Specialty Lines Markets
Events gone awry
The cost of canceling that event may be higher than your customers realize
By Lori Widmer
Canceled events can take many forms. A hurricane wipes out a convention center, leaving a trail of canceled events almost as deep as the debris. A bride gets cold feet. Heavy political pressure regarding costs causes government agencies to cancel events. What may seem like a minor loss can actually be a devastating event for your customers if they're not covered for it.
The average cost of today's wedding is $20,000. That's a lot for a one-day event, but it's a lot more should anything get in the way of that big day. Cold feet, illness, death, natural acts—all conspire to separate brides and grooms from their money. For that reason, wedding insurance was created.
What's at risk? Plenty. Kitchens can be rendered useless thanks to fires. Photographers and videographers can fail to show up. Damage to the reception venue could force a move to a different, more expensive location. Everything from damaged clothing to lost jewelry and gifts can empty the pockets of the newlyweds even before they say "I do."
K&K Insurance has pretty much seen it all. While K&K does not release information on specific claims, the company points to news reports on tragedies that have occurred at crowded events, varying from stage equipment collapsing in a sudden windstorm to outbreaks of food poisoning as examples of some of the claims their programs would cover.
A windstorm was the cause of an accident at the Indiana State Fair last year that killed five people and could potentially cost the state millions of dollars in damages and payouts to victims and families. How much a loss of that magnitude costs depends on the size, location, and circumstances surrounding the event. For example, the band set to go on stage just as the roof of the stage collapsed—Sugarland—had another event canceled due to emergency preparedness concerns. Officials in Tuscaloosa, Alabama canceled the 2011 concert because emergency personnel who were to cover the show were called away to handle storm damage in the city's 20 neighborhoods. The total cost of the cancellation—$225,000.
"Defense costs alone for serious claims involving multiple claimants can add up to thousands of dollars while catastrophic claim payouts can exceed seven figures," says Lorena Hatfield, marketing resources manager with K&K Insurance. "Whether due to negligence or simply to unfortunate circumstances, accidents do happen."
While much of the cost of a canceled event is offset by attendance fees, many events are not rescheduled. In a 2009 Professional Convention Management Association/American Express/the Y Partnership study titled "The Meetings Market: Outlook 2009/2010," 41% of planners surveyed said they would cancel meetings due to economic conditions, while 22% said their cancellations would be due to downsizing or consolidation. Those are dollars spent that won't be recouped. Nor does it include an average of $81,000 per planner in penalties paid for canceled and rebooked events.
When Kings of Leon lead singer Caleb Followill left the stage mid-concert and caused the cancellation of the rest of the scheduled 2011 tour dates, the bill for the band's insurer, Lloyd's, was reportedly around $15 million.
In 2010, when Arizona adopted strict anti-immigration laws, the convention and conference business dropped off significantly. In the end, the state lost $141 million in direct spending and a total of $253 million in economic output and 2,800 jobs, according to a study conducted by Elliott D. Pollack & Company.
Some events are smaller in scale. In August 2011, the International Agricultural Trade Research Consortium (IATRC) was forced to cancel its Trade Financing mini-symposium in Zurich after Hurricane Irene prevented organizers, speakers, and others from getting to Switzerland. According to an IATRC spokesperson, the non-refundable costs of the small-scale event totaled $4,062 in hotel reservations, airfare, registration fees and related costs.
Covering the party
Most special events coverage has varying levels of coverage, depending on the size and type of activity being covered. For example, K&K's special event insurance covers very small weddings to large, multi-day events with thousands in attendance. The company's Short Term Special Event Program provides what the company calls "necessary but limited" coverage for a smaller premium. This is a short-term program for events with fewer than 12,000 attendees, one location (except for weddings—where separate venues for rehearsal, wedding, and reception can be covered), and no more than 10 consecutive days in duration. What's included: general liability (bodily injury, property damage, personal and advertising injury, products and completed operations, damage to rented premises, medical expense, and host liquor liability). Aggregate limits between $1 million and $5 million are offered.
