in the midst of the pandemic.

“It’s a bit like asking us to insure your house while your house is still on fire; it’s too late. You can only assess what the damage is and what repairs are needed once the fire is out. And once that happens, underwriters can assess the likelihood of that house burning down again and work out what premiums to charge you to cover it,” he says.

“Asking an underwriter to take a view on the likelihood of whether the government will impose a local lockdown, forcing the cancellation of an event, is impossible because no one knows. No one is in control of the infection rate and no one is in control of the government.” 

“You can only assess what the damage is and what repairs are needed once the fire is out”

However, it’s the authorities that the industry is turning to for support. When the UK government announced its £500 million scheme to kickstart film and television productions struggling to secure insurance for Covid-related costs, there was a question of whether the live music industry might receive the same.

The programme will support productions if future losses are incurred due to Covid and fill the gap left by the lack of available insurance and cover coronavirus-related disruptions, such as delays in filming caused by unwell staff.

A proposal is currently being worked on by entertainment and sports broker Tysers in partnership with the UK’s various industry associations, though no details have yet been released. One of the difficulties, as Martin Goebbels from Miller Insurance points out, is that live music events present an entirely different set of variables from that of TV and film productions.

“Productions are behind closed doors, in more contained environments, and generally can be far more easily controlled and contained. The problem for live music events is the audience and everything that comes with that, such as public transport and having large crowds in any restricted area, whether it be the actual venue or extra numbers arriving in a town,” he says.

So far, only one arena in the UK has risked staging events with the possibility that the government could enforce a local lockdown at any time, forcing the organisers to cancel.

Howell at MIB insured the UK’s only major summer concert series of 2020 at the country’s first socially distanced arena, Newcastle’s Virgin Money Unity Arena.

“Insurers might need to be prepared to cover certain losses not contemplated as part of coverage offered today”

While MIB couldn’t provide cancellation cover which includes a Covid-19 extension, it could provide public liability cover, in case anyone gets ill or contracts the virus at the event and tries to sue the event organiser.

“In order to ensure there was no exclusion for coronavirus added to the public liability policy we needed to review the organisers risk assessments and Covid-19 protocols to make sure they are adhering to latest advice and minimising risk of catching or spreading the disease,” says Howell. 

The organisers have said that they were keeping “one eye on government legislation,” hoping there wouldn’t be any major changes or a local lockdown that would put the series into jeopardy. 

So what are the possible solutions that would give event organisers the confidence to start planning for next year and committing costs?

One suggestion from Howell is to increase the tax on insurance premiums, in line with VAT, and reserve the excess for cancellation cover.

“Most people are used to paying 20% VAT. On insurance, you pay 12% so even if you increase it to 15 and siphoned off that 3%, it would create a pot of money through insurance that is available to bail out in case of cancellation.

“It’s similar to what the US did after 9/11 when they increased premiums and siphoned off a small percentage in case your business or event gets affected by terrorism,” says Howell. 

“Once live events do come back, there will be an adjustment period for those who wish to put on the shows and those who wish to insure them”

Carol Thornhill from Epic Brokers in the US also cited the terrorism pot as a possible solution, but says in the current political climate she doesn’t necessarily see it happening.

“We do have some clients that are actually working in venues with proper social distancing protocols, in the hopes that the state stays open.

“A lot of states like Florida and Tennessee are a little bit more relaxed than others and so they’re really not shutting down promoters and events much at this point,” she says.

Any changes to insurance policy in the US is much further down the line, as underwriters have to go through a state filing process, which Tim Thornhill of UK-based Tysers says is more of a lengthy procedure.

Scott Carroll from Take1 Insurance in the US says he imagines adjustments to the Covid-related insurance cover would take into account factors such as the venue’s protocols for sanitisation; food service; public toilets; adherence to Centers for Disease Control guidelines; and duty of care.

“The insurers might need to be prepared to cover certain losses not contemplated as part of coverage offered today. Once live events do come back, there will be an adjustment period for those who wish to put on the shows and those who wish to insure them,” he says.

Another change coming in both the UK and the US is an increase in premiums. In the UK, that increase is down to lack of capacity in the insurance market and a higher demand, according to Howell.

“Travel insurance is likely to increase as well, which may have a small effect on future tour budgets”

“Lots of underwriters we used have quit,” says Howell. “They’ve said, ‘we’ve lost so much money in this first wave of cancellations that we’re not going to write contingency or cancellation for the foreseeable future,’ and closed their books.” 

This means that the remaining underwriters will be looking to claw back some premium by charging higher rates.

Tysers has been more fortunate with business during Covid-19 and was able to pay out on cover in many instances, says Thornhill.

“In relation to non-appearance policies, our wording, drafted in the time of [predecessor companies] Robertson Taylor and later Integro allowed most of our clients the opportunity to successfully lodge claims,” he explains.

“It was significantly different to the standard Lloyd’s wording used by others, as our communicable disease [CD] exclusion was limited to a number of named diseases. Covid-19 was not one of those and consequently we were able to confirm fairly quickly that coverage operated as opposed to the blanket CD exclusion offered elsewhere.”

Goebbels points out that Covid’s effect on the insurance industry will have other knock-on effects in other ways too.

“Travel insurance is likely to increase as well, due to massive losses in recent months, but at present we do not know by how much, as touring is not happening,” he says. “That may have a small effect on future tour budgets, but it is too early to say.” 

With insurance a key consideration for festival season 2021, the topic will be discussed in more depth at next week’s Interactive Festival Forum, with Thornhill and Howell among the experts speaking as part of the Insurance & Covid-19 workshop.

Register for iFF 2021 here.

This article forms part of IQ’s Covid-19 resource centre – a knowledge hub of essential guidance and updating resources for uncertain times.

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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.

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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.”

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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”

Hard Time
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 [2017],” 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