When the show can't go on

If a rock concert is scrubbed or village fireworks are rained out, event cancellation insurance comes

By Elisabeth Boone, CPCU

When we spend big bucks on tickets for a Bruce Springsteen concert, plan an elaborate outdoor wedding, or pack a family picnic for the local Fourth of July festivities, we eagerly look forward to enjoying the event to the max. Of course, we think, the sun will shine, the rock star will show up, the night sky will blaze bright with dazzling pyrotechnics.

As we all know from experience, however, the weather may have other plans—or some totally unfore­seen non-meteorological occurrence may interfere and prevent the show from going on. That’s the bad news. The good news is that agents and brokers can offer their clients specialized coverage that protects them from the financial consequences of event cancellation.

A leader in the field of event cancellation insurance is HCC Specialty Underwriters, Inc. Based in Wakefield, Massachusetts, the firm is a subsidiary of HCC Insurance Holdings, Inc., of Houston, an international insurance group whose operations include property and casualty insurance; life, accident, and health; international business; and credit and surety. HCC Specialty also has offices in Los Angeles, New York, San Francisco, and London.

Serving as chairman of HCC Specialty Underwriters is William F. Hubbard, a veteran of sports disability intermediary American Sports Underwriters. Hubbard joined ASU in 1989 and spearheaded its expansion into event cancellation and promotional insurance.

“In the early 1990s we changed our name to American Specialty Underwriters because we had expanded beyond sports into entertainment and high net worth individuals on the disability side, and we were writing event cancella­tion on other risks in addition to sporting events,” Hubbard explains. “We had also begun to offer promotional insurance and weather insurance as well as coverage for entertainment events, fairs, festivals, and trade shows.”

In 2001 American Specialty Underwriters was acquired by HCC Insurance Holdings, and in 2005 its name was changed to HCC Specialty Underwriters. In addition to event cancellation and weather insurance, the firm offers high-limit disability and related coverages for entertainers, athletes, and highly compensated executives.

Other products are entertainment insurance for TV and film companies; surety bonds for film and TV production companies; kidnap and ransom insurance; detention, extortion and bodily injury; contingent personal accident; AD&D; critical asset protection, and image protection.

Frequency and severity

A scheduled event can be canceled because of something as simple as a thunderstorm or as catastrophic as a fire or terrorist attack. “Event cancellation is a low-frequency, high-severity line,” Hubbard says. “It’s definitely in the ‘cat’ realm of insurance. In terms of things that affect events, what we come across most frequently is adverse weather. It can be too much rain, not enough rain, a hurricane, lightning—anything in the weather realm,” he explains.

Certain parts of the country are prone to specific weather-related phenomena that can have devastating effects, like Tornado Alley in the Midwest and South, or the Atlantic and Gulf Coast states where hurricanes can boil up into destructive Category 4 or 5 storms.

Advance warning of the potential for extreme weather can spur sponsors to call off a scheduled event before a single raindrop falls. Even if the predicted storm fails to materialize, the sponsors incur the often considerable costs associated with the cancellation, such as venue rental, talent-related expenses, and refunds to ticket holders. How does event cancellation coverage fit into this picture?

“If, say, a tornado warning is issued by the appropriate authority and they are advising that events be canceled, most likely we’re going to have a claim,” Hubbard says. “Each situation is different, but generally it’s sufficient if the insured can show that it was a covered peril and beyond their control. We don’t expect insureds to put spectators or participants in harm’s way.”

HCC’s event cancellation insurance, Hubbard explains, protects revenues or expenses if an event is canceled, postponed, rescheduled, or abandoned because of circumstances beyond the control of the organizer.

Tailored coverage

Given the almost limitless variety of event types, sizes, and venues, event cancellation coverage must be tailored to each insured’s unique needs.

“We have a basic form that we start with for each particular risk category,” Hubbard says. “Then we craft it to fit the specific circumstances, whether it’s a college bowl game or a trade show or a convention. The events in a given category, like fairs, festivals, and concerts, tend to have some common­alities, so we manuscript our form to meet an insured’s unique needs.”

In addition to storms and other extreme weather, event cancellation insurance can be structured to cover cancellations due to earthquakes, wildfires, labor strikes, terrorism, kidnapping, non-appearance of key people, communicable diseases like bird flu, and venue unavailability as the result of perils like fire, flood, or power outage.

HCC Specialty has in-house limits of $85 million and long-standing relationships with various Lloyd’s syndicates and European reinsurers, so the firm can tap into additional capacity when needed. Depending on the event type and perils covered, premiums can start at 0.3% of the amount insured.

Insuring weather woes

Another key product offering from HCC Specialty is weather insurance, which is written on admitted paper on a stated value basis. The policy can cover losses that result from measurable weather perils such as rain, snow, wind, electrical storm, hurricane, and temperature.

Event weather insurance reimburses the insured for revenue that is lost when adverse weather causes reduced attendance at an event. The lost revenue may include ticket sales as well as income from concessions, food, and parking.

Cost containment coverage is designed to protect the snow removal budgets of municipalities, private schools, hospitals, and property managers. Coverage can be written on a seasonal or annual basis and pays for each storm or inch of snow in excess of an agreed threshold.

