Cancelling events amid the COVID-19 outbreak
After disrupting schools and cruise ships, the COVID-19 outbreak is now impacting social and professional events worldwide as organisers and sponsors try to reduce the risk of infection. This is becoming increasingly expensive for firms involved.
Any event that brings together large numbers of people requires a myriad of contracts with hotels, convention centres, decorators, and audiovisual companies, to name just a few. By cancelling an event, organisers may not only incur significant cancellation cost from penalties and fees but also forfeit potential income.
Despite the money and efforts involved in the organisation, a series of major events have recently been cancelled or postponed due to the virus outbreak. The list includes the annual Game Developers Conference scheduled to take place between March 17 and 20 in San Francisco, the Geneva Motor Show (March 5-15), the Global fashion weeks in Beijing, Shanghai and Tokyo (late-March) as well as Stormzy’s and Green Day’s Asia tours.
Mitigating the financial impact
Organisers may want to check if there are “force majeure” (circumstances beyond their control) provisions in any contracts that would be affected by a cancellation or postponement. Such a provision could allow the company to suspend or terminate the performance of their obligations. In such cases, the terminating party would still need to prove that COVID-19 falls within the force majeure provisions list and that COVID-19 impacted performance in the way required in the provision. If the company can prove both elements the cancellation may be possible without honouring any cancellation fees.
Event cancellation insurance policies can cover the cost of cancelling or postponing an event due to COVID-19 if the policy includes communicable diseases. Applicable policy triggers typically mention “local government closing the venue” or “local government banning public events”. Italy’s government has already banned public gatherings due to the virus outbreak. Similarly, in Switzerland the government decided to ban gatherings of more than 1,000 people and France temporarily banned all public gatherings of more than 5,000 people in a confined space.
The effect on the insurance market
The contingency insurance market has learned its lessons from previous virus outbreaks such as SARS or Zika and has since improved its ability to manage risk aggregation. Nevertheless, the COVID-19 outbreak does have the potential to change market dynamics significantly.
The insured contingency insurance losses accumulated in the London market due to COVID-19 were estimated at between £150M and £200M at the time this article was published.
Underwriters are reacting to surging claims in different ways. While some are excluding COVID-19 or communicable diseases coverage or both in new and renewing event cancellation insurance policies, others have taken a softer approach. They are keeping communicable diseases included in the cover but increasing the price, deductibles and/or trigger levels to limit their risk exposure.
The cancellation or postponement of a global event like the Olympic Games which is set to take place in Tokyo in July would likely be a game changer for the contingency insurance market as it could cost the insurance industry approximately $2 billion.
Any company that has an event coming up which may be at risk of cancellation should discuss the issue with their insurance broker and underwriters as soon as possible. Such conversations should help create an action plan to mitigate the impact including renegotiating contracts with venues and other service providers while also clarifying the options. Even if the company plans to go ahead with the event this may generate additional cost which could be absorbed by the insurer.
Generally, costs incurred by the cancellation should not be the primary driver of the decision. There is, for example, a serious risk of holding the event without attendees after many companies introduced travel bans for employees. Also, going ahead with the event could damage the reputation of the event organiser and its sponsors if it is impacted by the virus outbreak. While it is certainly a difficult decision to take, the best way to get it right is focusing on what is best for stakeholders, employees and the company as a whole.
For further information, please contact our Lockton offices.