THE IMPACT OF THE COVID-19 PANDEMIC ON SPORTS EVENT CANCELLATION INSURANCE
The current COVID-19 pandemic has impacted virtually every sporting event world-wide. The Olympics have been postponed until 2021, World Championships and World Cups for virtually every sport have been cancelled or postponed and the calendars for most major sports have been severely disrupted with no clear indication yet of how or when this will be resolved.
What is also not yet clear is what knock-on effect and further disruption will be caused by postponed events being rescheduled. The time available in the global sporting calendar is limited and with a large number of events that now need to be completed at another time the calendar over the course of the next few years is going to get crowded very quickly. Should another wave of the coronavirus follow either globally or in a specific location, this would have a devastating affect and may render it simply impossible to hold rescheduled events.
Event rights owners’ and organisers’ revenue is derived from broadcast revenue, sponsorship, advertising and ticketing revenue. Should the event not proceed as planned, this revenue is lost or reduced. In addition, whilst rescheduling an event may save much of the revenue, it will incur in most cases additional unbudgeted expenses.
Event Cancellation insurance can be purchased to cover an event organiser or rights holder for their potential loss of revenue or costs should an event not proceed as planned for any cause beyond their control. It is designed to put the insured back into the same financial position they would have been had the event proceeded as planned.
Whilst it covers “any cause beyond the control of the assured or participants” there is a short list of perils which are excluded as standard (including terrorism, national mourning and most relevantly in this instance, communicable disease). These perils have either been the subject of previous large losses or they need to be individually understood and rated depending on the nature and location of the event. Whilst these perils are excluded as standard, they can often be added back into the cover subject to an additional premium charge.
The recommendation for Event Cancellation insurance is always to purchase well in advance of the event as possible. Once cover is purchased, it is locked in and cannot be changed, even if there is a change in circumstances.
For those that purchased early enough and opted to include a communicable disease extension (where it was made available) the policy will respond to the current situation.
It is likely to be the case, however, that for a variety of reasons, many of the affected events will have either not purchased cover at all or a communicable disease extension was not included in the cover they purchased.
Rights holders and organisers affected by this crisis and seeking cover for future events are now understandably anxious to understand what cover is currently available and how the crisis might affect future offers of cover. In the section below, we have summarised some of the questions being most frequently asked by rights holders and event organisers.
Can I currently obtain cover for cancellation of future events arising from COVID-19?
A Communicable Disease exclusion (including any losses arising from the ongoing COVID-19 outbreak) is currently being applied to all new policies quoted. At this time insurers are not offering the opportunity to purchase Communicable Disease cover as an extension and it is not clear at this stage when such cover may be made available again.
What are the likely implications for the cost of cover in the future?
We have already seen general rates for Event Cancellation insurance rising in response to the losses sustained from the COVID-19 outbreak and that is a pattern that is likely to continue for some time.
The cost of purchasing event cancellation insurance as a result is likely to become more expensive. We also expect to see a reduction in available capacity and this will in turn contribute towards increasing costs as demand outstrips available capacity. There will be a pressing need to attract new capacity and investment to the market in order to address this issue.
What will the future impact on the Event Cancellation market be?
Over the coming months and years it is also likely that the contingency market will undertake a radical and fundamental re-think of how cover is provided. We would not be surprised to see requests for a government funded insurance pool for communicable disease cover, in much the same ways as was developed for terrorism risks. Also, in the same way that a specialist terrorism and political risks market developed, a similar communicable disease specialism may also form.
Additionally is it also becoming clear that what was previously considered to be ‘worst case scenario’ for many rights holders and organisers is no longer accurate. Historically the widely held view has been that whilst single one-off events might be cancelled or perhaps a weekend or two of regular sporting fixtures in a certain territory, it was inconceivable for many that sport could be disrupted across so many territories for such a sustained period.
Prior to the crisis the widely held view by many was that scheduled fixtures and competitions would be replayable at a later date and therefore the financial exposure was minimal. The current situation has placed this view in some doubt with many leagues and competitions now facing the prospect of being cancelled or potentially played behind closed doors for a sustained period with significant losses in the form of broadcasting revenue and gate receipts potentially being sustained by stakeholders.
As with many major crises we would anticipate that the identification of new risks and exposures will naturally encourage both the development of new products and evolution of existing products to respond to this emerging need.