Event insurance

The death of Michael Jackson, who was due to perform 50 shows at the O₂ Arena in London starting this month, has brought into sharp focus how big the risks faced by event insurers can be.

Although it is still unclear exactly which insurers are affected and what is their total exposure following the cancellation of the event, Talbot Underwriting confirmed that it had a net exposure of up to $3m (£1.8m) after providing 25% of the event cancellation cover for Jackson’s promoter, AEG Live. And as previously reported by Insurance Times, it is believed that Cathedral Underwriting was the lead of the event cancellation policy with a 50% exposure.

Meanwhile, Lloyd’s of London also confirmed exposure – which, Reuters reported, is about $24m – and Bloomberg has reported that Allianz SE issued insurance policies for both the promoter and ticket sellers.

However the situation could have been much worse for insurers. It’s been reported that only 20 of Jackson’s 50 concerts were underwritten, which leaves AEG hanging for ticket refunds worth an estimated $50m. As Insurance Times went to press, the promoter said in a statement: “Full ticket refund information and procedures will be released early next week for all Michael Jackson ‘This Is It’ shows. Fans are advised to hold onto their ticket vouchers/proof of purchase.”

A spokesman from EMB, an actuarial and business consultancy, told Insurance Times: “Coverage of event insurance tends to focus on large-scale events, such as the proposed Michael Jackson dates at the O₂ this summer.

“Following his death, it remains to be seen whether the insurance obtained by the promoters and ticket agencies will be sufficient to cover the actual losses, including a reported £50m in ticket sales.”

Of course, the event insurance market also covers much smaller events – everything from charity events, to weddings and summer festivals. The bigger events are obviously attractive to insurers and brokers because of their high profile and hefty premium. But with an event like, for example, the London 2012 Olympics, there are plenty of opportunities for other insurers to pick up. Conversely, when it comes to smaller events, the market often becomes like a pack of hungry wolves fighting over scraps of meat.

“There’s always fighting over events; it’s a very competitive market,” says Brian Kirsch, managing director of middle-market broker Event Assured – which arranges cover under a delegated authority from Beazley Syndicates at Lloyd’s.

Overview

The presence of such fierce competition could explain the lack of data available on the event insurance market. A senior underwriter at Chubb, Alan Norris, says that it is “almost impossible” to pinpoint what the total gross written premium (GWP) is in the UK.

For global events written in the London market, estimates range from about $100m up to $250m. But Norris explains that individual event insurance figures are often hidden beneath other business results. Chubb’s GWP for event insurance, for example, is combined with its commercial lines numbers with no individual figure provided for event insurance.

“A number of market associations for contingency-event business – one in the US and another couple in the London market – have asked underwriters before, even confidentially, what their share or premium is for event business,” Norris says.

“Companies are very guarded with their information and do treat it confidentially. So no insurer or underwriter would say what their premium income from events would be because it would be deemed to be sensitive and confidential information … I think most of us are, at best, trying to guess.”

According to Norris, the main event insurers outside of Lloyd’s are Chubb, Zurich, QBE and RSA. Meanwhile, according to EMB, coverage of large-scale events is covered by a handful of players of including Talbot, Hiscox, Cathedral and Sportscover. For smaller events, it says, the main firms are E&L Insurance, Weddingplan, Event Insurance Services and Event Assured.

Chris Rackcliffe, contingency underwriter at Beazley, says: “Capacity is fairly constant in this market and there are a small number of major players. It is a class of business that requires specialist expertise and experience – as well as a sufficient capacity to offer the levels of cover required. This tends to mean that underwriters who are active in this area have been in the market for several years.”

Rackcliffe and EMB agree that a succession of wet summers over the past few years in the UK have made event organisers more wary of the risks. In addition, issues such as terrorism and possible health epidemics including swine flu and foot and mouth disease are causing rates to come under pressure to rise.

EMB says: “The insurance premium for a small wedding starts at about £50, with a typical £20,000 wedding ranging in premium from £70 to £120. Here again, rates may be expected to rise, due to the increasing incidence of fraudulent claims brought about by the current economic climate. A big bash organised months in advance may not seem quite so affordable if people’s financial circumstances change. Overall, however, the events market is one where price isn’t the only differentiator between providers. There is a great deal of variation in the cover provided and, importantly, in the exclusions that apply.”

Swine flu

The other big-risk event insurers are facing is swine flu. Previously, SARS and avian flu were usually the only specific exclusions for infectious diseases. Now, it is more difficult to get cover for infectious diseases on an open-ended basis. But Kirsch says it is possible to get specific event cover provided you can have the right underwriter and the right terms.

“I think the level of worry about swine flu is overdone,” he says. “We need to keep watching because we don’t know what’s going to happen during the winter. But apart from Mexico for a few weeks in May, there’s been no reason to call off any events. There was a reaction against what was happening and people become afraid to do things. But it hasn’t proved to be that bad so far and we should guard against overreaction.”

Norris says: “Some insurers, if not all, insurers are now excluding swine flu, if not having a full exclusion for all diseases of that nature. If it was to become a pandemic and you have events, you could theoretically have events closed around the world for a long period which could have a massive financial impact.

“It’d be an impossible situation to live with; a bit like a war risk, and war is excluded under all policies and it’s the same kind of systemic exposure.

“Swine flu hasn’t turned out to be the horrible killer flu but the problem with the industry is, experts are saying at some point there will be a worldwide pandemic, which will have a major impact on events. So I think insurers are going to struggle to give the cover going forwards.”

Credit crisis effect

The economic crisis is causing a rise in seemingly trivial injury claims. For instance, a partner with law firm DLA Piper, Alan Jacobs, cites a recent case where a concert-goer tripped over a cable and made a claim after sustaining very minor injuries.

“I think [people attending] events are more willing to pursue smaller claims than they used to be. They have always followed up the more serious claims, but there do seem to be more smaller claims pursued. It’s a sign of the times and as there are a greater number of redundancies, it will probably become more acute.”

He adds that event organisers are usually treated as being the site’s occupiers. This means they are the most likely to be sued, even if the claimant’s injury was caused by another party. But Jacobs says: “Nowadays, there’s more willingness on the part of the organisers, if they are pursued, for them to really get to the bottom of who’s at fault to try and get the money back that they’ve paid out.”

Even small events have become riskier. For example, if you take responsibility for setting up chairs at your own wedding and someone falls off their chair and is injured, you could be liable. Jacobs says: “People don’t stop and think about whether there’s a potential liability. While it might be covered by your household insurance policy, there’s a stage where what you’re doing becomes more commercial and you’d need to take out separate event insurance.”

Meanwhile, Norris is noticing a reduction in the number of events. For instance, he says, several golf events on the European tour have been scrapped this year due to lack of sponsorship. Chubb has exposure on the Ryder Cup but the event only runs every two years and the next one is 2010 in Newport, Wales. In the meantime, Chubb is providing cover for U2’s 360° Tour, which kicked off successfully in Barcelona on 30 June.

Music concerts seem to be more resilient in the present economic climate. Rackcliffe says this is because bands are making more money from touring, rather than sales of CDs or downloads, which has increased demand for non-appearance insurance.