Insurance News

Event Insurers Still Play To Full Houses

Posted on: September 16, 2009

While specialty insurers writing coverage for risks ranging from oil platforms, to trucks, to construction projects have reported lower demand in 2009, those working with customers in the sports and entertainment industries still draw crowds.

Not every player in the market is packing them in, but most underwriters and brokers specializing in event liability insurance and cancellation coverage?a niche that extends from covering bake sales and trade shows to the Olympics?reported higher or steady demand for insurance in 2009 during recent interviews with National Underwriter.

Chris Rackliffe, a contingency underwriter for Beazley in London, suggested that a poor global economy might paradoxically be one factor prompting more interest in coverage against cancellation, non-appearance and other contingency risks.

?When there?s an economic downturn, and people are looking at the bottom line, it?s even more important that they consider protecting revenue and profit,? said Mr. Rackliffe, who also chairs the Lloyd?s Contingency Business Panel.

The term ?contingency insurance,? borne in the London market, describes a category of coverage that essentially protects buyers such as event organizers, sponsors, broadcasters and others who might have a stake in a planned event against the possibility it won?t happen as scheduled.

?There have been circumstances which led people to think more about the true value of the coverage,? he added?noting, for example, that Beazley insured events in India following the Mumbai terrorist attacks.

?If you look at the world at the moment, there?s all sorts of hazards?wildfires in California and Australia, political strife in certain countries. There?s always something happening that could potentially lead to events being cancelled,? he said.

?Adverse weather has [also] affected events where you wouldn?t expect weather to be a problem,? he said. ?We?ve picked up losses in places like Las Vegas,? where weather statistics and the fact that the city is in the desert indicated that outdoor sporting events there were good risks. ?We covered a baseball event that got rained out,? he said.

Beazley specializes in cancellation coverage for events around the world?from ?festivals and fetes right up to the Olympics, Formula One [racing] and World Cup-style events,? according to Mr. Rackliffe.

In the United States, R.B. Jones is a managing general agent and wholesaler specializing in placements on the liability side of the business. Like Mr. Rackliffe on the contingency side, Morris Nelson?R.B. Jones? director of the outdoor and recreation division in Denver?also reports an upturn in demand for liability business.

With no particular size guidelines, Mr. Nelson said placements can range from the ?local baked goods show to fair-sized concerts and festivals,? but he was hard-pressed to pinpoint a driving force behind the increased demand beyond the recurring nature of many of these events.

A lot of the events are held annually. ?You might see some drop-off for one-time events. But I don?t see a slowdown in events that keep repeating year after year,? he said.

Jack Cave, president of Entertainment Brokers International?a Los Angeles-based MGA division of OneBeacon Insurance specializing in a wide range of liability, property and contingency coverages for the entertainment, sports and leisure industries?described demand for event coverage as status quo.

In the cancellation arena, EBI?s main focus is the music business?insuring concerts, touring entertainers, promoters and others with available limits of $10 million through One Beacon, North American Specialty Insurance Group, as well as Lloyd?s of London.

Many smaller groups don?t buy coverage, Mr. Cave reported, guessing that only about 100 groups and several hundred artists??from magician to musician to singer??buy contingency insurance to cover their tours.

Like other market participants, Mr. Cave has seen no drop in demand because of economic pressures. ?Ironically, the event business is actually doing pretty well,? he said. ?In this day and age, with changes in the music business that are occurring, most artists actually make more money touring than recording.?

?When economic times get tough, the American public goes to events to get away from their day to day issues,? he added, supporting his assertion with recent box office figures for the release of the latest movie remake in the ?Friday the 13th? series. The movie took in $43 million in its opening weekend?eclipsing the entire U.S. box office take of the original film.

But what if events are cancelled or revenues are reduced as a consequence of economic conditions?say attendance is poor because potential event-goers can?t afford tickets priced outside their entertainment budgets? Is there coverage?

?Financial cause, which is certainly something buyers are always asking about, is specifically excluded,? Mr. Rackliffe said.

Both Mr. Rackliffe and Mr. Cave said policies can be crafted to cover expenses that have been sunk into events that don?t take place for any number of reasons, or even revenues lost if performers are unable to appear. They stressed, however, that circumstances must be ?beyond the control? of the insured. (See infographic on ?Custom Coverage? for more policy details.)

Mr. Rackliffe said policies will currently provide coverage for one particular uncontrollable cause of loss that buyers may be concerned about?the prospect of a flu pandemic prompting an event cancellation.

?That?s obviously on everyone?s mind at the moment, [and] Beazley and other syndicates and insurance companies are deciding how we are going to tackle this going forward,? said Mr. Rackliffe, noting that his Lloyd?s Contingency Business Panel meets on a regular basis to talk about policy wording issues.

?We have got some exposure to?the Swine flu outbreak, but going forward, it?s a question of how we, how the whole market manages our aggregation [of risk]. Coverage may be available at a price, but it will be subject to available aggregate,? he said.

Mr. Cave recalled that ?Hoof and mouth disease for cattle started it all in England a few years ago, and some events actually did get cancelled,? so when the first indications of Swine flu came along, there were initial discussions in the insurance market about specifically restricting coverage. However, he reported, ?more thought has come out about that? since then.

?At least for the near term, it?s pretty much business as usual,? he said. Mr. Cave said that although a flu pandemic is generally excluded, the swine flu has yet to create circumstances sufficient to cause a loss.?

