Suzette Eaddy listened closely late this summer to news reports about elevated terrorism threats. Eaddy, director of conferences for the National Minority Supplier Development Council Inc., New York, was particularly concerned because her group would be meeting in Washington, D.C., just a couple of weeks before Election Day.
She looked into purchasing terrorism insurance. After getting quotes that ranged from $19,845 for limited coverage to $138,915 for full coverage, she decided against it. “We took a calculated risk,” she says. If something did happen, the group felt that financially, they could recover. “If there is a major terrorist attack, you've got bigger problems. In the scheme of things, your little conference is nothing.” The meeting, attended by 1,800, went off without a hitch.
Terrorism, war, communicable diseases, hurricanes, snowstorms, labor strikes, and indeed, tsunamis, are just some of the contingencies that organizations need to consider when assessing their cancellation insurance needs. While many more religious organizations are opting for cancellation coverage since September 11, 2001, many do not. It's a business decision that organizations need to make after they've done the research, weighed the options, and considered all the potential risks.
The Big “What If”
An event cancellation policy is designed to protect an organization's investment in a meeting should it have to be canceled because of forces beyond the organization's control. Before September 11, 2001, this type of insurance covered just about every kind of contingency, says James Chippendale, president, CSI Insurance Management, a Dallas-based agency that specializes in event insurance. But after 9/11 and last year's SARS scare, basic cancellation coverage “has been kind of whittled down,” he says.
Cancellation insurance is often called an “all risk” policy, but all risks aren't really covered. The extent of the coverage is defined not by what's included, but what's excluded, says John Buttine, president, New York — based John Buttine Inc., which markets a cancellation insurance policy available through the International Association for Exhibition Management.
Not included are war, communicable diseases, financial failure of any party, exhibitors not showing up, or low attendance. Some policies cover reduced attendance if the low numbers were the result of airport closures in another part of the country.)
Typically included are hurricanes, labor strikes, fires, power outages, snowstorms, floods, or other types of adverse weather conditions. Earthquake coverage is also included, but the price is significantly higher for meetings in California. Terrorism coverage is not part of the package, but it can be bought as an add-on.
“The burden of proof is on the named insured,” says Eileen Hoffman, program manager, AON Association Services, Washington, D.C. So, with something such as a hurricane, warnings by authorities and evacuations would be proof. If the storm doesn't make landfall, it could still qualify for coverage if there were warnings and evacuations. But if there were no warnings for an area and people were just afraid to go, that would not qualify, she says.
clauses in meeting cover the same contingencies, but these clauses only render the hotel null and void, says James Goldberg, principal, Goldberg and Associates, a Washington, D.C., law firm focusing on association law. The clause won't allow planners to recoup losses that a show would have generated in revenues or protect other expenses.
“If this is your big event, and it's going to net a couple hundred thousand in revenues, it's one thing to say, I'm not going to have to pay the bill to the hotel because I drafted a good force majeure contract,” Goldberg explains. “But you're still out on the revenue side.”
Do You Really Need It?
Planners should start their assessment by looking at the location and season of the event, advises Paulette Norman, assistant vice president, Marsh Affinity Group Services, Park Ridge, Ill., which offers Expoplus Convention Cancellation Insurance. An event held in Florida during hurricane season or Boston during the winter might be more at risk than one held in Chicago in the spring.
Then there is the question of revenue protection.“If an organization derives 70 percent of its annual operating budget from the annual meeting, they ought to have a strong consideration for getting cancellation coverage,” says John Foster, a frequent RCMA tutorial leader and partner, Foster, Jensen and Gulley, an Atlanta-based law firm. If they don't, and the meeting is canceled, the bulk of revenues for the year could be wiped out.
That's exactly the way Michael O'Toole, senior director of publications and government relations at the American Payroll Association, San Antonio, sees it. O'Toole buys cancellation insurance as well as terrorism coverage for all events, from the annual meeting attended by 2,000 people to the smaller seminars and workshops.
“We buy it mainly to protect the revenue from the annual meeting,” he says. “I look at that meeting sort of like a university looks at their largest revenue-generating sports program — it funds a lot of other things.” He purchases cancellation insurance for all meetings in one policy, with prices ranging from $25,000 to $50,000 per year, depending on the type of coverage.
