Michael Jackson’s unfortunate death in 2009 shocked the world. One of the greatest financial consequences was the cancellation of his 50 concerts, which were to be held at London’s O2 Arena later that year. Thankfully, the event coordinators had event cancellation insurance, which helped them to recover their up-front losses.
When the show just can’t go on, whatever the reason, the greatest form of protection is Event Cancellation Insurance.
According to the Event Cancellation Insurance experts, K&K Insurance of Fort Wayne, Indiana, “’Concerts are certainly the most often requested event type…Other frequent types requesting coverage are sporting events, conferences, tradeshows, and festivals.’ Weddings, reunions, graduations, large private parties, political rallies and local charitable events can also obtain coverage.”
What is it?
Event cancellation coverage is available for a wide variety of events, but the policy varies depending upon the terms and conditions listed by your underwriter. Generally speaking, event cancellation policies insure you against losses due to unforeseen circumstances, such as weather, fires, natural catastrophes, power failure, damage to the property hosting the event, non-appearance of key persons, and transportation-related issues like closed roads around the venue. It would also cover the event coordinator in cases of postponement and relocation.
There are two different types of cancellation insurance. The first covers the expenses incurred from hosting the event, such as rental equipment, advertising, and fees charged by service providers. The second covers the projected profits garnered by the event.
K&K states, “coverage can be written on a gross revenue basis or a cost and expense basis. Often organizers anticipating profits insure their expected gross revenue while non-profit ventures insure event costs and expenses only.” So, depending upon your business, there are different coverage options available.
How does it work?
When you purchase your event cancellation insurance, your premium rates are determined by the percentage of your maximum limits, whether they be gross revenue or expenses. The premium also varies depending upon if the event is indoor or outdoor. If the event is outside, then the insurance company will want to know if there will be any staging to protect against the weather and what the weather forecast is expected to be. This will help the underwriters determine the amount of risk associated with the event.
If the event is cancelled, postponed, or relocated, your first task is to file a claim with the insurance company. You need to provide “proof of loss” for the event, such as cancelled checks and any contracts, leases, or receipts. It is always a good idea to maintain a thorough record of all expenses related to the event to prevent prolonged recovery time.
After the claim has been reviewed, you would be reimbursed for items such as:
- Lost marketing revenue
- Lost ticket sales
- Reimbursement to individuals who already purchased tickets
- Costs of rescheduling, organizing, or relocating the event
- Cost of renting or leasing a venue and equipment
There will be variations in the amount recuperated through losses, depending upon the length of the event. If it is a one time only event that cannot be rescheduled, then it is considered a total loss. If it can be rescheduled, then the losses will be offset to prevent the policy from reaching its maximum limits.
It is important to note that if you meet all of the terms and conditions of the policy for reimbursement, then you typically need to make you claim within 30 days of the loss.
What are the exclusions?
Each event is different, so it is important to know the exclusions written into your cancellation policy. Below are some of the more common restrictions in which losses are unlikely to be recovered:
If the event needs to be cancelled due to low ticket sales, lack of funding, lack of attendance because of competing events, or lack of advertising interest
If a labor union goes on strike, an athletes’ union has a lockout, or an artist fails to appear due to drug abuse
If there is extreme weather that prevents the event from occurring
If the event is cancelled as the result of a terrorist attack, including any actions taken to prevent further attacks, like shutting down public transportation
In addition to exclusions, the policy often includes a mitigation requirement stating that the policy holder took the reasonable steps to prevent the event’s cancellation. This is intended as a way to protect the insured from even greater losses by encouraging them to reschedule. However, sometimes it is simply not possible to reschedule, as in the example of the 2012 New York City Marathon (mentioned on the previous page). The destruction caused by Hurricane Sandy made it infeasible to reschedule for a later date.
Contact your independent insurance agent today if you are coordinating an event in the near future. It’s important to make sure you’re protected if sometime unforeseen occurs.
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