Special Event Players Expect Growth As Potential Exposures Mount For Buyers

In the grander scheme of things, organizers of world-class events such as the International Olympic Committee have taken the better-safe-than-sorry route. In 2004, the IOC took out the first-ever cancellation policy on the first summer games held since the Sept. 11, 2001 terrorist attacks on New York's World Trade Center.

Press accounts said the policies for the Olympics in Athens, Greece, provided coverage of up to $200 million in the event the games were cancelled due to either an earthquake or terrorist activities.

Organizers may have had the 1989 World Series in mind, when an earthquake marred the first-ever Bay Area Fall Classic minutes before the first game began, causing a 10-day interruption in play.

While sports promoters and organizations do not care to advertise the fact they have such policies, "when you think of most major sporting events, most of them are insured," according to Bill Hubbard, president of Houston-based HCC Specialty Underwriters, who has been in the special event field for nearly 20 years.

"Someone who buys event cancellation needs to have their event happen in a particular place and time," explained Mr. Hubbard, who today oversees the underwriting of major sporting event insurance, as well as coverage for trade shows.

While a major-league baseball team might have 162 individual "events" during the regular season, "there are ways to cancel the cancellation exposure in a proactive way through make-up games," he noted.

Coverage may be of interest to MLB for interleague games, he suggested, noting such contests "tend to be more difficult to reschedule and more lucrative."

In addition, he noted, should a team have more rainouts than could fit into a regular season schedule for make-up games, there could be insurance for that lost revenue.

The 2005 hurricane season–as well as the ever-present threat of terrorism–plays a key role in the minds of insureds and underwriters hammering out coverage.

"We have more requests for terrorism coverage when something recently happens, like a bus blowup in London," according to Mr. Hubbard.

Premium growth in the line has grown in the past 20 years. "You pick any event, and TV rights money and sponsorship money was a lot less than it is now," he said.

In addition, like virtually all other lines, some underwriters come to play opportunistically when threats arise, "but are not in it for the long haul."

"In the 18 years I have been doing this, some markets have come when they sense a soft market, but with the next hurricane they are gone," Mr. Hubbard noted.

Probably the greatest sports dislocation of recent years forced the New Orleans Saints to play their entire 2005 season on the road after their home stadium–the Superdome–was severely damaged in Hurricane Katrina and its aftermath.

In such an event, an insurer "would pick up the cost of relocation because there was something short of a total cancellation," Mr. Hubbard said.

Cancellation is typically written on a net, ascertained loss basis. "So if the event is cancelled before you incur a lot of expenses, that is different than if it is after you incur them," he explained.

Meanwhile, weddings and other personal events provide some great opportunities "for our young core of underwriters to cut their teeth on," he said. "For these small-premium events, the key is having a process that handles them efficiently."

Silicon Valley-based insurance broker Zain Jeewanjee agrees. Since putting his special event business on the Web five years ago, he has been doing brisk sales. "If you really do this business with dedication and diligence and just focus on that, it can become quite profitable," he said.

His agency underwrites up to 25 events a day, which he described as "a huge volume for an agency."

Mr. Jeewanjee has yet to scale the heights of the Super Bowl or major-league baseball, but he is getting there. "We would love to do the Super Bowl if we could, but right now we are shooting our bid for the World Cup cricket tournament in the West Indies," he said.

The big-ticket special event risks such as MLB games take "a lot of wining and dining and knowing the people, which is a totally different model from the Internet," he said, noting that 85 percent of the agency's business comes from "someone we have never known or never met."

"We are an online agency, which is very different from a traditional agency," he said.

Mr. Jeewanjee said he cannot recall any significant claim disputes in the line. "We try to underwrite the policy before we send it in to the carrier to determine if this guy is for real and not merely trying to defraud the insurer," he said.

As for loss ratio, Mr. Jeewanjee said, "our carriers are minting money on this [line] because there are really no losses, as the claims are negligible." In other words, the exposure is far higher on the severity side than on the frequency side, since special events are not often cancelled–and even if there is a problem, total losses are rare.

But just to be safe, "we don't take anything that is not really kosher," he added.

Speaking of kosher, he said bar mitzvahs are the easiest special events to insure. "The people are good, the event is good, and it is going to be peaceful, nice and quickly done–and pure profit, actually."

If party planners and event promoters are buying more insurance now than ever, it is often because venues are asking for it. "Especially in private homes, if they are doing an event they want somebody else to carry liability insurance," according to Mr. Jeewangjee.

A carrier's appetite for a special event risk also depends on the type of activity being insured, he added.

Noting that his agency recently brokered the coverage for a P. Diddy concert, he warned that even with detailed plans for security drawn up, many carriers will still shy away from rap concerts.

"The biggest challenge is probably the concerts," agreed Jackie Fellrath, an underwriter for Lexington Insurance Company in New York, who handles both special event liability and event cancellation coverage for major nonsporting events, such as concerts and political conventions.

"If it is an outdoor event, it is even more of a challenge," she added. "But you have to look at what the lineup is, and what the group is."

In writing such policies, Ms. Fellrath said checking out who is responsible for maintenance and security is a critical issue. "Sometimes it will be an outside vendor, but other times, and for smaller events it could just be the employer," she said.

However, even with such risks, Ms. Fellrath agreed the loss experience in this line "has been very good."

Nonetheless, she said she has seen many carriers entering and exiting the special event line rather quickly, "because they don't understand what can happen."

Terrorism is certainly on the minds of underwriters in this line–some of which no longer write in certain target cities. "We will not shy away from the terrorism aspect," she added. "We just make sure we are pricing properly."

"One thing you can say about special events is that they take on all shapes and sizes," said Joe Peloso, senior vice president at New York-based Praetorian Financial Group, an underwriter of special event coverage, including the Greenwich Village Halloween Parade for the past three years.

Not all "special" events are huge or high-profile, he said, noting that "we have a rather broad-brush capability for smaller things such as scouting events, concerts and county fairs."

For smaller events, municipalities or schools can buy tenant-user liability policies–known as TULIPs–that provide coverage throughout the year for whoever is using the facility, he noted.

Thus, organizers can gain protection by either attaching themselves to a TULIP program, or by obtaining a so-called "one-off" policy for a particular special event, while any hotel or other facility would have their own insurance protection under their general liability polices, he added.