Millennial preferences are interesting, but it's the dollars behind them that will have a sizable impact on the U.S. economy. At 87 million, the millennial generation is the largest in U.S. history and stands to reach $1.4 trillion in annual spending power in the U.S. by 2020. As these individuals reach their prime working years, their consumption habits will cause ripple effects for industries far and wide.

What do millennials and the experience economy have to do with insurance?

The combination of this generation's penchant for events and their increasing ability to spend is fueling the growth of the experience economy. Coachella raked in $94 million in 2016, while the 2017 Super Bowl drove advertising revenues to record highs generating $500 million for Fox. According to Nielsen, approximately 32 million people attend at least one music festival in the U.S. each year. The business appears to be booming with more than 800 music festivals in the U.S. alone, and Live Nation is now offering a Festival Passport for $799 giving fans general admission access to more than 90 participating festivals.

Related: 5 ways to make festival-style concerts safe and enjoyable

It's not just entertainers that are following the live event trend. Businesses are following suit, altering the structure and format of their corporate events too. David Adler, CEO of BizBash, describes how meetings, conferences, marketing, training, trade shows and consumer shows have a common thread. All experiences are morphing together into the “festivalization of events.” Concerts add conferences, meetings incorporate new styles of collaboration, trade shows bring in consumer elements. “Training conferences are like going to Lollapalooza,” Adler said in a recent Medium post.

With the excitement of a packed events calendar, it's easy to forget what can go wrong to interrupt, postpone or even cancel an event, but that's where insurers play a critical role. Rather than praying for an event to go precisely as planned in order to protect these revenue streams, organizers, promoters, venue owners, advertisers and others that stand to lose revenue or incur additional expense due to circumstances out of their control, would be wise to consider some form of insurance protection.

(Photo: Shutterstock)

How does event cancellation coverage work?

Live events across music, sports, entertainment and the corporate world present various insurable risks, and it's up to the organizer of the event to determine which risk-transfer solutions are needed to ensure that if for any reason the show does not go on, the resources needed to accommodate the cancellation are in place. Processing thousands of ticket refunds can lead to a major strain on employees and systems. Similarly, reimbursing a sponsor for an event that didn't take place can have a significant impact on revenues. But there are means of mitigating these risks with coverages including event cancellation and non-appearance.

Related: Here's what happens when the big game gets cancelled

Event cancellation policies typically cover financial losses — lost revenue and extra expenses — associated with the interruption, postponement, cancellation or abandonment of an event. While policy details vary, coverage may also protect against reduced attendance. There are some perils typically excluded such as terrorism or adverse weather, however, those can be added back based on adjustments in pricing. Ultimately, for the coverage to be triggered the cancellation or postponement must result from an unforeseen peril outside of the policyholder's control.

What are the most common triggers?

Weather is by far the leading cause of cancelation or disruption, although recent attacks at the Bataclan in Paris and Manchester Arena serve as blatant reminders that terrorism is an increasingly prevalent threat to live events. Other potential disruptions include power failure, communicable diseases, venue damage and non-appearance of an entertainer or featured guest.

Related: 7 reasons to consider a stand-alone terrorism policy

If a keynote speaker can't travel to an event due to grounded flights or a singer falls ill and is unable to perform, a non-appearance policy can be added to cover a range of potential financial losses such as lost broadcasting revenue, sunk venue and promotional costs and fees incurred to reschedule.

Related: Oakland warehouse fire kills dozens of party-goers

What isn't covered by event cancellation and non-appearance coverage? As you might expect, an insurer isn't going to pay claims that result from negligence, such as the failure to secure a proper license.

Looking ahead

As consumers demand more experiences, and companies invest more in live events, organizers have stepped up their risk-management efforts. Stadium owners have purchased retractable roofs, and venues are stepping up their security screening.

While these measures certainly help mitigate cancellation risk, there are always going to be unexpected disruptions that stand to derail the best laid plans. Thus, agents and brokers play a critical role in helping risk managers understand their vulnerabilities and the risk transfer solutions available.

Insurers have seen an uptick in inquires for this type of coverage, and the increased demand will likely continue due to a host of contributing factors — climate change and the increased incidents of extreme weather, terrorism and the prevalence of lone wolf attacks and the ageing infrastructure in our country could all contribute to the need for insurance solutions to mitigate the risks posed to live events and ultimately the booming experience economy.

Glenn Dorr is Northeast regional director at Lloyd's. In his role, he is responsible for market development activities in an 11-state region stretching from Maryland to Maine, focused on ensuring that Lloyd's is understood and accessible to everyone with a current or potential future relationship with the market. Dorr studied at the University of London, graduated from the College of Wooster and earned an MBA from Lake Forest Graduate School of Management. He can be reached at [email protected].