Revenue / 03.03.21
The Future of Event Cancellation Coverage
The live events industry collected approximately US$500-million in refund protection premiums for events being held in 2020. Then COVID-19 hit, events shuttered overnight and the losses began to multiply.
“The event cancellation losses in 2020 are currently estimated at approximately $6 billion to $8 billion U.S. dollars, which, if you do the math, is 16 years worth of premiums paid out in losses in one year,” said Simon Mabb, co-founder of Booking Protect, during his INTIX Live! 2021 Digital Conference session on the SecuTix Inspiration Stage.
In addition to putting the situation into context from a financial perspective, Mabb went on to share potential solutions for the coverage crisis, as well as practical suggestions that organizations can use to protect themselves in a world of unknowns and no insurance coverage.
“There is no coverage currently in the market for COVID-19. But the story is worse for event cancellation insurers because they were all already losing money before the COVID-19 pandemic,” said Mabb, adding that premium increases are being accelerated.
How does this impact your business today and going forward? First, you cannot get coverage for communicable diseases, including COVID-19. This means events are largely uninsured, and thus there is a lot more risk for everyone — the promoters, artists, organizations and venues putting on the shows, and consumers who are purchasing the tickets.
This, said Mabb, may impact decisions about running events in 2021. In the U.K., even as Prime Minister Boris Johnson announced in late February a four-step roadmap for the return of live events, the industry continues pushing for a government-backed insurance scheme.
With the restoration of live events either planned or underway globally, it is important to look toward solutions. Being uninsured is not a solution, said Mabb, nor is attempting to convince underwriters to underwrite the risk, largely because that will not happen.
“The only other alternative that has been floated out there at the moment, particularly in the U.K., is that the government underwrite an element of the COVID-19 risk,” said Mabb.
So how could a government-backed scheme work? The information that has so far been tabled to government in the U.K. proposes that it would only cover COVID-19 as it relates to civil authority shutdowns, named artists or crews unable to perform as a result of contracting or legally enforced quarantine, and enforced reductions in capacity.
“For example,” said Mabb, “if you have a venue that seats 50,000 and you are already restricted to 10,000, if then suddenly there is an enforced reduction from 10,000 to 2,000 and it makes the event commercially unviable, then that would be an issue where the scheme would kick in.”
Mabb says a significant issue with the scheme as proposed is that the government would be exposed to 80% of the risk. “This is a big, big set of numbers, particularly when you look at the high concentration of potential claims that could happen during the summer months when most festivals would take place.”
It would also be complex to set up, especially in such a short time frame, he said. “These events are happening in the next few months, but they need to be planned and monies need to be put down, so people need to know where they are now. They can't wait until May to find out whether there is going to be a solution in place.”
Mabb believes it is important to “control the controllables.” Among his suggestions:
- Link your supply chain into the event’s profit and loss. Consider different payment terms, paying a little bit more and/or making less margin on an event to help de-risk upfront costs. This makes it possible for businesses that support the live events sector to help each other.
- Review your terms and conditions of sale. Mabb suggests looking at where your policies stand in comparison to other organizations. For example, are you offering full refunds when perhaps other organizations are not? If you do offer refunds, is there potential to retain your booking fees to cover a good portion of your basic uninsured costs? If you do, says Mabb, “It is really, really important that you make this clear to customers at the point of sale — what element is nonrefundable — otherwise, you are going to have problems later down the line.”
- Consider sales of associated items with strong margins or limited upfront costs. Mabb encourages event organizers to consider selling experiences like backstage tours, which are popular with consumers. “You perhaps need a guide, but the actual upfront costs are very limited, and the margin might be very good,” he says. “People, having been locked up in their home for a good proportion of last year, will also be looking for experiences that perhaps money can't normally buy.
- Start selling and promoting tickets as soon as you can. Data from Booking Protect client Festickets showed a high volume of sales for a small group of festivals in the third and fourth quarters of 2020. “Anyone who was on sale at that time had a fantastic take up on their events because there was a lot of demand but not a lot of competition,” said Mabb.
Festickets also anticipated the market would become saturated with launches as time passed and positivity increased around a vaccine, making it harder to cut through the noise. “The key thing,” said Mabb, “is that, in all cases, you need to promote your event hard … to get the best potential take up of ticket sales.”
A Festickets survey at the height of the pandemic in May revealed 83% of fans felt confident booking a festival in 2021. It also showed that 80% of consumers missed live events more than the cinema, the pub or shopping, and that more than 60% of festivalgoers planned to attend an international festival in 2021.
In summary, said Mabb, event promoters and organizers must review their business models to reduce exposure to uninsured costs. “We also need to remember that others in the supply chain have been impacted, so it is a great time to work together to kickstart 2021. And there is a high demand and a demand building for … people to get into live events in 2021, but at this point in time, there seems to be a limited amount of inventory on sale, so it is a golden opportunity.”
This story is based on a session from the INTIX Live! 2021 Digital Conference.
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Tags: COVID-19 , Coronavirus , Revenue , INTIX 2021