Game, set and match for event cancellation cover?

By Abigail Murison | Vol: 43 Issue: 2 | Aug 2020
  • General Insurance
  • Insurance Broking
  • Risk Management
  • Claims
  • Reinsurance
Tennis court

For the first time in 75 years, the grass courts of Wimbledon remained quiet in July 2020. 

No crowds. No strawberries and cream. No tennis stars sporting the traditional all-white outfits associated with the tournament. 

The 5,000-plus ball kids, umpires, maintenance workers and other volunteers, staff and suppliers to the All England Lawn Tennis Club (AELTC) were relieved of their duties. 

Like myriad events around the world, The Championships, Wimbledon, which is the oldest tennis tournament in the world, was cancelled — another high-profile victim of COVID-19.

For Wimbledon, however, there is a silver lining. 

The organisers have event cancellation insurance that includes cover for cancellation and postponement owing to communicable disease. Many other events have not been so prescient or so fortunate.

Warning shot

The AELTC is reported to have taken out communicable disease cover after the severe acute respiratory syndrome (SARS) outbreak of 2002 / 2003. SARS resulted in around 8,100 cases and 774 deaths globally — three-quarters of them in China, where the outbreak began. 

According to the World Health Organization, Hong Kong recorded 977 probable cases and 300 deaths, while Singapore registered 238 probable cases and 33 deaths. By contrast, Australia recorded six probable cases of SARS and New Zealand reported just one, with no loss of life in either country. 

Simon Calabrese, national manager of the entertainment and leisure specialty business at Marsh, notes there has been an uptake of event cancellation insurance in Australia since 2003. But, he says, SARS or pandemic cover is not an accurate yardstick to measure why this has been the case.

‘Prior to COVID-19, communicable disease cover was generally considered a low exposure for event promoters, especially for those events being held within Australia and New Zealand,’ says Calabrese.

When looking at event cancellation risks, some of the main exposures are inclement weather, natural catastrophe, bushfire, venue damage, non-appearance of a principal performer, power failure, transport strike or failure, and terrorism, among others. 

These risks have been more of a contributing factor to the increase in promoters seeking coverage, as opposed to SARS.’

Event cancellation and pandemics

Compare this with COVID-19. As of 6 July, there were more than 11.3 million cases worldwide, according to the Johns Hopkins University tally, and the global death toll had passed 533,000. Australia had 8,583 cases and 106 deaths and New Zealand had 1,534 cases and 22 deaths.

New Zealand moved hard and fast to stop the spread of the virus, with a level 4 lockdown that started on 25 March. With all gatherings cancelled and all public venues closed, it was a devastating blow to the country’s event industry.

Stuart Hartley, underwriting manager at EventCover and WeddingCover in New Zealand, has worked hard over the past two years to increase awareness of event cancellation insurance in the event industry. Even so, when the COVID-19 outbreak struck, few event organisers were prepared.

‘Most events didn’t have any cover — either because they weren’t aware that event cancellation insurance was available or because event organisers and insurance professionals weighed up the risk of communicable disease insurance as part of their event cancellation insurance and decided it was not a risk they needed to cover,’ says Hartley.

In Australia, the combined national, state and territory response to COVID-19 has had a similar effect on events. 

‘The whole industry has been suffering immensely as a result of the pandemic, from sporting events to music and festivals, the arts and conferences,’ says Calabrese.

Risks and challenges

Big events, such as Wimbledon and the 2020 Olympics, are more likely to have comprehensive event cancellation cover that includes the risk of communicable disease. 

‘As a global event with significant public attention, we have always sought to purchase the optimum insurance cover available to us,’ says an AELTC spokesperson.

‘Event cancellation [contingency] insurance is quite a common purchase for large event promoters, conference owners and local government, while smaller promoters tend to self-insure their risks,’ says Calabrese.

Damian Kerin, head of entertainment Asia Pacific at Allianz Global Corporate & Specialty (AGCS) in Singapore, explains that event contingency insurance ‘reimburses irrecoverable costs and expenses incurred, or loss of profit as a result of the unforeseeable abandonment, postponement, interruption or cancellation of an event’.

‘Such policies generally exclude coverage for an outbreak of communicable disease which leads to an event being disrupted,’ he says.

‘Where coverage is afforded, it is predominantly restricted to the necessary cancellation of an event by order of a government authority or venue closure.’

Globally, the Lloyd’s Market Association wording has a general exclusion for communicable disease as standard, unless the disease manifests at the venue when an event takes place.

