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

The year started and ended with arctic conditions sweeping across the United States, the United Kingdom and Europe, which resulted in sporting events, trade shows, theatres and concerts being cancelled.

We also faced flight chaos with planes being grounded across Europe due to the Eyjafjallajoekull eruption in Iceland causing a volcanic ash cloud.

Then there were the tragic earthquakes in Chile and New Zealand, the foiled bomb in Times Square and the recent terrorist attack in Stockholm. The lesson that underwriters and event organizers should learn is always to expect the unexpected.

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

COMPETITIVE MARKET CONDITIONS

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

London continues to be the world's leading contingency market, with the majority of major events being insured there–either directly or via reinsurance. Contingency capacity in the London market 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 some reduction in the value of events, as well as surrounding sponsorship and promotional activity. But inquiries are up, as event organizers realize the importance of having comprehensive contingency cover in place.

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

GETTING THE BEST DEALS

Brokers that get the best deals are ones that involve us from the early planning stages of an event. We can work with the broker and their client to gather all the key underwriting information required.

For major events, we often make site visits and are able to give advice to the client as to steps they should take to lessen the risk of a cancellation. The benefits from working closely with underwriters in this way are twofold: cover is likely to have less exclusions, and prices should be more competitive.

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

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

THE POWER OF CELEBRITY ENDORSEMENT

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

In addition to requests for cover for financial loss associated with re-shooting an ad campaign, we are also receiving inquiries from companies wanting to cover the loss of revenue in the event an advertising campaign has to be pulled due to image problems with the celebrity. This element is hard to define and presents underwriters with a challenge, but it is something we are working on.

INSURING A PROMOTION

There is also an uplift in interest in promotional activity cover, and in particular weather-related promotion contingency insurance.

Companies are increasingly looking at innovative ways to promote their products or entice customers to attend events through probability games and weather-related sales promotions. These forms of promotions can be highly effective in boosting sales and generating brand awareness, but they do not always go according to plan and can be too successful, creating a financial problem for the company.

Products that provide financial protection for promotions linked to specific weather conditions–either rain or temperature predictions–are increasingly popular. For example, a car manufacturer runs a promotion to give customers the chance to win back a percentage of the purchase cost of their car if it rains on a pre-set number of days in a selected month. The car manufacturer can purchase insurance which will cover the cost of anyone winning.

Another popular contingency cover is prize indemnity, which provides financial protection against prize overredemption of probability games, games of skill or chance.

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

TOURING BANDS ON THE INCREASE

Non-appearance is another popular product. One of the reasons for the rise in inquiries is that an increasing number of bands are touring, as they look to “plug” a reduction in income from record sales.

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

As budgets contract post the global financial crisis, event organizers, sponsors and promoters are increasingly dedicated to protecting their spend. Combine this growing appetite with mounting unpredictability in the world's weather, heightened awareness of natural disasters and greater perceived risk from terrorist-type activity, and we believe underwriters face a busy and challenging year ahead in what will remain a buoyant contingency market.

Chris Rackliffe is the lead contingency underwriter for Beazley Group in London.

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