The Insurance Implications

From music concerts to sporting events and conferences, all organisations are facing the cancellation or postponement of events for the foreseeable future as a result of the Covid-19 pandemic and hard lockdowns in place across the globe. Even once the lockdown is uplifted, events will not be business as usual for some time. The COVID-19 pandemic clearly illustrates the need for event cancellation insurance for when the truly unexpected happens, and life and events simply cannot go on as usual.

Jonathan Lindeque, Senior Client Manager: Sports, Recreation & Entertainment at Aon South Africa, says understanding what type of event cancellation cover is available and how it will respond in different scenarios is key to mitigating even the most unusual risks to the success of your event.  It’s here where the advice and experience of a specialist broker versed in the unique and interrelated risks facing the entertainment and hospitality industries proves invaluable.   

“Due to the Covid-19 outbreak, many major events across the globe such as the Olympic Games Tokyo 2020 was postponed to July 2021 for the first time in its history, along with events such as Wimbledon, various Grand Prix races, the Football Premier League and music events. Major events will have insurance cover in place forabandonment and postponement, with the industry placing a tentative estimate of US$3 billion in claims as a direct result of postponement,” says Jonathan.

However, many smaller events are not necessarily insured for event cancellation.

“From a South African perspective, the Safety at Sports and Recreational Events Act (SASREA) firmly places the responsibility on all parties involved in an event to ensure safety at events. This means that every event held in South Africa should have events liability insurance in place, as a bare minimum in addition to practising health and safety duties. However, this would only cover the organisers and sponsors of an event for legal liability relating to safety at the event, while event cancellation and postponement would not be covered unless it is taken as an additional cover,” explains Jonathan.

“We often find that some events organisers take the bare minimum of liability cover purely as a tick-box exercise to cover them in terms of an industry standard and regulation where it exists, rather than looking holistically at every potential risk to their event going ahead at all. While the Covid-19 pandemic may be a black swan event, realistically there are many more common risks that could result in the cancellation or postponement of an event, and requires that organisers take a closer look at the scope of their event insurance cover,” he adds.

Venue owners, event organisers and sponsors will typically take event cancellation cover to protect their investment in the non-recoverable costs and expenses related to organising and staging an event, such as promotional material, staff costs, merchandising, advertising, supplier bookings and so on. The cover can also be geared to cover the loss of income if an event is cancelled or interrupted and would cover ticket cancellation costs, for example.

 

Communicable disease cover through the lens of event cancellation insurance

In COVID-19, an Initial Insurance Market Impact Assessment of the Pandemicreleased by Aon’s Reinsurance Solutions Team, it states that atypical event cancellation and abandonment policy is an All Risks policy with several standard exclusions of which ‘Communicable Disease” (CD) is one. For a claim to be valid, the cancellation needs to be ‘necessary’ and beyond the control of the insured. CD is dealt with generally in three different ways:

1. On smaller policies and most binders, it is excluded entirely.
2. For medium-size risks, CD is sometimes offered as a buyback. When this happens, the exclusion is typically left in and a ‘notwithstanding the CD exclusion’ endorsement is added to the policy – which means that it will provide cover for an actual event relating to CD occurring, but not for ‘fear or threat’ of it potentially occurring.  In other words, if an event is cancelled by an organiser due to concerns of a potential threat, they would not be covered. But if an event is cancelled as a result of a regulated lockdown, they would be covered. 
3. For large global events and comprehensive policies, the CD exclusion is completely removed, providing cover for actual confirmed CD perils, as well as for fear and threat of a CD.

According to Hugo Raymond who leads up Aon’s Contingency Reinsurance team, many events have not been cancelled outright, but rather postponed.  “This will produce a lesser claim amount when, and more importantly, If the events are staged. On average, approximately 10-20% of an insurer’s portfolio of event cancellation business will have CD coverage.”

“Many loss notifications received prior to the South African lockdown being implemented were not covered as they were not deemed as ‘unavoidable or necessary’, but rather responding to fear or threat of the Coronavirus. Since the lockdown has been implemented, the position regarding fear and threat has changed as our government ordered the cancellation of all events and gatherings. This will now produce claims as this is an ordered lockdown, and we expect these claims to be substantial,” says Hugo.  

Larger, more established reinsurance writers of event cancellation will be hit hardest as they have the most exposure. “Currently the primary reinsurance market is looking to exclude all CD, not just COVID-19, from its policy wording. Going forward, this may well mean that primary CD cover will need to be placed separately as an extension to the primary cover. It is, however, too early to tell how the insurance market will evolve as the impact of the pandemic continues to unfold over the coming months,” says Hugo.

Where to from here?

“While the signs were certainly there, no one could have accurately predicted the timing or consequences of a global pandemic. Those that have taken event cancellation and postponement cover will certainly benefit under their current insurance policy benefits.  Event cancellation cover for communicable diseases will be very hard to find in future, however it will most likely be at a dramatically increased rate, if offered, while policy renewals are also likely to come under intense scrutiny. Cover for the current COVID-19 will not be possible, at all,” explains Jonathan.

While event cancellation insurance is often considered a grudge purchase, its importance and relevance has been thrown into sharp focus following the Covid-19 pandemic.

“The reality is that even with the best planning and risk management measures in place, there will always be the potential for something that is entirely unexpected and beyond human control that could go wrong at an event – and in this case it is happening on an unprecedented global scale.  Considering that the events and hospitality industries employ an enormous number of SMEs, the need for sound, expert insurance advice and guidance to protect businesses from catastrophic losses has never been more crucial in weighing up the risks to your balance sheet, reputation and business sustainability in times of crisis,” concludes Jonathan.