?Whether that changes this fall remains to be seen,? he said.

Mr. Rackliffe said that ?as it stands at the moment, there is only limited availability for something like Swine flu in the market,? going on to distinguish between events scheduled several months out to more imminent events that already have coverage.

?I think most insurers are looking to exclude it. If they are going to give the coverage, it?s going to be expensive, and there are going to be a lot of limitations attached,? Mr. Rackcliffe said. ?In other words, you may not be able to buy it for an event happening six months out. You might be able to buy it for something happening in two or three weeks time, but it?s going to be fairly restrictive.?

On the liability side of the event market, concerts with rap music, heavy metal bands or mosh pits are the only exposures that universally unnerve underwriters enough to keep them off lists of potential insureds.

At Markel in Glen Allen, Va., David Weisenberger, managing director for casualty business, explained that ?we try to stay away from concerts that bring in a large number of youthful name acts because we feel the crowd control is more difficult.?

Mr. Cave agreed. ?The larger concern on certain concerts is not the artists themselves, [but] the crowd exposure they bring with them,? he said, noting certain groups attract crowds that are prone to be disruptive.

Mosh pits carry their own unique risks, prompting liability insurers to be very cautious. ?By definition, people are running into each other,? he said, describing a crowd activity known as ?slamming? or ?moshing.?

Mr. Cave said ?festival seating? is another risk factor that insurers consider, describing a seating structure where tickets might allow event spectators to sit anywhere on the floor of a stadium or the grass of a football field rather than in an assigned seat.

In some cases, loss control measures like security screenings at multiple checkpoints or efforts to wire together folding chairs have been employed to lower risks inherent in events that allow festival seating. ?You couldn?t pick up one folding chair?you?d have to pick up 10,? he said, explaining the thought process behind the measure.

An NU survey of roughly a dozen applications for special event liability policies and endorsements posted on the Internet reveals that music and sporting event underwriters ask about more than seating structure and crowd control.

Questions about the use of fireworks and mechanical or motorized devices were among the more common items on applications generally marked ?special events? or specifically related to events such as haunted houses and corn mazes.

Participant activities ranging from Velcro jumping to Airsoft operations to Iron Man competitions were among the more unusual ones insurers had questions about.

Asked whether affirmative responses indicating that such risky pursuits might take place would necessarily prompt coverage denials or just higher prices and exclusions, insurers and brokers interviewed for this article universally said some combination of approaches would be applied.

?Insurers are looking for as much of the information as they can get on the front end,? Mr. Weisenberger said.

Addressing some of the specifics, he said insurers ask questions about fireworks because they want to make sure the shooter has coverage. As for Velcro jumping and Airsoft, he speculated, ?whoever is asking the questions probably had a couple of claims? from those types of events.

He explained that Airsoft games are similar to paintball, but small plastic BBs are fired from special guns rather than big splatting balls of paint. (Editor?s Note: Velcro jumping is an event that has participants clad in Velcro suits running to or jumping from small trampolines to stick themselves onto Velcro-covered walls.)

At EBI, Mr. Cave said, ?by nature, specialty underwriters are not looking for ways not to write insurance. They?re looking for ways to get it done? at a competitive price, but with enough restrictions to encourage the implementation of measures to mitigate losses.

Talking more generally about the supply side of the contingency insurance equation, market participants reported no new players competing in the market, reasoning that steep barriers to entry have kept the global market for event cancellation business small relative to other specialty types of insurance.

?The universe of available premium wouldn?t allow mainstream carriers to enter the market,? said Mr. Cave, adding that a new entrant would have to acquire significant expertise.

?There?s certainly more capacity now than immediately following the 9/11 attacks,? Mr. Rackliffe said?reporting, however, that there are still relatively few specialist leaders that have the expertise to write the business.

Highlighting some market-leading characteristics that set Beazley apart, he pointed to $50 million in available limits and the presence of three full-time underwriters with roughly 20 years of experience each. ?On the more complex risks, brokers and clients are looking for underwriters with the experience to put together a fairly complicated insurance product??and expertise related to special exposures such as terrorism, he noted.

Both the capacity requirements and the complexity of large-event risks are illustrated by press reports about two mega-events?President Obama?s inauguration and related events held earlier this year, and the 2016 Summer Olympics, for which the city of Chicago aspires to be the host.

Even the Bible that the president put his hand on as he took the oath of office needed to be insured, according to Mr. Cave?who revealed that EBI placed the inland marine property coverage for the book, which had also been used at Abraham Lincoln?s inauguration. The Bible was covered for damage from the time it left the Smithsonian Institute until it was safely returned.

As for the Olympic bid, David Prosperi, vice president of global public relations for Aon, confirmed that the Chicago-based broker is helping to develop the Chicago 2016 risk management and insurance plan on a pro-bono basis, arranging an initial $500 million of coverage.

Aon representatives were unavailable to confirm specific coverage details in recent Chicago media reports. The reports describe a package that includes:

? Liability insurance.

? Coverage for catastrophes that could cancel the games.

? Coverage for corporate sponsor financial defaults.

? Policies addressing construction delays, cost overruns and potential funding shortfalls (that would kick in to provide capital if funding sources for Olympic Village developers dry up).

© Copyright 2009 National Underwriter Property & Casualty. A Summit Business Media publication. All Rights Reserved.

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