In all my years of underwriting contingency and eventcancellation business I have never experienced such a diverse rangeof potential loss circumstances as we faced during 2010.

The year started and ended with arctic conditions sweepingacross the United States, the United Kingdom and Europe, whichresulted in sporting events, trade shows, theatres and concertsbeing cancelled.

We also faced flight chaos with planes being grounded acrossEurope due to the Eyjafjallajoekull eruption in Iceland causing avolcanic ash cloud.

Then there were the tragicearthquakes in Chile and New Zealand, the foiled bomb in TimesSquare and the recent terrorist attack in Stockholm. The lessonthat underwriters and event organizers should learn is always toexpect the unexpected.

Volcanic ash, terrorist acts, snow and earthquakes were justsome of the claims circumstances experienced by contingencyunderwriters in 2010, yet the market remains an active one.

COMPETITIVE MARKET CONDITIONS

The contingency market is increasingly competitive, and despiteincreased claims activity, prices remain affordable.

London continues to be the world's leading contingency market,with the majority of major events being insured there–eitherdirectly or via reinsurance. Contingency capacity in the Londonmarket increased during 2010 with new entrants to the marketplace,and as a result competition for business is high.

The world economic crisis has meant that there has been somereduction in the value of events, as well as surroundingsponsorship and promotional activity. But inquiries are up, asevent organizers realize the importance of having comprehensivecontingency cover in place.

We often experience a spike in inquiries immediately after badweather or a terrorist attack. Unfortunately, “after-the-event”inquiries often result in higher prices and exclusions are likelyto have been put in place. So it is a false economy to leavepurchasing contingency cover to the last minute.

GETTING THE BEST DEALS

Brokers that get the best deals are ones that involve us fromthe early planning stages of an event. We can work with the brokerand their client to gather all the key underwriting informationrequired.

For major events, we often make site visits and are able to giveadvice to the client as to steps they should take to lessen therisk of a cancellation. The benefits from working closely withunderwriters in this way are twofold: cover is likely to have lessexclusions, and prices should be more competitive.

Handling small- and medium-sized event cover has often proveduneconomic for brokers. This is an area where technology is playinga bigger role than ever before. Web-based systems that providecost-effective access to underwriting facilities are proving a hit.Brokers can now arrange tailored cover for events, without havingto even speak to an underwriter, making this business costeffective to handle.

There is also a trend for increased demand for other forms ofcontingency cover, including death and disgrace, weather promotionsand non-appearance insurance.

THE POWER OF CELEBRITY ENDORSEMENT

Death and disgrace cover certainly hit the headlines post theTiger Woods affair. While the benefits of celebrity endorsement andsponsorship are evident, with big brands spending millions ofdollars on high-profile advertising campaigns using sporting heroesand film stars, a number of companies associated with celebritiesare now rethinking this strategy.

In addition to requests for cover for financial loss associatedwith re-shooting an ad campaign, we are also receiving inquiriesfrom companies wanting to cover the loss of revenue in the event anadvertising campaign has to be pulled due to image problems withthe celebrity. This element is hard to define and presentsunderwriters with a challenge, but it is something we are workingon.

INSURING A PROMOTION

There is also an uplift in interest in promotional activitycover, and in particular weather-related promotion contingencyinsurance.

Companies are increasingly looking at innovative ways to promotetheir products or entice customers to attend events throughprobability games and weather-related sales promotions. These formsof promotions can be highly effective in boosting sales andgenerating brand awareness, but they do not always go according toplan and can be too successful, creating a financial problem forthe company.

Products that provide financial protection for promotions linkedto specific weather conditions–either rain or temperaturepredictions–are increasingly popular. For example, a carmanufacturer runs a promotion to give customers the chance to winback a percentage of the purchase cost of their car if it rains ona pre-set number of days in a selected month. The car manufacturercan purchase insurance which will cover the cost of anyonewinning.

Another popular contingency cover is prize indemnity, whichprovides financial protection against prize overredemption ofprobability games, games of skill or chance.

A popular use of this cover is at big sporting events for “kickthe ball” crowd participation promotions, designed to encourage thecrowd to stay in their seats at half-time when advertisements arebeing run on screens. Organizers can cover the cost of a cash prizebeing won, by one or a number of people in the crowd. It can alsobe used to cover big cash prizes for golfing hole-in-onecompetitions and other play incentive prizes.

TOURING BANDS ON THE INCREASE

Non-appearance is another popular product. One of the reasonsfor the rise in inquiries is that an increasing number of bands aretouring, as they look to “plug” a reduction in income from recordsales.

There is also a trend for bands to “re-group” and have“comeback” tours. However, these tours have more risk attached tothem as the stars tend to be older and less fit.

As budgets contract post the global financial crisis, eventorganizers, sponsors and promoters are increasingly dedicated toprotecting their spend. Combine this growing appetite with mountingunpredictability in the world's weather, heightened awareness ofnatural disasters and greater perceived risk from terrorist-typeactivity, and we believe underwriters face a busy and challengingyear ahead in what will remain a buoyant contingency market.

Chris Rackliffe is the lead contingencyunderwriter for Beazley Group in London.