‘Prior to COVID-19, on a case-by-case basis, event organisers could pay an additional premium to buy back communicable disease cover,’ says Hartley. ‘It was a small premium. The problem was that no-one took that option.’

Kerin points to the number of COVID-related provisional claims, already in the thousands and the majority of them submitted by companies in the United States.

‘The number of claims outside the US market is considerably lower [only about 10 per cent of all claims]. In Europe, most claims come from the United Kingdom, Germany and Italy. In Asia, there are only a few notifications at this stage,’ he says.

‘AGCS will certainly honour coronavirus-related claims where they are part of our policies and cover is clear. 

In fact, we should look at this as an opportunity to demonstrate our claims pledge, especially in sectors such as the entertainment industry, where we see a significant number of loss notifications.’

In New Zealand, Hartley says that in the face of closed public venues and limits on who can travel and where, some event organisers have pivoted and proceeded with events via digital channels. 

Others have been waiting to see what events can proceed at levels 2 and 1 of the lockdown and in what form. ‘Sadly, some events will go out of business,’ he predicts.

Locked out of event cancellation insurance

Tennis365 reports that the AELTC will receive a payout of UK£114 million (A$215 million) for the 2020 cancellation of The Championships. 

Ironically, now that event cancellation insurance — and communicable disease cover — are front-page news and firmly on every event organiser’s radar, there’s never been a worse time to buy cover.

‘The market won’t offer pandemic or communicable disease cover until it knows what its COVID-19 exposure is, and the claims are still coming in,’ says Hartley.

Calabrese notes that the contingency market was already seeing rate increases in late 2019 ‘due to the past few years of large global losses for contingency underwriters’. 

‘The COVID-19 pandemic alone is expected to contribute an additional US$5 billion to US$10 billion in losses for contingency insurers and reinsurers alike,’ he says. 

‘As these losses are wholly realised, the contingency market will significantly harden throughout 2020 and beyond.

‘Unfortunately, this means that the events industry will be faced with unprecedented premium increases, higher deductibles and restrictive coverage across the board. 

'We will also see vigorous underwriting processes implemented from all insurers as they look to take on a more selective underwriting appetite going forward.’

Leaner, stronger, different

Countries that have managed to flatten the curve of COVID-19 infection are lifting lockdowns and restrictions. However, until a reliable vaccine is available, many may still look to limit gatherings. 

With a vaccine likely to be 12 to 18 months away, there’s no immediate certainty for event organisers.

‘To some extent, the future of events is in the hands of the public,’ says Hartley. 

‘I think that people will be ready and excited to go back and attend events, but there will be less expendable income and people will be perhaps more selective about what they attend, with more focus on homegrown events.

‘The future will look different, but we have a phenomenal event industry and the New Zealand attitude of “she’ll be right” will spur us on.’

And Wimbledon? As AELTC board member Tim Henman told Tennis Channel Live: ‘If we can take some positives out of this time, it would be around communications and the tennis family looking at what’s in the best interest of the sport to hopefully bounce back even stronger.’

Knock-on effect for licence agreement liability

Event cancellation cover provides some level of protection to the organiser, but the financial impact of event cancellation or rescheduling due to COVID-19 is also having a catastrophic effect on promotional partners, licensees and businesses involved in merchandising.

The licensing industry relates to third-party use of intellectual property such as images, logos, graphics and trademarks and licensees would be expected to have their own cover.

‘They are impacted in the same way that promoters are and would likely be covered if they had purchased a contingency policy which included a communicable disease extension,’ says Marsh’s Simon Calabrese.

London-based specialist insurance provider CFC recently introduced a customisable licence agreement liability product that provides protection to licensees for an unintentional breach of their licence agreements, including cover for intellectual property infringement.

CFC’s media team leader Jade Giltrap says that while licence agreements often include a mandated insurance requirement, CFC designed the standalone policy as an alternative for companies that would otherwise have to purchase fully-fledged media liability policies.

She says the long-term effects of the pandemic on licensee relationships remain to be seen, pointing to the rescheduling of the Tokyo Olympics to 2021 as a challenge for licensees who have already produced content bearing the logo for Tokyo 2020.

‘Those [licensing agreements], first off, are probably incapable of being fulfilled, either in full or in part, because they’re quite short-period contracts just to cater for the event, so every single one will need to be amended,’ says Giltrap.

‘In addition, people will have expended money on “2020” and now it’s “2021”, so it will be very interesting to see how all that is going to be managed.’

This article is worth 0.25 CIP Points

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