The experience economy and what it means for insurers

With summer in full swing, events are on the brain. Major LeagueBaseball fans have the All-Star Game fast approaching, tennisenthusiasts are ready with their tickets for the U.S. Open andconcert goers are soaking up their favorite bands at outdoorfestivals and parties.

While summer has many people thinking about vacations andoutdoor adventures, there's an entire generation leading the chargeto put experiences front and center all year round. Yes, we'retired of hearing the same refrain: millennials prefer “experiences”over “things.” They want to be part of memorable events and shareabout them online, ultimately fueling the desire of so many othersto seek similar experiences and make their own memories. Accordingto Eventbrite research conducted by Harris, 78% ofmillennials would choose to spend money on a desirable experienceor event over buying something desirable.

Millennial preferences are interesting, but it's the dollarsbehind them that will have a sizable impact on the U.S. economy. At87 million, the millennial generation is the largest in U.S.history and stands to reach $1.4 trillion in annual spending powerin the U.S. by 2020. As these individuals reach their prime workingyears, their consumption habits will cause ripple effects forindustries far and wide.

What do millennials and the experience economy have todo with insurance?

The combination of this generation's penchant for events andtheir increasing ability to spend is fueling the growth of theexperience economy. Coachella raked in $94 million in 2016, whilethe 2017 Super Bowl drove advertising revenues to record highsgenerating $500 million for Fox. According to Nielsen, approximately 32 millionpeople attend at least one music festival in the U.S. each year.The business appears to be booming with more than 800 musicfestivals in the U.S. alone, and Live Nation is now offering aFestival Passport for $799 giving fans general admission access tomore than 90 participating festivals.

It's not just entertainers that are following the live eventtrend. Businesses are following suit, altering the structure andformat of their corporate events too. David Adler, CEO of BizBash, describes howmeetings, conferences, marketing, training, trade shows andconsumer shows have a common thread. All experiences are morphingtogether into the “festivalization of events.” Concerts addconferences, meetings incorporate new styles of collaboration,trade shows bring in consumer elements. “Training conferences arelike going to Lollapalooza,” Adler said in a recent Mediumpost.

With the excitement of a packed events calendar, it's easy toforget what can go wrong to interrupt, postpone or even cancel anevent, but that's where insurers play a critical role. Rather thanpraying for an event to go precisely as planned in order to protectthese revenue streams, organizers, promoters, venue owners,advertisers and others that stand to lose revenue or incuradditional expense due to circumstances out of their control, wouldbe wise to consider some form of insurance protection.

(Photo: Shutterstock)

How does event cancellation coveragework?

Live events across music, sports, entertainment and thecorporate world present various insurable risks, and it's up to theorganizer of the event to determine which risk-transfer solutionsare needed to ensure that if for any reason the show does not goon, the resources needed to accommodate the cancellation are inplace. Processing thousands of ticket refunds can lead to a majorstrain on employees and systems. Similarly, reimbursing a sponsorfor an event that didn't take place can have a significant impacton revenues. But there are means of mitigating these risks withcoverages including event cancellation and non-appearance.

Event cancellation policies typically cover financial losses —lost revenue and extra expenses — associated with the interruption,postponement, cancellation or abandonment of an event. While policydetails vary, coverage may also protect against reduced attendance.There are some perils typically excluded such as terrorism oradverse weather, however, those can be added back based onadjustments in pricing. Ultimately, for the coverage to betriggered the cancellation or postponement must result from anunforeseen peril outside of the policyholder's control.

What are the most common triggers?

Weather is by far the leading cause of cancelation ordisruption, although recent attacks at the Bataclan in Paris andManchester Arena serve as blatant reminders that terrorism is anincreasingly prevalent threat to live events. Other potentialdisruptions include power failure, communicable diseases, venuedamage and non-appearance of an entertainer or featured guest.

If a keynote speaker can't travel to an event due to groundedflights or a singer falls ill and is unable to perform, anon-appearance policy can be added to cover a range of potentialfinancial losses such as lost broadcasting revenue, sunk venue andpromotional costs and fees incurred to reschedule.

What isn't covered by event cancellation and non-appearancecoverage? As you might expect, an insurer isn't going to pay claimsthat result from negligence, such as the failure to secure a properlicense.

Looking ahead

As consumers demand more experiences, and companies invest morein live events, organizers have stepped up their risk-managementefforts. Stadium owners have purchased retractable roofs, andvenues are stepping up their security screening.

While these measures certainly help mitigate cancellation risk,there are always going to be unexpected disruptions that stand toderail the best laid plans. Thus, agents and brokers play acritical role in helping risk managers understand theirvulnerabilities and the risk transfer solutions available.

Insurers have seen an uptick in inquires for this type ofcoverage, and the increased demand will likely continue due to ahost of contributing factors — climate change and the increasedincidents of extreme weather, terrorism and the prevalence of lonewolf attacks and the ageing infrastructure in our country could allcontribute to the need for insurance solutions to mitigate therisks posed to live events and ultimately the booming experienceeconomy.

Glenn Dorr is Northeast regional director at Lloyd's. In his role, he isresponsible for market development activities in an 11-state regionstretching from Maryland to Maine, focused on ensuring that Lloyd'sis understood and accessible to everyone with a current orpotential future relationship with the market. Dorr studied at theUniversity of London, graduated from the College of Wooster andearned an MBA from Lake Forest Graduate School of Management. Hecan be reached at [email protected].

Want to continue reading?
Become a Free PropertyCasualty360 Digital Reader

All PropertyCasualty360.com news coverage, best practices, and in-depth analysis.
Educational webcasts, resources from industry leaders, and informative newsletters.
Other award-winning websites including BenefitsPRO.com and ThinkAdvisor.com.

NOT FOR REPRINT