Income stabilization coverage is a form of business interruption insurance that provides reimbursement for lost sales or revenue in the event that adverse weather prevents customers from visiting the insured’s place of business. Like cost containment coverage, income stabilization insurance can be written on a seasonal or annual basis and pays an agreed limit per day to offset the insured’s revenue shortfall.

Local businesses often try to attract customers by offering a full or partial refund on all purchases made on a day when a set amount of rain or snow falls. Promotion weather insurance reimburses the insured for the amount of money refunded to customers.

Prize indemnity

For everyone who plays golf, the ultimate accomplishment is scoring a hole in one. At some venues there’s a standing money prize for a golfer who aces a hole; in other situations a cash award is offered for a particular tournament or round. Payoffs don’t happen often, but when they do, they usually involve big money.

To cover the cost of hole-in-one payouts and other so-called contingent prizes, HCC Specialty offers a prize indemnity policy called Winsurance™. Coverage can be arranged for skill competitions like basketball, hockey, and soccer shots as well as football and baseball skills.

Prize indemnity insurance also can cover consumer promotions such as sweepstakes, games, and competitions. For example, a marketer or promoter might offer a prize to the individual who correctly guesses the amount of rain or snow that will fall on a given date, or the high or low temperature.

Another product in HCC Specialty’s prize indemnity portfolio is PromoShield™, a professional liability policy that covers promotion/integrated marketing agencies for mistakes, errors, and omissions that arise out of the professional services they provide to others. For example, a computer error might result in the promoter producing more sweepstakes winners than planned. Limits are available to $10 million, and coverage includes defense costs.

TotalEventPro™ is a professional liability product for event professionals that covers copyright and trademark infringement, provides injunctive relief defense, and contains an architects and engineers sub-limit.

Special event liability insurance is available on an annual or short-term basis for meeting planners, event planners and organizers, exhibitors, trade show organizers, and event marketing agencies. Coverage includes products and completed operations, personal and advertising injury, and damage to premises rented. Excess limits are available to $10 million; optional coverages are non-owned hired auto, liquor liability, and accidental medical. Event organizers who purchase coverage through HCC Specialty can offer their exhibitors their own liability coverage for a modest per-event premium.

HCC Specialty also offers game of chance surety bonds in New York and Florida, where state law requires such bonds when a promotion sponsor is offering more than $5,000 in prizes.

Online solution for agents

Arranging coverage for events like a college bowl game, a political convention, or a megastar rock concert is a complex process that requires a high degree of underwriting expertise and meticulous attention to detail. Often, however, retail agents and brokers are called on to procure insurance for smaller local events like fairs, fundraisers, weddings, and store promotions. To streamline the quoting, binding, and policy issuance functions for these risks, HCC Specialty created TotalEvent™ Online (www.totaleventinsurance.com/broker).

“The online system is designed for us to efficiently handle events with a very low sum insured with a corresponding very small premium,” Hubbard says. “We’ve built a ‘black box’ that captures the essence of what needs to be covered. The broker can go online, or have his client go online, to fill out the application, look at the quote, and, if it’s acceptable, provide credit card information, and the policy will be downloaded and good to go.”

Of course, not all submissions meet the underwriting criteria for the online system. “If a risk falls outside the black box for any reason, it goes to an underwriter’s desk,” Hubbard says. “The underwriter looks at what caused the submission to be kicked out of the box and communicates in real time with the broker or client to get additional information so the policy can be bound.”

The online system also is a good solution for last-minute situations, Hubbard comments. “Say that the host of an anniversary party is walking into a rented room at a local hotel and all of a sudden the manager says, ‘Where’s your liability policy?’ The host can literally go online and get the coverage.

“We created TotalEvent Online so that both we and our brokers can handle these risks efficiently,” Hubbard says. “Whether you’re a mom and pop shop or an alphabet house, you’re going to have a client come in at the last minute saying, ‘We’re sponsoring a golf tournament with a hole-in-one prize and we forgot to get insurance,’ or ‘We need weather insurance for the Rotary picnic this Saturday.’

“These are small-dollar, small-volume transactions, but they’re a big deal for the client,” Hubbard explains. “With our online system, the broker can get the coverage fast and provide a great service to the client without worrying about taking a loss on the transaction.”

The TotalEvent product suite consists of event cancellation, special event liability, and prize indemnity insurance. Event weather insurance will be available later this year. Retailers can use the online system to apply for status as approved brokers. Agents can store customer information in the system, creating a database that allows the agent to apply for quotes on a customer’s behalf. Cross-selling is facilitated by a system feature that provides automatic indications for HCCSU’s other products that relate to the risk at hand.

TotalEvent Online is a white label system that can be branded with an agency’s name, logo, and other unique information. Customers can access the online system through a link on the agency’s Web site. Plans call for the addition of reporting features that will allow agents to view summaries of customer activity.

“We want to establish relationships with agents and brokers of all sizes, and our technology has allowed us to significantly expand the number of agency relationships we have,” Hubbard asserts. “The technology makes it easy for agents to obtain inexpensive coverage for low-risk events. Then, when the agent has a five- or six-figure opportunity, we’re the go-to source that can take care of the client’s issues.”

For more information:
HCC Specialty Underwriters, Inc.
Web site: www.hccsu.com