Insuring the unknown
Conversations surrounding insurance in the wake of the Covid-19 outbreak have been complicated, simply because these are unprecedented times.
If you look at any industry and economic decision, when you are dealing with something that has not been dealt with in a generation, there is always going to be complexity. Where there is no practical or legal precedent, there will be a delay in decision-making capability and a lack of clarity. This is all compounded by the quickly evolving nature of the pandemic.
If event organisers purchased cancellation insurance with a blanket communicable disease extension, they are likely to be insured.
However, there are some instances where there could be exclusions specific to a type of communicable disease. The detail is in the policy wording and any extensions that are noted within the documentation. It is hard to give a specific example as not all policies are the same.
When venues are ordered to shut down by the government it can alter the insurance claim, but again, this will depend on the policy. In some cases, there can be a trigger for a policy to react if the government or a local authority stops an event happening by mandating that a venue shuts down. This is different to a venue choosing not to put an event on, in which case, it is less likely that the cancellation would be insured.
However, if the proximate cause is still excluded (communicable disease or terrorism, for example), then the government enforcing a shutdown does not change the terms of the policy, and a claim would not be covered.
We can look back on government and local authority decisions with the benefit of hindsight and most of us reading this will have different opinions even with that. In the UK, from the evidence of the government, as of the time of writing, social distancing and the shutdown of venues has helped to save lives. Whether or not the timing of that was perfect in terms of the loss of life or economic impact will never be known, as is the case with all future governmental decisions.
When you are dealing with something that has not been dealt with in a generation, there is always going to be complexity
Some organisers are also choosing to postpone rather than cancel events. Dependent on the insurance contract, postponing an event is likely to help with the insurer’s losses, but it may also help promoters.
It is likely that live music, sports and events are going to see an increase in insurance premiums after this. This class of insurance has seen catastrophic losses this year; last year saw some big losses, too. These increases will be coupled with a change in the wordings, and work is happening in the background by us, our clients and our insurer capacity to make sure that we can get the best balance possible in what is an extremely difficult time for live events.
We have set up teams specifically to look at the future and we are looking forward for our speculation to turn to plans and then reality, to help the industry get moving again and, most importantly, our attendees experiencing the world’s great talent live.
We are going to see a change in insurance policies. It has already happened. What we are looking to do is make sure that the changes ensure that our promoters, artists and all others in the value chain are protected in most eventualities. It is tough now to know what this will look like in two months, so forecasting six months is impossible. We just do not know the full impact.
For now, we would advise event organisers to be prudent and look at contracts carefully, and when taking an insurance policy out for event cancellation, talk to your broker and study it in detail.
Brokers are here to help and we work on the behalf of our clients, so please study the facts.
Tim Thornhill led the ‘Cancellation insurance’ workshop, along with Tysers colleague Gary Brooks, at this year’s International Live Music Conference.
Tim Thornhill is director of sales, entertainment and sport at Tysers insurance brokers.
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