The contingency insurance market flourished this winter—not despite the seasonal freeze but precisely because of it—with many events, trade shows and sporting activities being cancelled.
Other contingency coverages such as Death and Disgrace insurance were also very much in vogue following the revelations about the world’s top golfer dominating both the front and back pages. As a result of the surrounding negative publicity and withdrawal of his advertising partners, there was a renewed focus on the mitigation of risks facing companies using high-profile personalities.
The standard Events Cancellation policy is designed to cover any cancellation due to a cause beyond the control of the insured. Additional buy-back perils can include nonappearance of a key individual or group, adverse weather, communicable disease, terrorism, and national mourning.
It is not just the event promoters and venues that need event cancellation insurance; all parties that are connected with the event, such as caterers, will also require coverage to cover their costs, expenses, and profits (where applicable) should the event be cancelled.
While there are niche markets in London for special events, the majority of the London market will be involved in the placement of a mega-event such as the 2010 FIFA World Cup, Super Bowl, or the Olympics. Standard carriers will even take on some coverages if the risk is that large. An event such as the FIFA World Cup can generate around £500 million in revenues (about $793 million under current exchange rates).
Smaller risks generating £10 to £20 million ($16 to $32 million) will see fierce competition amongst brokers. However, the principles involved in underwriting a mega-event are not all that different from smaller-scale events. Ultimately, all events have many common underwriting characteristics, such as size of the venue and weather concerns.
Some events also feature spin-offs that offer opportunities for certain insurers. For example, the 2010 FIFA World Cup will have many football federations and sponsors looking to remove bonus liabilities from the balance sheet using a Contractual Bonus insurance policy. This policy would cover the incentives due to individual players’ and teams’ based upon their respective performance bonus contracts associated with the event. These performance bonus contracts would pay the player and/or team a bonus should they win the 2010 FIFA World Cup.
There is a fair-sized market in London for covering these bonuses, particularly for sports such as golf, tennis, soccer, rugby, motorsports, and athletics. Sports such as baseball, football, and basketball generally stay in the U.S. market as London does not have an in-depth knowledge of these particular sports.
Brands also use major sporting events such as the 2010 FIFA World Cup to run promotional activity connected to the outcome of the event. For example, an electrical retailer in the U.K. will look to refund the cost of televisions purchased during a promotional period prior to the FIFA World Cup finals, should England win the 2010 FIFA World Cup.
Other types of contingent insurance covers include Over Redemption and Prize Indemnity, which are split into two classes:
- Statistical—Lotteries and other promotional prize games where there is a statistical chance of there being a winner.
- Nonstatistical—Hole in One, Half Court Basketball Shots, Football, Rugby Kicks, and other games of skill.
A remarkable example of a nonstatistical claim being fully paid last year occurred during a Rugby Union game. Rugby fan Stuart Tinner booted his way to £250,000 after winning the Crossbar Challenge at Wembley. Saracens Rugby Club paid a premium in the London market to secure coverage against the eventuality of the rugby bar being hit from a fan’s kick during the half-time entertainments. The rugby club only had to pay the premium, which it far exceeded in terms of the publicity achieved when the story went around the world.
Over Redemption provides coverage for brands that run retail promotional activity. The policy will cover redemptions incurred in excess of the anticipated budgeted response, should there be a financial exposure.
Overall, contingency insurance premiums continue to be very soft. Prize Indemnity, Contractual Bonus, and Over Redemption pricing is holding up well, although it is a competitive marketplace. Cancellation and Nonappearance Rates, however, are at an all-time low, and we would expect to see these rates harden over the course of the next 12 months.
Whatever the event or promotion, Lockton’s Accident, Health, Sports, and Contingency team has a wealth of experience and all-around knowledge to serve a wide range of sport, event, and promotional-related needs.
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Please contact your Lockton Representative for further information regarding any information contained in this
market update.
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