How the pandemic has impacted the insurance industry
Bad weather, performer complications, technical issues…there are any number of unforeseen circumstances that could result in the cancellation of an event. Take this year for example, we’ve seen nearly 100% of events cancelled or postponed over the past few months and it’s safe to assume not one of those event organisers saw this one coming.
Surprisingly, many event organisers run the gauntlet and only take out cancellation coverage mere days before an event is due to take place. Without an adequate insurance policy in place, their investment, almost certainly already in the hundreds of thousands but potentially in the millions, would be irrecoverable should something go wrong. As with any insurance policy, you hope you never have to use it but if you do, you sure are glad you have it.
What is event cancellation insurance exactly and how do you get it?
If you’ve spent any time around events and/or insurance, you’ve probably come across the standard verbiage:
“This policy reimburses the insured for the ascertained net loss should any insured event be cancelled, abandoned, postponed, interrupted, curtailed or relocated, which cancellation, abandonment, postponement, interruption, curtailment or relocation is the sole and direct result of a cause not otherwise excluded which occurs during the period of insurance and is beyond the control of both the participant and the insured.”
So, what does that mean? It means that as long as your event isn’t cancelled due to one of the reasons listed as an exemption, you can recoup your losses. Pretty basic stuff, right? Maybe not…but more on that later.
As for how you get it, there are 2 main ways to acquire event cancellation insurance. The more common method usually involves contacting one of the larger insurers in the market directly, like Hiscox, Beazleys or Chubb. However, for special events that necessitate bespoke coverage or for organisers who might not know the type of cover they require, a broker may be enlisted to find the appropriate insurance product to meet their needs.
How does COVID fit into this?
COVID saw almost all events forced to cancel or postpone due to UK Government guidelines introduced to slow the spread of the virus. Remember when we said interpreting your cancellation policy may not be that simple? Following the announcements about social distancing and caps on the number of people allowed to congregate which effectively eliminated all events, many organisers were shocked to find that their cancellation policies contained exemptions for claims relating to communicable diseases. One example of such a clause is provided below:
“Any communicable disease or threat or fear of communicable disease (whether actual or perceived) which leads to: 1. the imposition of quarantine or restriction in movement of people or animals by any national or international body or agency; 2. any travel advisory or warning being issued by a national or international body or agency and in respect of 1) or 2) above any fear or threat thereof (whether actual or perceived); This insurance also excludes loss directly or indirectly caused by, resulting from or in connection with any action taken in controlling, preventing, suppressing or in any way relating to a communicable disease.”
Most insurers offer a substantial suite of extensions to basic cancellation cover including; artist non-appearance, terrorism and even political risk. Communicable disease cover is usually available as an extension to a standard cancellation policy but planners often overlook this option.
It’s not all doom and gloom though as some, mainly the very risk averse but on at least one occasion through employee error, had sufficient cover in place.
Example 1: The Captive Insurance Companies Association (CICA) hosts international conferences and purchased cancellation insurance for the first time in 2019. Former CICA board chair Steve McElhiney was responsible for sourcing the cover and a decision was made that although “no one expects that a pandemic is going to lead to cancelling your conference, the coverage was available and it was prudent to obtain”. The CICA recently settled its claim with Tokio Marine HCC for the cancellation of their 2020 international conference.
Example 2: DGTL Festival held in Amsterdam was due to take place over the Easter weekend but was forced to cancel due to the CoronaVirus pandemic. Luckily during the application for cancellation insurance an employee accidentally checked a box for communicable disease cover. This mistake meant that the organisers were able to recoup the $2.3m invested into the event.
Event cancellation policies purchased after April 2020 now have full exclusions for communicable diseases and many insurers have removed the option to purchase communicable disease as an extension to their products.
In addition, event cancellation policies also include terms for ‘circumstances known/occurring prior to the event’ which insurers may choose to rely on as an alternative defence against COVID claims.
What’s happening now?
A court case involving some of the biggest insurers in the business and their refusal to pay out on business interruption claims because of the pandemic, has recently concluded. The argument seems simple; businesses say they were forced to close by the UK government…technically true, but insurers insisted they had to close due to COVID-19...also technically true. This is where things get tricky, government closure is covered by most policies but communicable diseases (like COVID) are not.
A decision was reached that insurers were wrong to outright reject claims from the small businesses that complained. However the complexity of the case meant that not all claims would be settled due to the specific policy wording of each provider. In the case of Hiscox, around a third of their business interruption portfolio would receive a payout, reducing their worst case scenario of a £250m loss to under £100m. Whilst Zurich Insurance would not have to pay out on any of their policies.
The view of the Association of British Insurers (ABI) was that the decision divided interests equally between policyholders and insurers. Whereas Britain’s Federation of Small Businesses (FSB) called the judgment a “partial” victory. Overall both sides seem content with the outcome of the case but it will still leave many dissatisfied individuals' whose policies will not be paying out.
We have some questions.
1. Could event organisers argue that they cancelled events because of the government and not COVID? If so, could this make claims for event cancellation during the lockdown valid similar to the business interruption court case?
If the recent court case has set any precedent, event organisers may have an angle to challenge their policy wordings, one thing is for sure, it’s a precarious time for insurers.
2. How will insurance premiums change given increased cancellations and risk?
Event cancellation rates have increased between 35 and 150% whilst non-appearance extensions have also seen increases of 25 to 100% . One thing is for sure, premiums are going up due to increased risk.
3. What is the current capacity and appetite in the insurance market for event cancellation (contingency) insurance?
Stable ‘A’ rated lead generation remains in the market, along with the secondary broker market. Only the very largest of placements (~£5m) would potentially prove problematic in the Contingency market from a capacity point of view. Line sizes are largely being pared back with insurers more likely to reduce coverage to around £0.5m-£1m.
The bottom line is that the insurance industry is changing because of the COVID crisis and along with it, bringing insurance to the forefront of the event planning conversation. Event organisers already have their plates full arranging licences and completing well thought out risk assessments and comprehensive event management plans but on top of all this, they will likely be more diligent about insurance coverage for their events going forward. COVID has demonstrated that it certainly pays to cover for the unforeseen and obtaining cancellation insurance early will become the new normal.