How optimistic should we be?
Anyone with fire safety training will be familiar with the Fire Triangle, which defines the three things necessary for fire to occur: Fuel, Heat and Oxygen. Put these things together in sufficient quantities, and you have fire. Take any one away, no fire.
When discussing the conditions necessary for live events to happen, or to resume following the COVID-19 pandemic, many seem tempted to think in similar terms. We have the three fundamental elements of The Show (artist/performer and support services), The Audience (the paying demand) and The Venue (the location). With all these willing and open, the show can go on. Can’t it?
Not quite. Here the analogy falls down, because while fire needs nothing else in order to happen, events absolutely do. Even if audiences, venues, performers and production services are all champing at the bit to get going again, they still need insurance. And insurers are not champing at the bit.
The Insurance industry will take a big hit this year on Event Cancellation Insurance (ECI) policies, for events cancelled due to force majeure (causes beyond a promoter’s control, e.g. government bans on gatherings) – but only where the policy includes cover for communicable diseases. Hiscox, for example, are very clear about whether they are liable for any event cancellation related to COVID-19 (spoiler: they’re not). The SXSW film and music festival, which cancelled in March, later announced that it was not covered by ECI, as communicable disease was not included in the policy.
However, there will still be significant claims. According to Billboard, the cost to insurers of the cancelled Hong Kong Art Basel, an art exhibition originally set for March, is expected to be around $28 million. That’s just one exhibition. KPMG report that one major insurer’s exposure for only those events covered by pandemics insurance could be €500 million. With the 2020 Olympic Games, some estimates say the cost to insurers could surpass that of 9/11. While reinsurance will absorb some of the impact, it’s still a sizeable wound.
All this comes on the back of a general rise in the cost of ECI premiums in recent years, driven by several factors. Claims have grown bigger (not so much due to increasing production costs as inflating artists’ fees), organisers recognise a greater risk of extreme weather conditions, and performers are getting older (at the time of writing, The Rolling Stones have a combined age of 302). In the year before the arrival of COVID-19, event cancellation premiums rose by an estimated 20-30%. Some insurers have stopped offering event cancellation policies entirely. Those continuing to insure will hike premiums and mitigate their exposure by excluding coverage of profits or costs, for example, thereby placing an additional burden of risk on event organisers.
Although many of 2020’s festivals do not plan to reappear before 2021, some have rather optimistically rescheduled for late summer or autumn 2020, hoping to hit some sweet spot between the lifting of social restrictions and the expected ‘second spike’ of infection. Even if organisers can go ahead amid the real possibility of a COVID-19 second spike and the reintroduction of social distancing and rescheduling conflicts – and that’s a big ‘if’ – could viable insurance prove to be the missing link?
(Photo by Andrea Junqueira on Unsplash)