When the show won’t go on

Event cancellation insurers bore the brunt of lockdown-related losses – and have reacted accordingly, writes Garry Booth The big-name property insurers saw their business interruption losses contained but their reputations trashed amid the economic fallout from Covid-19 lockdowns. Specialty event-cancellation underwriters, on the other hand, emerged with their reputations intact – but their portfolios deep into the red. Global contingency losses from Covid-19 are estimated to be in excess of £17bn ($23bn), of which as much as £10bn is insured, according to reports. Events focused around live performances with crowds have been the worst hit by lockdown, including sport, music, festivals, theatrical productions, hospitality events and exhibitions. All require large crews and involve complex logistics to run and organise. Informa, the world’s biggest exhibitions group, for example, reported a loss of £1.1bn for 2020, as lockdowns prevented gatherings from taking place around the world. At Lloyd’s, gross contingency claims cost the market £2.9bn in 2020, nearly half its £6.2bn total Covid-19 loss, and were largely attributed to event cancellation claims. About half a dozen Lloyd’s syndicates specialise in event cancellation insurance (ECI). Specialty insurer Beazley’s experience was fairly typical. In it its 2020 results, Beazley’s political, accident and contingency business recorded premium of $273.0m and a combined ratio of 212%. Covid-19-related contingency loss estimates of $70m net of reinsurance were reported in the first half of the year. In September, Beazley’s overall loss estimate for first-party claims increased by a further $170m net of reinsurance, which was largely attributable to the cancellation of events into 2021. “Our underwriting and claims teams have been working tirelessly with clients and brokers to pay claims quickly,” Beazley CEO Andrew Horton pointed out in the results statement. Simon Henderson, executive director in the media, entertainment and events insurance practice of broker Gallagher, says the impact of lockdown on the market was unprecedented: “ECI is one of those classes that is fairly predictable – historically it doesn’t produce large fluctuations in losses… until this year. “Contingency market loss is estimated at $7bn-$10bn. That includes film and prize indemnity. Film losses were significant – circa $2bn – and ECI [losses] therefore came in at about $5bn-$7bn. “It is a huge loss ratio and insurers won’t be making back those losses before people working in the market today retire,” Mr Henderson reckons. The relatively small ECI constituency – roughly 20 players – reacted swiftly, with a number of high-profile carriers pulling out of contingency and ECI business altogether. Chubb and Markel International withdrew capacity last year. In April this year, Lloyd’s insurer Talbot announced that Syndicate 1183 – a lead market – was quitting contingency after posting $194.3m of Covid-19 claims in 2020. Predictably, however, the promise of higher rates and improved terms and conditions attracted new players into contingency business, notably industry newcomers Convex and Fidelis, as well as IGI and Cincinatti Global Underwriting. The latter insurer hit the ground running, having attracted Chubb’s contingency team. Rock-hard market Businesses and events organisers renewing contingency cover have seen premium rates soar. The market hardening has affected the contingency market as a whole, even where lines weren’t impacted by the lockdown – in prize indemnity insurance, for example. In many cases, reinsurance programmes for contingency have been badly hit, adding to the uplift in primary rates, Mr Henderson says: “Primary rates are up between 25% and 150%, depending on type of risk and its location. Line size has reduced as carriers are more cautious; carriers are buying less reinsurance or even ‘going net’.” Andy Thompson, senior vice-president at Lockton Companies, agrees: “The struggle for the market is the disparity in rating, and there have been increases of anything from 30% to 100% or maybe higher, depending on each individual risk being assessed. “The increase in pricing has a huge impact on clients who for the most part have been unable to generate revenue due to their events being unable to proceed,” Mr Thompson tells Global Risk Manager. Like Mr Henderson, Mr Thompson notes that ECI underwriters have become more selective, and have shrunk their participation risk: “For example, if an underwriter wrote 25% of a certain risk last year, they may only write 15% this year. We’ve also seen underwriters apply deductibles on smaller productions, whereas in the pre-Covid world, there was a leeway of a certain number of shows before underwriters would consider imposing deductibles, whether that was monetary or a show deductible. Generally, we’ve also seen coverage become tighter.” Mr Thompson likens the future for ECI insurance supply to the path taken by cyber risk insurance: “Event cancellation insurance is still widely available but what still isn’t available is Covid coverage (or a disease restart scheme). “While cyber cover was previously typically included, it is now being excluded to remove insurers from the potential of a systemic loss. “Organising and running events is now much more dependent on technology than ever before, so getting cyber cover is still important. Many are therefore addressing cyber as is a buyback option or purchasing a separate policy,” Mr Thompson explains. Gallagher’s Mr Henderson is doubtful that a standalone market for pandemic ECI insurance will evolve any time soon, however. “Reinsurers have pulled back. There is no appetite. Limited cover is written on the film side that addresses [the risk of] an actor contracting Covid that shuts down filming. That would likely be written in the A&H market. “There is talk of potential, limited cover at very high rates for shutdown – I don’t see it being affordable though,” he says. “I understand that ILS-type programmes are being discussed for major events, as opposed to conventional conference events. I don’t expect event organisers to be able to buy communicable disease cover anytime soon.” Losses down the track A big cloud that’s loomed over the incumbent ECI market lifted earlier this year – the potential cancellation of the Olympic Games in Tokyo. Insurers were spared a biblical loss when it was decided not to cancel the event. At the time of writing, the Games are scheduled to open on 23 July and run to 8 August, albeit without a live audience in most venues. The Olympics are insured for about $2bn, plus a further $600m for hospitality, according to estimates from analysts at investment bank Jeffries. Cancellation losses would come from multiple sources, including the International Olympic Committee (IOC) and local organising committee (about $800m and $650m in coverage respectively), as well as broadcasters and sponsors, teams, and many other organisations. According to brokers, the organising committee cover is already blown, with significant losses. The IOC policy, covering TV and sponsorship, should not trigger because the event will go ahead behind closed doors. The same applies to TV company broadcast policies, assuming they can broadcast the event. But, with virtually no spectators, losses are likely now around hospitality packages and ticketing companies, however. The enormity of the Olympic loss potential and also the devastating effect of lockdown on cultural events everywhere has led to suggestions that governments should do more to compensate event organisers. It seems unlikely however that any state-funded financial help, if forthcoming, would extend specifically to event cancellation. It doesn’t mean that this niche product will fade away. Instead, ECI carriers will tighten their focus on altogether more easily modelled risks: like the weather, earthquake and terrorism.

When the show won’t go on

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