How Event Organizers Insure Against the Unexpected

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Events require detailed planning and organization to produce a quality experience for all those involved. To put on an event requires a financial investment in the venue, promotion, and people to make it a success. But what happens when things outside the event organizer's control cause the event to be canceled or postponed? The financial impact can be disastrous for its organizers.

Event Cancellation Insurance coverage can help to limit the risk for those unforeseeable circumstances like illness or injury to a key person, adverse weather, loss of venue, and other situations that arise. This coverage is purchased in advance of the event to protect the event organizers, sponsors, and other rights-holders. Depending on the event type, policies can be purchased up to three years in advance. It is best to get a policy in place as soon as planning for the event begins.

WHO CAN PURCHASE EVENT CANCELLATION COVERAGE?

Carriers are looking for those who have an insurable financial involvement in an event. Concert promoters, event organizers, band managers, fairs or festivals, sporting events and venues, theater and media companies, sponsors, advertisers, tradeshows, conferences and exhibitions are all insurable. Also, personal or private affairs such parties have coverage options available.

WHAT CAN EVENT CANCELLATION COVER?

Event cancellation policies can be purchased to cover two types of losses, though policies do not cover both on the same policy. The first option provides coverage for the Costs and Expenses (excluding profit) involved in putting on the event. At the least, the event organizer may want to cover their expenses. If an event is established to earn money for its backers, the other option is to cover Gross Revenues (including profit) earned from the event.

Not all events are created to generate revenue. Corporate meetings and some conferences are examples of this. These types of events would typically look to purchase an event cancellation policy that would cover Costs and Expenses. But concerts, theaters, sporting events, tradeshows, and many other events expect to earn a profit from ticket sales, food and drink sales, and merchandise. These types of events may consider purchasing both types of policies, one to cover Costs and Expenses and also a policy to cover Gross Revenues.

For the majority of event creators, merchandise, food and drink sales, and sponsor revenue comprise less than 20%.¹ For 48% of events, ticket sales compose 60% to 100% of revenue. The music industry is no exception. It is big business every day of the week. In 2017 concert tickets sold in North America accounted for over $8 billion in revenue while the average revenue per show generated nearly $1 million in gross sales.^3,4 That's a lot of music. And a lot of revenue on the line.²

Broadway is also a big business. According to The Broadway League, touring Broadway shows grossed $1.63 billion in 2019-2020 and Broadway productions in New York City grossed a total of $1.83 billion.^5,6 These are only two segments of the live theater industry. Whether it is the big leagues of Broadway or small regional theaters and production companies, what happens when a show is sold out but must close for a night or a week due to unforeseen circumstances?

If a loss does occurs, it will be necessary to provide copies of receipts, refunds, invoices, and contracts to show proof of the expenses and costs for the event. When the policy is insuring Gross Revenues, the insured must establish with reasonable certainty the amount of the loss. Discuss this in advance with the underwriter so you know what kind of documentation or other information they will expect in the event of a claim. If it is a first-time event, this may be more difficult than a recurring event with historical evidence of ticket sales, merchandise sales, and other revenue generators.

UNFORESEEN, UNCONTROLLABLE, AND UNEXPECTED

Ticketholders shelled out big money to see their favorite pop star. Now the headliner has blown out her knee and cannot go on. A fire damaged the theater making it unavailable for the local movie festival. A huge storm blew in, and the location for the company conference has no electricity.

What types of situations may trigger your coverage under an event cancellation policy? Depending on the coverage you requested to be underwritten for, the following circumstances may apply:

• Non-Appearance of an Individual or Team (Also Extends to Non-Appearance Due to Illness or Death of a Family Member)
• Adverse Weather
• Accident or Illness
• Failure of Utilities
• Natural Perils i.e. Earthquake, Windstorm, etc.
• Public Transport Failure
• Third-Party Strike Action
• Denial of Access
• Damage to Venue
• Death, Accident, Illness or Travel Delay of Key Speaker/Performer
• Terrorism or Threat of Terrorism (May add via Endorsement)
• Civil Commotion (May add via Endorsement)
• National or State Mourning (May add via Endorsement)
• Communicable Disease (May add via Endorsement)

Most of these coverages are negotiable and may be added via a rider or endorsement to your policy. If you are concerned about a particular peril, be sure to discuss it with your underwriter.

BEFORE PURCHASING COVERAGE

When purchasing an event cancellation policy, be aware that once the policy period begins, it isn't cancellable either by the insured or the carrier. Premiums are typically due prior to the policy being activated or the start of the event, and they are fully-earned, meaning there are no refunds.

Discuss with your underwriter exactly what and how you need the policy to be structured based on the unique aspects of your event. The policy can be constructed to cover at different points such as including set-up and teardown. For example, a golf tournament might be set up for coverage to begin when the first ball is played and end when the last ball is played or to cover weather for the whole weekend. These types of decisions will affect pricing for the policy.

