Business

Promoters Who Need Coronavirus Insurance Likely Don't Have It, Experts Say

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MLADEN ANTONOV/AFP via Getty Images

Protective face masks photographed on Jan. 28, 2020.

As the disease continues to stoke widespread fears, cancellations of major summer events may result in huge payouts from insurance companies.

As the world braces for the impact of a possible coronavirus epidemic, event cancellation insurance policy providers are preparing for a flood of claims from promoters during the busy summer season.

Insurers and promoters cast the dice on coronavirus coverage months ago -- sources tell Billboard that if promoters do not already have infectious disease insurance for their events, it is too late to buy it now. As a rule, cancellation insurance policies exclude infectious disease coverage. Promoters have to purchase an additional insurance rider to get it added. In fact, policies that have been issued after the virus gained attention exempt COVID-19 coverage. For those that have coverage, payouts will require a force majeure event to trigger coverage -- an event like a government agency shutting down a concert because of an outbreak.

“For coronavirus -- if not specifically excluded and they do have the potential for a claim -- the fear that people might contract the coronavirus is not sufficient. The threshold in the policy is the event is ‘necessarily’ cancelled, ‘necessarily’ implies that there is a benchmark of severity that leaves you no choice, or prevents you from doing the show -- as opposed to a voluntary decision to avoid exposure,” says Roger Sandau, managing principal at Integro Sports & Entertainment insurance.

“Like just about any cancellation claim, the event has to be either impossible or unsafe to stage,” adds Paul Bassman, CEO of Ascend Insurance Brokerage.

Government directed, virus-driven cancellations for major events could drive massive payouts from insurance companies this summer. The cancellation of Hong Kong Art Basel, scheduled March 17-21, is expected to cost insurers an estimated $28 million.

“There’s a lot of eyes now on the Tokyo Olympic games, the insured value for those is so significant that if they are unable to go forward in their entirety, it would be a very, very significant hit to the event insurance market and the insurers involved in it,” Sandau says.

How big? Peter Tempkins, managing director of insurer HUB International, expects the potential loss will surpass the amounts paid by insurers around 9/11 claims. In that case, the reinsurance policies that insurance companies purchase to mitigate their own risk will likely come into play. “It’s not going to put these companies out of business, they’re public companies, they’ll put out more stock or do something -- they have huge reserves," Tempkins says.

"We simply do not know yet the potential global underwriting losses that may occur in all lines of coverage, including the event cancellation market. Large losses, potentially, could affect both premiums and capacity for many lines of coverage," says Ben Stern, managing senior vp at Heffernan Insurance Brokers.

For policies including infectious disease coverage going forward, insurers have mirrored their response to other pandemics including swine flu, Zika, Ebola, MERS and SARS. Event cancellation insurance and infectious disease coverage remain available but subject to a list of exclusions, with the coronavirus now among them.

Even before the coronavirus, cancellation insurance was becoming increasingly expensive and restricted. "In the past few years, there has been a significant increase in event cancellation premiums due to widespread losses in the cancellation market as well as the global insurance market overall. Carriers who wrote a significant amount of cancellation business have pulled out completely. Event cancellation overage is still solid, however we have seen situations where rates have increased so dramatically that it no longer makes sense to put full coverage in place," says Bassman.

Insurers have taken several angles to alter coverage. Rates have increased more than 50%, and coverage that includes both costs and profits may be limited to lost ticket and sponsorship revenue, excluding a huge source of promoter profit -- food and beverage sales. Deductibles have been added to policies, and those may rise as high as one third of the loss created by the cancellation (e.g. one day’s revenue for a three-day festival). Insurers are also capping how much they are willing to insure.

Insurers are also taking a closer look at promoters' ticket refund policy. In the past, promoters determined this policy with a private calculus driven by financial capability, insurance coverage (or lack thereof) and a desire to protect their reputation. Partial cancellations for a few hours or one day of a multi-day festival may not have triggered ticket refunds, but may have triggered claims for lost revenue on cancellation insurance.

"No one ever asked beforehand, now they're asking it up front," says Tempkins. "'What is your ticket refund policy?'"

Coronavirus