Navigating event cancellation in a Post-COVID era

N.B.  A version of this article was first published in Middle East Insurance Review (MEIR) June 2020 edition.

COVID-19 has impacted the sports and events sector in an unprecedented manner. The changes that have occurred are on a scale that must surely reverberate well into the future. Leagues, teams, host  venues, organisers and corporates involved in major sporting events as well as entertainment companies and music promoters will be familiar with event cancellation. But the COVID-19 pandemic provides us with an opportunity to review the key role this often misunderstood coverage can play in a  crisis.

Can event cancellation insurance help?

Yes, and no. But it is all in the name, right? If an event is cancelled and you have a policy, the economic losses resulting from cancellation should be covered, right? Not quite.  In reality, event cancellation policies are often complex and because they typically relate  to high values they tend to involve bespoke and feature nuanced language. As is always the case in terms of insurance  coverage, whether cover is available or not, will depend on the precise nature and scope of coverage agreed, including specific policy language  and due consideration for the particular circumstances giving rise to a potential claim in  any given situation.

Event  cancellation policies are  written on an ‘all-cause’ basis and could, depending on the policy wording, provide cover for  events cancelled due to an outbreak of an infectious or a communicable disease like coronavirus. Careful consideration of the policy wording would need to be given alongside the timing of the event and the circumstances surrounding  the  event’s cancellation. Until January 2020, cover for infectious  and  communicable  diseases  was  offered as an extension to standard event cancellation policies in the market. Since then, insurers have not. surprisingly. withdrawn this option from the market and many insurers have included specific exclusions in their event cancellation policies for  coronavirus and/or  pandemics.

While headlines were quick to note the policy pay-out to the All England Lawn Tennis Club resulting from the cancellation of this year’s Wimbledon, for every Wimbledon there are many more entities like the Endeavor Group (parent to IMG and WME), which have seen falling revenues and downgraded credit  ratings. What gets you to the ‘yes or no’ of coverage should not be a matter of luck but  the result of a concerted risk amelioration strategy. Wimbledon learned and astutely applied lessons from the 2003 SARS epidemic to navigate 2020.

For a sports or events’ business, this process starts with identifying and understanding  key event assets and delivery requirements, adequately quantifying your anticipated revenues,  determining  risk-tolerance and related thresholds and allocating resources to cover potentialities. The COVID-19 pandemic serves as a timely reminder that these issues should be considered and used as a touchstone for future planning and strategy. However, the proverbial horse has left the  barn in respect of the current pandemic and insuring against loss arising from what is now very much a known risk, if not done prior to January 2020, is  practically impossible and is an entirely different discussion than that which we are outlining here.

In fact, event organisers’ and rights’ holders can anticipate difficulty in seeking ‘all-cause’ coverage. This is likely to be the case not only for obvious COVID-19 exclusions but for pandemic exclusions generally. Even where insurers are prepared to extend cover for pandemics and communicable illnesses and diseases, prospective insureds can expect
to pay higher premiums and to have more restricted terms written into their policies.

Factors to be balanced  in considering  and  selecting cover

Perhaps the largest financial risk to which an event organiser may be exposed is the risk that the event is unable to go ahead and has to be cancelled at short  notice.

While current circumstances have thrust pandemics and COVID-19 to the fore, many things can cause an event to be cancelled at the last minute,  including:

1. physical damage  to  critical equipment or the premises where the event is to be  staged;
2. extreme weather preventing the event from proceeding or spectators from accessing the event’s premises;
3. the late arrival or failure to arrive of persons critical to staging the event; and/or
4. the sudden withdrawal or suspension of governmental approval for  the event to proceed.

The scope and nature of cover that a corporate entity opts to agree as protection against certain risks can be a   business decision of considerable weight. For  the purposes of major events, event cancellation cover can represent a substantial   cost whether viewed as an optional investment in protection, taken up after deliberations with advisors, followed by  choice in  adherence to industry best practice, mandated  by applicable internal or external compliance measures, required by contractual obligations or otherwise.

Event to watch: Saudi Arabia Formula 1

Commencing some months prior to the coronavirus pandemic and, notably, before the major part of the sports and  events world was brought to a screeching halt, there has been mounting speculation that Saudi Arabia will announce concrete plans to host   a Formula 1 Grand Prix. This speculation has  to be considered all but confirmed by  the announcement that Aramco is to be a top-tier F1 sponsor.

If we reasonably assume that a KSA F1 event  is to be part of the post-COVID-19 Middle   East  sporting  calendar,  can  you  anticipate any likely positions in respect of prudent insurance for such a flagship event? Based on our overview and consideration of the scope, nature and applicability of event cancellation insurance, consider a  KSA F1 this tabula  raises an interesting case study for  your consideration of  event cancellation  insurance.

would such coverage be an optional investment, adherence to best practice, mandated by compliance measures, required by contractual obligations? Would it be chosen for and/or other reasons? What likelihood and magnitude of risks should be considered, given the likely assets, the geographical location and the time of year allocated on the FIA calendar? Are there unique equipment’s to consider from the potential applicability of national mourning cover to reliance on limited, highly specific sand removal equipment? Are any of these factors altered if the event is based on a public street course versus a track event in a controlled facility.

Lessons learnt – moving  forward

In a post-COVID-19 era, event organisers and insurers would do well to:

• be prepared well in advance, as this will allow you to lock in costs and protect you from new threats which may arise after the date of the policy but before the event ( i.e ., to beat the exclusion of such risks).; build the cost of appropriate cover into your event, giving advance opportunity for the budget team to allocate funds and the commercial team time to determine where revenue streams can be revisited or where to sweat assets;
• educate all relevant aspects of the business to appreciate the scope and nature of cover to ensure efficient and effective pricing and claim readiness (e.g., procurement may need to know the time of year and region of event can impact premiums in some cases for weather, , whereas applicable administrative teams should be
• be attentive to the lessons offered by As we move through and hopefully beyond the current pandemic, a great deal more market information will become available. Consider that with a discerning eye as to how such experiences can impact your business.

For further information, please contact Steve Bainbridge (s.bainbridge@tamimi.com).