"Many venues have insurance requirements that must be met, as well as proof of coverage or certificate of insurance," says Hatfield. K&K offers the certificates at no charge, though not all insurers do. K&K's cost for short-term program coverage starts at $383.
Larger risks require larger insurance programs. These coverages usually protect trade shows, charity events, music festivals, political conventions, parades, religious assemblies, auctions, shows, seminars and other meetings and social gatherings. "These events often require higher limits and complex and extensive coverage options including general liability, directors and officers coverage, employment practices liability, property, inland marine, commercial auto, crime, and excess liability," says Hatfield. The K&K Special Event Program offers a more complex set of coverage options, including property, commercial auto, crime, and more.
Because risks for larger events vary, Hatfield says agents should work closely with underwriters and insurance carriers to ensure proper coverage. Minimum premiums for the Special Event Program start at $2,500 for general liability and $5,000 for package coverage.
What's not included: protection from weak or nonexistent sales/profits, lack of support from sponsors or exhibitors or company insolvency. Agents should check with each carrier for specific exclusions.
Most general liability and business insurance policies fall far short of covering event cancellation, if they cover any of the risk at all. To avoid costly gaps, Hatfield says agents should consult with specialty carriers and underwriters to make sure customers have adequate coverage that speaks directly to their risks. "Because there is such a variance in risk (consider the difference in setting, activities and attendees between a business convention at a facility in a major city compared to a week-long music festival held at a county fairground), it is very important for agents to work with underwriters and an insurance provider with experience in assessing the diverse range of event activities that take place across the U.S. so that appropriate coverage is in place," she adds.
Something in the food
Some special events—such as fairs, festivals and parades—depend on mobile food vendors to serve their patrons. These mobile food vendors have their own set of risks.
Brandi Bingham, production underwriter at Mobile Food Vendors Insurance (an MGA division of Whorton Insurance Services), remembers one claim where a food vendor had just picked up his vending truck, which was being modified, and was driving it home when a storm hit. The wind picked up the vehicle and slammed it to the ground, destroying it before the vendor ever opened his doors. Luckily, he'd purchased food vendor coverage on both his truck and trailer before he'd taken delivery of the trailer, and all damages were covered. The claim for damage plus the 30-day delay in opening his business: $11,000 in losses on the truck, $45,000 on the trailer.
That's just one of any number of claims that can occur when operating a food vending business. Food-borne illnesses aside, vendors stand to lose plenty more as risks are as prevalent as with any business. Auto, workers compensation, liability, food spoilage, and mechanical breakdown are all part-and-parcel risks of the food vending business. For Bingham's customers, those risks include the place of business: the truck. Bingham's company covers the mobile food vending industry from fryers to mud flaps. Bingham says many agents don't know specialized coverage exists and that the market for the coverage is large. "A common concern is the affordability and ability to comply with contractual requirements," says Bingham. "Most agents are placing them on a stand-alone general liability policy or auto policy that has very basic coverages." Or they are selling them policies for restaurants, she says, which do little to address the specific needs of the mobile food vendor industry. Plus, theft is not part of a restaurant policy, so there's a gap in coverage that's created.
Markel Programs worked with Mobile Food Vendors Insurance to build and offer the mobile vendor-specific coverage. "When we first came into the marketplace, we wanted a comprehensive program," says Rick Wisely, managing director of Markel Programs. "We wanted products that allowed customers to grow with us, and we feel our particular products do that."
Standard general liability coverage comes with a $1 million/$2 million aggregate limit, with an additional $500,000/$1 million in automobile coverage, with blanket additional insured and waiver of subrogation being most important. According to Bingham, excess coverage is often a $1 million to $4 million requirement.
All coverage must be in place before equipment will even be inspected, says Bingham. "There's no special event that will allow a vendor to sell without a minimum $1 million/$2 million limit."
Lori Widmer is a Philadelphia-based freelance writer who specializes in risk management and insurance topics.
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