By now, our clients have received the 2015 Romeo Reporter, which contains an article about event cancellation and rain insurance. Sadly, our newsletter did not have the space to do the topic justice. For anyone who would like our complete interview with Robert Holmes, please continue reading for an in depth explanation on your burning insurance questions.
What is Event Cancellation Insurance & what does it cover?
Event Cancellation Insurance indemnifies the insured for losses associated with a forced cancellation abandonment, curtailment, postponement, or relocation of the insured event caused by a peril not specifically excluded. The most common cause of a loss is severe adverse weather that presents a safety issue for the attendees, or weather that occurs that prevents the safe set-up of the event. Other potential causes include wildfires, power outages, earthquakes, floods, non-appearance of key people, venue unavailability, and terrorism. Excluded causes include war or military action, nuclear hazards, lack of support, and fraudulent, dishonest or criminal acts.
How is it different from Rain Insurance?
With rain insurance, coverage is provided for a specific threshold of rain, or more, occurring during the specific coverage hours. It is an agree-value policy, which means that if the rainfall occurs as specified in the policy, a claim is paid in the full limit of the insured amount for that coverage period.
Event cancellation insurance pays a claim up to the limit of the insurance, and the insured has the burden of proof with regards to the actual loss sustained. If there is a forced cancellation due to a covered peril, the insured has the burden of proof as to the cause of the loss as well as the amount of their loss.
A second difference involves the coverage period. Rain insurance has a very specific coverage period, typically on the order of a few hours on the day of the event. Event cancellation insurance coverage begins once the policy is purchased, meaning it there a loss caused by a covered peril, for instance a fire or flood at the venue, that occurs days or weeks prior to the scheduled event, event cancellation insurance still provides coverage.
How is the premium calculated for Event Cancellation coverage?
The premium for event cancellation insurance is calculated based on the type of event and the limit of coverage needed. Events held indoors, such as conferences, tradeshows, and conventions have relatively low premiums, while outdoor events have higher premiums. The calculation of premium involves evaluating the details of the specific event, including the location, time of year, cancellation history, and the experience of the event organizer. Also, the inclusion of non-appearance of key people can also raise the premium significantly, depending on the individual(s) history on nonappearance, their age, and their health history.
How is the premium calculated for rain insurance?
Premium for rain insurance is based primarily on historic rainfall data. We are fortunate that in this country that we have decades of rainfall data available for thousands of locations coast to coast. That historical data is used to calculate the probability of rainfall at the location of the event and during the coverage hours. It is primarily a statistical exercise.
Is there a significant difference in the cost?
There certainly is a considerable premium difference between the two coverage types. Typically, the cost for rain insurance, depending on the rainfall threshold required for a claim to be paid, can be three to five times the cost of event cancellation coverage.
The frequency of claims paid is much higher with rain insurance, as there is no cancellation requirement. Also, the coverage is agreed-value with no burden of proof, meaning the claim is paid in the amount of the full limit should sufficient rainfall occur, with no need to cancel. Many event organizers prefer rain insurance as a concert, for instance, may still proceed in a steady downpour; however paid attendance, concessions, and other revenue sources may be severely impacted. Under that scenario, event cancellation coverage would provide for no claim to be paid, while rain insurance would pay a claim.
How far in advance of the event does insurance need to be purchased?
The timeframes vary by carrier. With most cancellation insurance, you must purchase at least 10 – 15 days in advance of the event. At times, [the] requirement can be reduced, but only on a case-by-case basis. With rain insurance, you must purchase at least seven to ten days in advance, again, depending on the insurance carrier. Also, there is no advantage to purchasing months in advance, other than you would have one last item on the to-do list.
Do you usually recommend that events get both types of coverage or one over the other?
The best coverage option really depends on the event itself and the risk management goals of the client. One thing to keep in mind that if both coverages are in place, and a claim is due under both policies, a claim amount received under the cancellation insurance will be reduced by the amount received via the rain insurance coverage.
An event that has a soft ticket, for instance, or relies on a significant walk-up crowd, may want to consider the rain insurance. If it rains during the hours leading up to or during an event, such as a Saturday night concert during a county fair, the crowd may be half the expected size. And since wet people tend to eat and drink a lot less, the concessions revenue may generate only a fourth of the expected revenue.
For events that have a hard ticket with the majority of ticket sales per-sold, or if the event is a multi-day event, event cancellation coverage is many times preferred. Since most of these events are marketed as rain-or-shine events, the insured is more susceptible to an outright cancellation and therefore, ticket-refunds. Also, events that are billed with the focus on a single, relative large or popular act, where the artist fee is significant, also tend focus on cancellation coverage… Since cancellation insurance provides coverage for perils other than adverse weather, such as floods, wildfire, and earthquakes, the venue location or history may merit stronger consideration relative to rain insurance. Non-appearance coverage, which applies to the non-appearance of a key person or people due to accident, illness, or death, can also be added to a cancellation policy, but not available through a rain insurance policy.
An insured can certainly purchase both types for the same event, as there is usually a combination of risks and financial exposure that merits the placement of both. If both coverages are placed through the same underwriter, the premiums of the combined coverage are typically reduced.
Do you ever have situations where applications are rejected and if so, what are the reasons an event may not qualify for insurance coverage?
Most events should have no issues regarding the rejection of an application, but there are occasions when it does happen. The most common reason for rejection is that the application is received on a date that is too near that of the event date. If there is a pre-existing condition, such as an anticipated hurricane, recent earthquake, or active wildfire, that could also lead to a declination of coverage. If the applicant is requesting non-appearance coverage for a key performer which has a poor history with regards to missing show, the application could be declined. A carrier may also decline coverage for an event being organized by an individual inexperienced at holding events. However, the outright rejection of an application is a relatively rare event.