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The event cancellation insurance sector was hit hard by the pandemic, with billions of dollars in reported claims, and insurers have responded with dramatically higher rates and tighter capacity.
High-profile sports tournaments, such as the Wimbledon tennis championship and the NCAA basketball tournament, bought hundreds of millions of dollars in coverage limits prior to the pandemic.
Since the losses poured in, several insurers have left the market, but others have emerged to take their place, and more capacity may be added (see related story).
Event cancellation insurance compensates organizers and others for expenses and lost revenue related to the cancellation or postponement of an event. The insurance, which can be standalone or part of a broader package, covers indoor and outdoor events, including concerts, theatre performances, conferences, festivals and major sporting events.
Prior to the pandemic, the biggest losses to hit the market were weather-related (see chart).
Pre-pandemic policies often included communicable disease exclusions but also offered a “buy-back” option under which policyholders paid an extra amount to remove the exclusions from their policies. Such buyback options are not expected to be offered for the foreseeable future.
Experts estimate COVID-19-related losses were in the $6 billion to $9 billion range, although there is not yet a final tally because some companies have ongoing multiyear policies.
The pandemic has “been the single biggest loss ever experienced in the history of contingency underwriting,” said Greg Stevning, Indianapolis-based vice president in Marsh LLC’s U.S. entertainment and media industry practice.
Major markets, including Chubb Ltd., Swiss Re Ltd., W.R. Berkley Corp., Munich Re, Markel Corp. and American International Group Inc. unit Talbot Underwriting Ltd. have withdrawn, observers say. A Berkley spokeswoman said in an email it has not yet fully left the market.
But several insurers, particularly in London, have entered the market. These include Convex Group Ltd.; Apollo Syndicate Management Ltd.; Arch Syndicate, part of Arch Capital Group Ltd.; Fidelis Insurance Holdings Ltd.; Cincinnati Global, a unit of Cincinnati Financial Corp.; and International General Insurance Co. Ltd., brokers say.
“This is an opportunity,” said Francis Hernandez, head of contingency for Cincinnati Global, who joined the operation with others from Chubb last year. “We are seeing rate increases, which is great,” and narrowing of terms and conditions and reduced systemic exposures, he said.
The new entrants “have a little more flexibility” than other insurers, enabling them to offer better terms and conditions, and maybe better rates, said Leigh Ann Rossi, chief operating officer, sports and entertainment group, for NFP Corp. in Plainview, New York.
Robbie Thompson, executive director of the Minneapolis-based Professional Liability Underwriting Society, which runs about 75 conferences annually, said, “We will see our terms and conditions change and make it more difficult, or potentially impossible, to get event cancellation coverage of pandemic-related events, and anticipate our costs will go up.”
The organization, which has been insured with Lloyd’s of London syndicates, has not had any claims because of arrangements it made with its conference hotels, he said.
Rates have increased as much as four times from what they were prior to the pandemic, although most rates are doubling or tripling, said Lou Novick, Washington-based national director-associations in the nonprofit practice at Arthur J. Gallagher & Co.
John Beam, Charlotte, North Carolina-based sports entertainment practice leader for Willis Towers Watson PLC, estimates capacity has been reduced from $750 million to $1 billion per risk to $300 million to $400 million.
“We’ve seen a much more conservative underwriting posture, a narrowing of the coverages,” as well as a reduction in capacity, said Roger Sandau, Austin, Texas-based managing principal with EPIC Insurance Brokers and Consultants.
Insurers have excluded global catastrophic events from the coverage and inserted very broad cyber exclusions, he said.
Event organizers can still buy cancellation insurance, “you just cannot include communicable disease coverage with your policy,” said Nathan Nicholas, president and CEO of Nicholas Hill Group Inc., a Colorado Springs, Colorado-based brokerage, whose clients include Wichita, Kansas-based Running USA, a running industry organization.
Alistair MacLean, London-based global product leader, live entertainment, for Allianz Global Corporate & Specialty, an Allianz SE unit, said a government-backed entity has been created for COVID-19 exposure in The Netherlands, while Germany is moving in that direction, and there has been a call for a similar approach in the United Kingdom. Switzerland also is planning such a fund, according to reports.
There is demand for cancellation coverage in catastrophe-prone areas, including California, Texas, Florida and in Las Vegas, Mr. Stevning said. Policyholders are planning large events for 2021 and 2022 although some smaller events may not be held, he said.
“We see the outdoor musical festival business coming back gradually,” although perhaps more likely with festivals having 5,000 to 10,000 attendees rather than 30,000 to 40,000, he said.
Organizations seeking cancellation insurance should start looking for coverage early, experts recommend. “I would strongly suggest” policyholders start talking to their brokers as soon as possible, said Andy Thompson, London-based senior vice president with Lockton Cos. LLC.
While some big names have exited the event cancellation insurance market since the onset of the COVID-19 pandemic, more insurers are expected to enter the sector, some experts say.