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Buyers face changing contingency market as demand returns

Despite Covid-19, the sports and entertainment industry is finding ways to safely hold events and resume TV and film production, leading to renewed demand for event cancellation insurance. But buyers returning to the market will find a very different insurance market post-pandemic.

Demand for cancellation insurance is returning as TV/film production resumes, and with events planned for 2021 and beyond, according to Edel Ryan, head of business development, sports entertainment and media industry at Marsh in the UK. During lockdown, demand for cancellation cover all but dried up, but in recent months Marsh has seen customers return to the market.

“Demand for cancellation cover has reduced for parts of the industry but we will see it increase, at least for traditional coverages. There is optimism in the market and among clients, and we are actively working with them to deliver solutions to help manage costs in the run-up to future events,” said Ms Ryan.

David Bishop, senior broker at Shepherd Compello, is also seeing an increase in enquiries for cancellation insurance from a range of “tentative, new and rescheduled” events. “For example, we have seen one major sporting event that was in planning just before lockdown that is now going ahead after being put on hold,” he said.

Pre-pandemic, businesses organising media productions and events commonly purchased event cancellation cover to protect against loss of revenues or increased costs of cancellation or postponement from a range of risks, such as extreme weather or terrorism. Cancellation cover for pandemic or infectious disease outbreaks was also readily available, but not always purchased, according to Ms Ryan.

As events and TV production have resumed, clients are looking to buy both traditional cancellation cover and insurance for infectious diseases, including Covid-19. However, cover for infectious diseases and pandemics is now widely excluded from policies, while the market for other perils is still in a state of flux, said Ms Ryan.

“Insurers will still write [contingency/event cancellation] cover and there are markets that are actively engaged, but some are waiting until next year. At the beginning of 2020, it was simply inconceivable to think that events would not have resumed by the end of this year,” she said.

Buyers will find rates for cancellation insurance somewhat higher when they return to the market, with insurers wary of systemic risks, explained Ms Ryan. Insurers face unprecedented losses from the pandemic, while the market’s premium volumes are likely to remain far lower than pre-Covid levels for some time, she added.

At the start of lockdown, it was very difficult to get hold of underwriters, but this has now changed, according to Mr Bishop. “There is the capacity and markets are available. Some carriers have pulled out and I expect others to either follow or limit their appetite. However, I am still confident that there is a degree of stability and capacity is available,” he said.

According to Mr Bishop, there have been some large increases in rates. For example, some rescheduled events have experienced hikes of 40% and more, he said. “New events will also see increases in rates from those pre-pandemic. However, we need to view this in context; we are experiencing a hardening market across pretty much all lines and classes – contingency is no different,” said Mr Bishop.

The insurance market is able to insure events for traditional perils, although capacity is not as plentiful as it was pre-Covid, according to Martin Holness, head of contingency at HDI Global Specialty. His firm has experienced an uplift in requests for quotes in recent weeks, but only for some larger, international events due to take place in the next two to four years. But there has not been a material increase in quote requests for other types of events, said Mr Holness.

“The market is prepared to offer core coverage but capacity for perils that would be considered as higher risk, or potentially systemic in nature, is not as readily available as pre-Covid-19,” he said.

The contingency market is going through a period of change, according to Mr Holness.

“We have seen withdrawals, or significant scale-back, from the market, but there has also been a number of new entrants into the market. There is enough capacity to cater for most business, but it is not clear if there would be enough capacity available to cover the largest placements seen historically. One unknown is the amount of capacity that will be available once insurers have undertaken their reinsurance renewals. Rates have increased, and although there is relatively limited business being bound, that business is carrying substantial rate increases,” he said.

In Marsh’s experience, insurers have worked with their customers to reschedule events to the second half of 2020 and into 2021, as well as extending existing infectious disease cover into next year. However, until there is clarity around the ban on public gatherings being lifted, the risk of further losses for clients and the insurance industry remains.

Beazley, a leading insurer of event cancellation at Lloyd’s, recently doubled its Covid-19 loss estimate as events postponed earlier in the year were cancelled. The loss estimate would rise further if resumption to some form of normality is not achieved by the second half of 2021, it said.

Marsh recently placed its first cancellation policy since lockdown froze the market. The cover for a client with a series of small festivals was placed with “relative ease”, albeit without pandemic cover, said Ms Ryan. However, the market has changed following Covid-19, with some players exiting the line of business and others taking stock, she explained.

“Markets have had to take a view on whether to continue offering cover in the entertainment and events sector. Some have withdrawn and we would expect others to do so. On the flip side, we now see new players coming to the market. They do not have the losses of established players and will be entering a market just as demand for cover increases, and as rates are increasing,” said Ms Ryan.

Fidelis, for example, entered the contingency market in August, citing opportunities as incumbents have withdrawn. The insurer said it wanted to take a “lead role” in restructuring and repricing products to ensure clients continue to have access to long-term risk transfer solutions.

While buyers can purchase traditional event cancellation cover going forward, they are not currently able to buy cover for Covid-19 or future infectious disease outbreaks. Pandemic and infectious disease cover is unlikely to be available in the market any time soon, said Ms Ryan.

Once there is a Covid-19 vaccine and more certainty, companies will expect cover for communicable diseases, explained Mr Bishop. “We saw earlier in the spring a Pandemic Re project committee with six working groups and 50 volunteers coming together to address the broader problem. As an industry, we will watch with interest to see how this develops as there will be a demand for cover, and sustainable solutions will be required,” he said.

One positive move saw the UK government launch a film and TV compensation scheme in July. This was in part to plug the gap in pandemic cover for production insurance. The scheme covers Covid-related losses for UK-based film and TV production, and sits alongside traditional entertainment insurance, explained Ms Ryan.

“This is a game changer and is designed to put film and TV back into production in the absence of Covid insurance. It’s a short-term solution that should help get things going until the insurance industry recovers and finds ways to write cover for pandemics and communicable diseases at some point in the future. This is a positive move for clients. I have no doubt the insurance industry will be watching to see how the scheme performs and runs,” she said.

A small number of insurers offer Covid-19 production cover but buyers have found it too expensive and the cover too narrow, according to Ms Ryan. “Credit to insurers for trying, and over time we will hopefully see more innovation. Marsh, for example, is working with insurers in the market on a tailored solution beyond the scope of the government scheme,” she said.

The contingency market might yet find a solution in proposed government-backed pools for pandemic business interruption losses, or potentially an entertainment industry-focused solution, she continued. “Without a shadow of doubt, every possible basis of solution is being considered and will continue. The optimist in me would like to believe that we will get a solution to infectious disease cover; you can be certain that we won’t stop looking,” added Ms Ryan.

The need for the contingency market to work on solutions for infectious disease will be driven by demand for coverage by potential assureds, according to Mr Holness. “Pre-Covid-19, communicable disease was a known peril, but other than events involving equine and livestock, or for events taking place on or near to farmland, communicable disease would not have been the major consideration for purchasing cancellation insurance,” he said.

“For most purchasers of cancellation insurance, adverse weather, technical failures, natural catastrophes and such like would have been the main concerns. These exposures will most likely continue to fuel demand for cancellation insurance,” predicted Mr Holness.

“The availability of a government backstop would provide some degree of comfort to insurers that may consider offering communicable disease coverage, but it is likely that capacity would still not be as readily available as before, because insurers will be more mindful of aggregation on both a period-of-risk basis and geographical-exposure basis,” he said.

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