ALL POLICIES ARE NOT THE SAME

Event cancellation coverage varies widely, even on policies offered by the same carrier. Terms and conditions are dependent upon so many factors such as event attendance, location, performances, number of days, and more. Certain perils must be added via a rider or endorsement. For instance, Communicable Disease is not typically included but can be added. When seeking out insurance, make it a priority to understand the details of the quotes you receive before purchasing the policy. Some carriers offer an 'All Cause' option. Depending on the size of the request, there may be sublimits or minimum losses before coverage begins. Since Event Cancellation policies are flexible, coverage can be crafted specifically for certain perils such as adverse weather, non-appearance, and terrorism.

Non-Appearance. For many events, Non-Appearance coverage isn't necessary. However, if your event relies on the appearance of an individual or group, make sure you consider this coverage. Wedding officiants, guest speakers, performers, players, and sports teams are examples of this. This also extends if your caterer, florist, or other major vendor fail to provide their promised services. When a major star has to cancel their event, the loss can be steep. Lady Gaga suffered a hip injury and had to cancel her tour in 2013 resulting in an estimated $30 million in losses.⁸ She was forced to cancel 22 tour dates after sustaining an injury to her right hip. More recently, Madonna suffered injuries during her live concerts and had to cancel shows.⁹

Weather. As weather patterns continue to shift across the globe, the likelihood of weather impacting an event is increasing. Any event can be impacted if weather is significant enough. Hurricane Harvey and Hurricane Irma as well as other exposures led to $10-$15 million in losses when many college football and other sporting events had to be cancelled, postponed, relocated, or reschedule.¹⁰

Broadcast Events. What happens if an event is being broadcast or televised in the media, and the broadcast transmission fails? This situation calls for a separate policy. It can be purchased to cover if there is an interruption to a live TV signal when a third-party is responsible for the broadcast.

Exclusions are a Part of Every Policy; event cancellation is no different. Typical exclusions depending upon the policy structure include financial failure, insolvency, or default; withdrawal of support by any party; lack of sales; and, radioactive contamination. That's right, don't expect there to be coverage if an event has to be cancelled or rescheduled due to the insured's financial troubles or if ticket sales are too low; likewise if a sponsor for the event backs out. While these are difficult circumstances, they aren't what this type of policy is designed for.

BOTTOM LINE

Although it is unlikely that events cancelled due to the coronavirus will be covered under a typical Event Cancellation policy, insured should check their policy language for specific exclusionary language. If insureds have a current inforce policy with a Communicable Disease rider there may be coverage. If you are putting on an event big or small, the best thing you can do to protect your investment and your revenue is to have the right event cancellation policy in place. Working with a producer who specializes in Event Cancellation can ensure you are aware of all of the options available in the marketplace to ensure your event investment is protected.

Contact your CRC Group Producer for more information.

Contributors

• Chris Peterson is the President of Hanleigh, a CRC Group Company, located in the Windsor, CT office.
• Scott Lalonde is the Chief Underwriting Officer of Hanleigh, a CRC Group Company, located in the Windsor, CT office.

For over 35 years, Hanleigh has designed and underwritten products for high limit disability, personal life & accident, special risk contingency, and other niche insurance needs, including event cancellation. Our clients include some of the most successful professionals, athletes, entertainers, and organizations in the world.

Hanleigh utilizes a balanced approach of discipline, creativity, and industry-leading sales support, allowing us to provide insurance solutions quickly, competitively, and accurately. As an organization, we are committed to superior service within all aspects of our business and pride ourselves on experience, market knowledge, and unique, consultative strategies.

ENDNOTES

1. Economic Significance of Meetings to the US Economy, Oxford Economics for the Events Industry Council, 2019. https:// insights.eventscouncil.org/Full-Article/ArtMID/398/ArticleID/69/Economic-Significance-of-Meetings-to-the-US-Economy
2. 2019 Event Statistics and What They Mean for Your Events, EventBrite.com, January 01, 2019. https://www. eventbrite.com/blog/event-statistics-ds00/
3. Concert ticket sales revenue in North America 1990-2017, Statista.com, August 26, 2019. https://www.statista.com/ statistics/306065/concert-ticket-sales-revenue-in-north-america/
4. 2019 Business Analysis: The State of the Concert Business is 'F**kin' Perfect', Pollstar, December 16, 2019. https:// www.pollstar.com/article/2019-business-analysis-the-state-of-the-concert-business-is-fkin-perfect-143035
5. Broadway Season Statistics, Playbill, 2019. https://www.broadwayleague.com/research/statistics-broadway-nyc/
6. Statistics - Touring Broadway, Playbill, 2019. https://www.broadwayleague.com/research/statistics-touring-broadway/
7. Wedding Wire Newlywed Report 2020, WeddingWire.com, 2020. https://go.weddingwire.com/newlywed-report
8. Cost of Lady Gaga's Tour Cancellation Could Exceed $30 Million, Rolling Stone, February 15, 2013. https://www. rollingstone.com/music/music-news/cost-of-lady-gagas-tour-cancellation-could-exceed-30-million-90849/
9. Madonna Cancels London Concert Due to Injuries, But Promises 'I Will Keep Going Until I Cannot', Billboard, January 25, 2020 https://www.billboard.com/articles/columns/pop/8549040/madonna-london-concert-canceled-injuries
10. Event Cancellation: What Is A Game Worth To Your Institution?, AthleticDirectorU. https://athleticdirectoru.com/articles/event-cancellation-what-is-one-game-worth-to-your-institution/

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