Katrina, a 140-mile-per-hour hurricane that hit a three-state area (Louisiana, Alabama, and Mississippi) could end up being the most expensive catastrophe in U.S. history. Catastrophe-modeling firm Risk Management Solutions expects Katrina to cost insurers between $40 billion and $60 billion, which would eclipse industry losses from the September 11 terrorist attacks in 2001 and Hurricane Andrew in 1992.

One likely fallout for convention groups: higher premiums for event cancellation insurance. James Chippendale, president of CSI Insurance Management, a Dallas-based agency that sells event cancellation insurance, says he got word from “the largest underwriter of event cancellation insurance in the country” that there is a “good chance” the Katrina disaster will affect the rates for events exposed to the risk of hurricanes.

Jack Buttine, president of John Buttine Inc., a New York insurance agency, agrees that a rate increase is likely. “The premium rate for cancellation insurance, like many types of insurance, is the sum of different components: a rate for fire insurance, a rate for earthquake coverage, a rate for windstorms coverage, a rate for adverse weather, etc.”

While many of the pricing components are unaffected by the aftermath of Katrina, he says, “the rate for windstorm coverage may go up. The question now is how much. Double is probably the least it will increase.”

Bill Hubbarb isn't so sure. “We adjust our rates all the time,” says Hubbard, president of ASU International Inc., Wakefield, Mass., a wholly owned subsidiary of HCC Holdings, Houston. “I don't see anything dramatic happening,” he says. “As devastating as Katrina was, it's a localized problem in terms of how long New Orleans will be out of commission as a destination.” What Hubbard does agree with the others about is that event cancellation insurance will continue to be available. “This is what we're here for,” he says. “We're not cutting back on what we're willing to offer.”

That's a good thing, because it would appear that interest in cancellation insurance is taking on a new intensity in the wake of Katrina.

“There's been a spike in requests for information,” says Chippendale. He estimated that a normal week would see 20 to 30 event-insurance inquiries, but that number was up by 60 percent to 70 percent during early September, and bind orders (acceptance of an insurance quote) were coming in at double the normal rate.

The same holds true on the other side of the country for Hubbard: “The phone has been ringing off the hook,” he says.

LONG-TERM EFFECTS

What ASU International and other agencies offer to the meetings industry, through underwriters such as Lloyd's of London and Travelers, is coverage to protect an event's revenue from contingencies such as labor strikes; fires; power outages; and hurricanes, snowstorms, floods, and other types of damaging weather conditions. Earthquake and terrorism insurance can also be added to the basic policy.

A solid force majeure clause in a meeting contract will cover these same crises, but its purpose is only to render the contract null and void. That is, you won't have to pay the hotel bill for unused guest rooms and meetings space, but it doesn't allow you to recoup the revenue that the event would have generated. That's the job of cancellation insurance.

Currently, the base rate event for cancellation insurance is about 50 cents per $100 of an event's gross revenue, or one-half of 1 percent of gross revenue. If the time and/or place of the meeting puts it at particular risk, insurance companies put a “load,” or surcharge, on the rate for the meeting.

For example, explains Buttine, instead of 50 cents per $100 of gross revenue, cancellation insurance for a New Orleans meeting in hurricane season (pre-Katrina) sold for about 70 cents per $100 of gross revenue because of the Gulf state's potential to get hit by a storm.

“The load for windstorm [coverage] is going up. No one knows how much,” Buttine says, noting that the increases are likely to affect the entire Southeast region, not exclusively the Gulf states. There's been a realization, he says, of the potential long-term effects of windstorms. “No one really expected that a September hurricane would cancel shows in the following winter.”

Moreover, Katrina damage may have been of historic proportions, but you can bet there is more to come. The theory behind the increase in hurricane activity, which started in 1995, is that powerful storms run in 20-year or so cycles. There's also a theory that global warming is a big factor in increased hurricane activity.

Couple the growing realization that the long-term effects of windstorms could be much broader with the fact that hurricane activity is increasing, and you arrive at a question a lot of people may be thinking, but few are speaking out loud.

Steven Hacker, president and CEO of the International Association for Exhibition Management, put it this way: “How many event planners will relocate their major events in the path of hurricanes along the Gulf Coast, even though logic suggests that the entire East Coast is similarly vulnerable?”

Good question.

TWO IDEAS FOR KEEPING INSURANCE COSTS DOWN

Jack Buttine has two suggestions for reducing cancellation insurance premium costs:

First, groups might consider a cancellation policy that includes a reasonable deductible. A 5 percent winter-weather deductible is common on cancellation insurance policies written for, say, a Chicago meeting in February, but hurricane coverage has not typically been priced that way. A second pricing option that might keep costs down is a co-insurance policy.

Buttine explains the difference between the two: In the event of a cancellation, a group that holds a policy with a 5 percent deductible will pay 5 percent of the policy limit. (If the group had taken out $500,000 in coverage, it would have to pay a 5 percent deductible of $25,000.)

With a policy that has a 5 percent co-insurance deductible, the group pays 5 percent of the actual loss. So a meeting might have $500,000 in coverage, but if it suffered only $250,000 in losses, the 5 percent deductible would apply to the $250,000, costing the group $12,500.

AFTERMATH

• Estimated costs to insurers as a result of Katrina: $40 billion to $60 billion

• Estimated percentage of major meetings/conventions/trade shows that typically buy event cancellation insurance: 30 percent

• Amount by which that percentage is expected to grow as a result of Katrina: unknown