Uncertainty mars summer 2021 special events
One big reason why a recovery is hard to predict is the uncertainty coming from the special events insurance industry.
Special events came to a grinding stop in 2020. Now, even with vaccines getting injected every day, and a few outdoor concerts and festivals popping up across the country, it is likely going to be months, if not the better part of a year, before the special events industry is back to some semblance of normal.
Special events accounted for more than $1 trillion in annual spending worldwide pre-pandemic, making it no small industry to be shut down. Every event that had to be canceled hit a cascade of other industries — sound, venue, stage, catering, florists, and so on. Even with a murky short-term outlook, it is understandable that scores of people are optimistically looking at what the future might hold.
Events insurance
One of the main reasons why a recovery is hard to predict is because of the uncertainty coming from the special events insurance industry. The pandemic sparked a litany of lawsuits from event organizers who wanted reimbursement after things crashed down. Some of those policies have paid out to the tune of billions of dollars in losses for the insurers, while others are tied up in appeals and, in some cases, in court because of communicable disease exclusions that meant the cancellations were not covered.
Claims adjusters are overwhelmed by what is being called an unbelievable flood of potential claims.
What that means, for now, is that insurers that handle large events just aren’t writing new policies. And without event insurance, the large venues won’t sign contracts, leaving most of the industry in a state of limbo.
That said, there are some policies available for smaller events — weddings, specialized concerts, and the like. The market also is thawing a bit for events booked for 2022.
But having policies available doesn’t mean everything is covered as it once was because pandemic exclusions are now ubiquitous — not to mention the fact that COVID-19 is now a known event. So even if it wasn’t specifically excluded, it would be ineligible for coverage anyway.
Event planning
Another reality that came out of the pandemic is that the events that are being put on typically look different than the ones from before COVID-19.
Gone are large dance floors and tightly packed convention halls. Instead, conventions have gone virtual. Weddings are socially distanced and outside whenever possible. And people even flipped Mardi Gras parades, with the floats sitting still and the parade-goers driving past from the safety of their vehicle.
Many events simply shifted to virtual experiences.
Even still, some ambitious and optimistic promoters are signing contracts for events in the fall. It’s not clear, however, what insurance policies will look like then, and it is a near certainty that COVID-19, among other pandemics, will be excluded.
It is a good bet that anyone signing contracts for events later in the year is paying particularly close attention to cancellation and deposit refund policies.
Other promoters and organizers have resorted to location shopping. Whether it is holding their concerts in Florida, where the government-mandated social distancing rules are less strict, or their bar mitzvahs in New Jersey, there are still locations across the country that are allowing events with lighter restrictions, and promoters are flocking to them.
Many more states are lifting their restrictions each week.
Many large functions being planned now for later in the year will likely be held as hybrid events, with a mix of in-person attendance and virtual participation options. But, because many of those events are held in large convention hotels, the audio-visual equipment becomes an added layer of complication. Most of those large hotels have clauses in the event contract saying that any AV equipment must be procured through the hotel, and in many cases, operated by union employees.
It isn’t likely that conventions looking at hybrid approaches will be as simple as just popping an iPad on a tripod and livestreaming sessions.
The film industry has also gone through a tentative restart, but many have been asked by their insurer to include astronomical deductibles or self-insured portions of the policy, aiming to get their skin in the game and encourage an incentive for good behavior on set. Even still, many of those productions have still been shut down due to COVID-19 outbreaks, and in many cases, insurance claims filed.
Still, other organizers, particularly of smaller events, are simply skirting the law. Small private events like birthdays and large family parties are still going on, with most people simply doing them against restrictions and stay-at-home orders. Needless to say, these unauthorized events would be ineligible for cancellation coverage, which is a shame, because anything from a blizzard to a fire at a venue could call the event off, leaving the organizers holding the bag for any lost deposits or upfront costs.
Government factor
Meanwhile, insurers are casting a leery eye toward state and federal lawmakers, because their actions could severely harm, or potentially help, the industry move forward.
In many statehouses, and even in the U.S. House, there are bills being entertained that would force insurers to pay out cancellation or business interruption policies, even if they had pandemic exclusions in them. While that would be great for the policyholders, the insurers wrote the policy without considering that risk in their underwriting. Forcing them to pay those claims would mean the industry would eat astronomical losses.
It isn’t just in the legislatures, either. There are tons of court cases aiming to force the same issue, with insurers and their trade groups fighting tooth and nail to make the judges honor the policies as written.
On the other end of the spectrum, if federal or state lawmakers offer liability shields, it might encourage venues, and perhaps even insurers, to move back into the market quicker than they are now. Many venues are hesitant to reopen because, while they are liable for their employees’ safety, they have no power to enforce that guests be vaccinated, much less follow a mask mandate that the government itself is struggling to enforce, or in many cases, have simply abandoned.
Another place insurers are hoping for government help is by them creating a government-backed fund to underwrite pandemic insurance, much the way the Terrorism Risk Insurance Program jumpstarted terrorism coverage in the wake of the Sept. 11, 2001, terrorist attacks. While lawmakers are discussing some options for that kind of backstop, no bills appear imminent.
Looking ahead
Given the tremendous losses the insurance industry suffered in 2020, from the pandemic to civil unrest or the historic hurricane season, it is nearly certain that rates will be pointing up throughout the industry.
As special events start ramping back up, underwriters will have to look more closely at the specific risks of each event before writing a policy.
Well-run events, such as Coachella, will likely be the first to see policies return because they will be able to show well-defined risk management plans that will set the underwriters’ minds at ease.
One lesson that event organizers are sure to take from the 2020 pandemic is the essential role event cancellation insurance plays, which should make them much more likely to buy it moving forward. After understanding the costs and losses involved in a canceled event, they should be much less willing to just risk it.
Michael Giusti, M.B.A., (michael.giusti@att.net) is an analyst and senior writer at InsuranceQuotes.com. He has worked as a journalist for more than 20 years, including as a reporter at a daily newspaper in Florida, as an editor at a regional business journal, and as a writer for national and international publications. He specializes in business, technology, finance, insurance, automotive and industry-focused writing.
Also by this contributor: