Does COVID-19 provide a timely reminder on when to buy event cancellation insurance?
Insurance should be implemented as soon as the respective stakeholders begin filling out event contracts and start incurring cost write Adrian Thomas, Executive Director, Aon’s Contingency Insurance and Nancy Goyal, Manager, Sports, Leisure & Entertainment; Anviti Insurance Brokers.
Event cancellation insurance is not uncommon in India; however, it has been a growing trend that it is purchased just weeks before the event is due to take place. COVID-19 is a reminder to all of us that - when we buy insurance is critical to our risk management approach.
Our news feed is inundated with events around the world being postponed or cancelled including:
- South by Southwest (SXSW 2020) music, film and technology conference will not take place for the first time in 34 years
- ATP Tour announced that all tour events will be cancelled for 6 weeks
- UEFA has called an emergency meeting to discuss postponing Euro 2020, and various domestic sports leagues across Europe and USA have been suspended with a lack of clarity when, or if, they will be concluded
- Green Day has postponed the Asian leg of their “Hella Mega Tour”
- Olympics 2020 in Japan remains in doubt
Closer to home, in India, conference halls are empty, trade fairs are being cancelled and the IPL, scheduled to start on 29 March has to face the very real prospect of playing in empty stadiums or following government advice and cancelling matches altogether.
It is clear the impact on events will cause significant economic losses. But what role could, and should, insurance play in protecting against these losses? Will COVID-19 provide a timely reminder to everyone, that no matter how well planned an event is - we live in a volatile world?
Event cancellation insurance is purchased as financial protection against loss of revenue or expenses in the event of an unforeseeable abandonment, postponement, interruption, relocation or cancellation. The major perils insured under a typical policy include fire, adverse weather, mourning, riots, terrorism and injury/illness of key persons involved. Policies also can also extend cover to include cover for disease outbreaks.
Policies that have been extended to include disruption to the event caused by an outbreak of communicable disease were, until recently, readily available from insurers. For the coverage to trigger, it would typically require a necessary order by a government authority or official venue closure
By the time the realisation that COVID-19 could impact their event; many insureds will find it is too late to try to put in place the correct insurance coverage. Insurers would no longer consider the risk a fortuity.
This raises the critical question -when should clients purchase event cancellation insurance? Major events such as the Olympics take years to implement, others have a shorter time frame, so is there a right time to buy insurance weighing up the cost of the insurance versus the perceived benefit?
Insurance should be implemented as soon as the respective stakeholders begin filling out event contracts and start incurring costs. Costs such as infrastructure investment, non-refundable venue deposits and the like could be early in the event planning stages and taking out the insurance as early as possible will provide the most extensive protection.
COVID-19 is an ideal reminder to all concerned. Event organisers and management companies who have purchased event cancellation insurance with epidemic coverage well in advance will have taken the best steps available to mitigate their economic losses from COVID-19. Clients who have left their event cancellation insurance decision until the relative last minute have left themselves exposed to uninsured insurable risk.
The IPL, the most-attended cricket league in the world may have to be played behind closed doors or be cancelled or postponed under government direction. In each scenario a number of stakeholders including organizers, broadcasters and franchises are at risk of considerable economic loss through reduction of sponsorship revenue, gate receipts and numerous other revenue generating channels. Hopefully they shall each have made an informed decision on their event cancellation insurance including epidemic risk before mid-January 2020 when insurers started to withdraw the option for including epidemic as an extended cover.
So why do many clients in India leave event cancellation insurance until the latter stages of their planning? Is it low down on a long list of ‘jobs to do’? Perhaps the risk is considered so improbable they make a conscious decision to ‘self-insure, at least for a certain period? Or are they sensitive to the premium and do not see the value provided by a well-structured risk transfer mechanism to insurers? Let us explore this last possibility further.
Assume there is a live music event scheduled for May 2020. It was first planned in June 2019, with revenue generation of 30crores against a cost of 25crores. Had the risk been insured in June 2019 we can estimate a premium of 7.5to12 lakhs for coverage including epidemic as an insured trigger.
Now let us assume that same client had not purchased insurance until March 2020. That same risk being insured for the shorter time frame would have an estimated premium of 4.5 to 9 lakhs. Was the possibility of saving 3 lakhs worth it? Now weigh that premium saving up in today’s scenario where COVID-19 is a very real risk and insurers will not provide coverage. Was that same saving worth it?
Understanding that we live in uncertain times, being prepared and protected against unforeseen eventualities is key to the stability of the business and the event itself. We hope that COVID-19 will soon pass and our events schedule will resume. May the lessons learned through this not be forgotten.
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