Financial dependency, extent of claims and considering events post-mortem
Insurance 2022 - the year ahead
The UK’s live events industry has been hit hard by Covid-19. But how effective will the government’s state-backed reinsurance scheme be in helping the sector?
The past 18 months have been particularly hard for live events companies and the outlook remains very uncertain. Contingency insurers suffered unprecedented losses in 2020, causing some carriers to exit the market entirely and those that remain to increase rates and tighten terms. Unsurprisingly cancellation connected to Covid-19 became uninsurable with commercial insurers.
In contrast to the ‘compensation based’ approach adopted by some in mainland Europe, but following the precedent of the early 1990s when insurers refused to provide cover for terrorism and Pool Re was created, the UK government has stepped forward with a state-backed reinsurance scheme to try to fill the gap. Promoted as support for the events industry, the Government Live Events Reinsurance Scheme (the ‘LE Reinsurance Scheme’) is narrow in its scope, although it might provide a springboard from which an insurer could provide a reasonable level of Covid-related cover. There is certainly market share to be gained for any underwriter, with sufficiently steely nerves and supportive management, that is willing to roll the dice on another round of Covid restrictions.
The LE Reinsurance Scheme commenced in September 2021 and is said to relate to risks through until September 2022 although it is by no means certain that by September 2022 commercial insurers will be willing to re-enter the market and take back responsibility for Communicable Disease cover.
Partnering with a few Lloyd’s syndicates, the government will reinsure the risk that an event is cancelled due to an ‘event being legally unable to happen due to Government Covid restrictions’. The words ‘legally unable to happen’ are likely to be carefully scrutinised by all. It is worth bearing in mind that, unlike in some other jurisdictions, the government did not strictly make events illegal. However, regulations rendered attendance illegal during the period of lockdowns (and a certain period thereafter). A number of events went ahead but ‘behind closed doors’, calling into question what makes a live event ‘live’. Even when the regulations were relaxed, placed upon companies the obligation to ensure social distancing and to adopt other ‘Covid safe’ measures, dramatically reducing capacity whilst increasing cost. Should social distancing requirements be reinstated, rendering larger events financially unviable, it is unclear whether this will amount to an event being ‘legally unable to happen’. It will become all the more difficult if the government adopts the “recommendations” rather than legal restrictions approach.
Other very notable restrictions to the LE Reinsurance Scheme are that it covers expenses only rather than any loss of profit. Where an events company only obtains revenue from an event taking place, this is likely to be a significant gap in coverage. Furthermore, many UK companies operate events both nationally and internationally but only events physically taking place in the UK are covered by the LE Reinsurance Scheme. The LE Reinsurance Scheme is a quota share arrangement, with 95–100% participation depending upon certain criteria. With some high-profile Lloyd’s markets agreeing to take part in the LE Reinsurance Scheme and some of those offering small additional slices of coverage as well, claims handlers are bracing themselves for any fall out from Omicron or any subsequent variants.