After nearly 18 months of live events pulling the plug one after the other, organizers and event managers are even more eager to get their shows on the road and bring back the crowds. Since cancellations and postponements have become a frequent occurrence lately, cancellation insurance has become a hot topic. Of course, the main question circulating these days is “Can I get cancellation insurance that covers COVID-19?”. The short answer is no. But, why?
The good old days
Prior to the whole COVID fiasco, buying insurance that covers ‘communicable diseases’ was likely not at the top of the priority list for most event organizers. It’s quite pricey and was considered largely unnecessary by many. Before March 2020, there was some safety net for communicable diseases in insurance policies that was offered at an extra cost. This means that a standard cancellation policy would not include coverage for an event being canceled or postponed as a result of an outbreak, the threat of an outbreak or the fear of a potential outbreak. Communicable diseases are generally listed as an exclusion, but there was usually still an option to add coverage, for a price.
An example of such an exclusion clause might read:
“Any communicable disease or threat or fear of communicable disease (whether actual or perceived) which leads to:
- the imposition of quarantine or restriction in movement of people or animals by any national or international body or agency;
- 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.”
That coverage is nonexistent these days and likely for the foreseeable future. Why? It is extremely difficult to calculate the consequences of communicable diseases and losses that could result from it. Insurers would be nothing short of overwhelmed if they need to pay millions, if not billions, of dollars in claims and it would simply be a financial burden that would be extremely difficult to recover from. There is an accumulation of risk with pandemics that insurers are cautious about taking on and they simply don’t want to be caught up in over their heads with claims, for good reason.
Can I get COVID coverage for my event?
That’s the big question.
It’s understandable that event organizers need to be able to cover their losses in the event of a canceled event, but if that cancellation comes as a result of COVID, to put it simply, you’re sh*t outta luck. Anyone who has purchased cancellation insurance from April 2020 onwards has a full exclusion from COVID-19.
Just like you wouldn’t be able to buy home insurance if your house was on fire or car insurance after a crash, getting insurance for a global pandemic that is already a threat is pretty much impossible. The ones that did make the choice to spend the extra bucks on this coverage before COVID-19 was declared a global pandemic were the lucky ones, while many others missed out on the opportunity to make a claim.
Insurance helps ensure you are protected against the unexpected, but a COVID cancellation is no longer all that unexpected. The pandemic is considered a pre-existing condition since the risk is already there. Existing threats at inception of a policy simply cannot be covered, nor can it be retroactively added to the policy. Unsurprisingly, the event cancellation insurance market has forever changed because of the pandemic.
The initial impact
On a global scale, the cancellation or postponement of sporting events, festivals, conferences and other live events tallied upwards of $5-6 billion in losses. Although the majority of events were not able to make claims, some were more fortunate. So, why were some events covered and others weren’t?
The simple answer...those that were covered had policies written before March 2020 (some even years in advance) where communicable diseases were either not listed as an exclusion or the insured added it as an optional extra. In these cases, these events were eligible to make claims for their canceled or postponed events while others suffered significant losses. From a lucky accident to the very risk averse, here are a couple notable examples:
- The DGTL Festival in Amsterdam was forced to cancel but was able to recoup their losses. Their ‘pandemic coverage’ on the insurance was accidentally ticked but this mistake earned them the right to file a claim and get $2.3 million back (and a pat on the back for that employee).
- One of the bigger stories of the year revolved around the 2020 Tokyo Olympic games since organizers were forced to postpone it for a year. With Covid cases soaring, the games faced the risk of being canceled (since postponement was not an option for a second year in a row) which would mean insurers would face a US$2-3 billion payout, “the largest ever claim in the global event cancellation market”. Luckily for those insurers, the games went ahead as scheduled.
Although it’s unclear if the 2020 Olympic Games had a policy covering communicable diseases (since the terms of their policies are confidential), “the majority of large event policyholders would purchase communicable disease coverage”, according to Alli MacLean of AGCS. We do know a policy was paid out and extra costs of postponing to 2021 were covered - whether this can be attributed to communicable disease coverage, we don’t know for certain, but if they fall into the group Alli mentioned, it’s likely.
So why do you need event cancellation insurance?
The fact is that right now, there is nothing you can do to protect your event against COVID related losses. This might leave you wondering, if insurance policies exclude cancellation due to the coronavirus, why do I still need it?
Glad you asked.
We are taught to ‘expect the unexpected’ and this is a great motto to live by in the events world. Nothing ever goes exactly to plan and there will always be surprises along the way, from severe weather disruptions to onsite technical issues. The best way to be prepared is get your coverage as early as possible, meaning right from the moment you start the planning, because things don't always wait until the day of the event to go wrong. Protecting your financial investments early on is one of the smartest decisions you can make while planning an event, because COVID isn't the only reason for an event to be canceled.
Looking for more on other common causes for event cancellations? Stay tuned for our next post!