In 2004, the annual meeting was held in Nashville, so he purchased the basic cancellation coverage and the premium was about $25,000. In 2005, the annual meeting is in San Diego, and he opted to get additional coverage — earthquake and terrorism — because California is prone to earthquakes and San Diego has several military bases. The premiums more than doubled over 2004 rates.
Albert Sears, vice president, meeting services at the National Fire Protection Association, Quincy, Mass., does not buy cancellation coverage for his group's meetings. “We looked at it several times,” says Sears, who plans an annual conference with about 6,000 registrants. “Coverage just got to be so expensive, and it has so many caveats, that we just decided it's not worth the kind of money they're asking for it today.”
Another reason the group doesn't purchase cancellation insurance is that meetings account for a small percentage of annual revenues for NFPA, so not being covered is not a big financial risk for the association, Sears says.
Insurance premiums will fluctuate based on claims and investment results of the insurers, notes insurance broker John Buttine. After 9/11, premiums just about doubled as insurers were hit with major claims. They have gone down since but are still higher than they were pre-9/11. But in late summer 2004, along came a once-in-a-lifetime hurricane season, and the insurance industry was hit again. Whether it will send rates upward won't be known until next year.
For now, event cancellation insurance, minus terrorism and earthquake coverage, costs on average about 0.6 percent of your gross estimated revenue, Buttine explains. It's less at a destination that's not subject to bad weather and more at a place and time where weather could be a factor. For a meeting held in Boston that generates $500,000 in revenue for an organization, the premium to recover that $500,000 would be about $3,230, figures AON's Hoffman.
Deirdre Ross, director of conference services at the American Library Association, Chicago, is put off by the cost of cancellation insurance, but bites the bullet. Prior to 9/11, Ross was paying about $17,000 per year for ALA's two conferences: the midwinter, which attracts about 12,000, and the annual, which brings about 25,000 people.
For 2005, her association is paying a total of $37,000 for the two events, and that's without terrorism or earthquake coverage. In 2004, she paid even more than that because the midwinter meeting was in San Diego, so she bought earthquake coverage. Earthquake insurance ballooned her premiums by about $25,000 to $43,000. The much larger annual conference cost only $18,000 because earthquake coverage isn't necessary in Florida.
“Our attorney said, ‘Do you want to be the one who stands in front of the board when something has happened and say we don't have the insurance?’ So we take our lumps.” These numbers are not including terrorism insurance, which Ross does not buy.
Federal Program for Terrorism Insurance
Terrorism insurance is not part of the broader event cancellation policy, but coverage can be purchased separately as a result of the Terrorism Risk Insurance Act of 2002. The act created a three-year federal program that backs up insurance companies and guarantees that certain terrorist-related claims will be paid.
There are two major underwriters for organization cancellation and terrorism insurance: Lloyd's of London and Travelers. Each offers slightly different coverage. Some brokers offer one or the other; others offer planners both.
For terrorism insurance, Travelers has two options. One is limited terrorism, which insures against attacks within 25 miles of the venue for 30 days. Policyholders would get back 50 percent of the limit, to a maximum of $250,000. The second is full terrorism, which provides full indemnity for a foreign or domestic act occurring anywhere in the United States.
Lloyd's of London has three options: Limited is the same as Travelers'; extended offers full coverage for an attack within 25 miles for a period of seven days; and TRIA coverage provides full protection for incidents carried out by foreign interests in the United States. There is no provision for time and distance.
Fear of travel is not included, says AON's Hoffman. “It would have to be something physically preventing attendees from getting to the event,” such as an airport shutting down or roads being closed or facilities being damaged, and the attack has to be certified by the U.S. government.
Most organizations buying terrorism insurance opt for limited or extended coverage, Hoffman says. It gives them some protection and is much more affordable than full coverage. Groups that are holding a meeting in a high-profile city or at a time that threats are elevated may want to consider some form of terrorism coverage, she says.
To get an idea of the cost differential between limited and full protection, a meeting in Boston that generates $500,000 in revenues would pay about $3,230 for cancellation coverage, $3,468 for cancellation plus limited terrorism, and $24,273 for cancellation plus full terrorism, Hoffman estimates.
With the TRIA legislation set to expire at the end of 2005, the future of terrorism insurance is up in the air. However, most experts believe it will be renewed in some form.
“The only reason insurance companies even touch terrorism is because of the TRIA,” Foster says. “I've got to believe that Congress is going to renew that, because the insurance companies have already said they don't want to write that insurance without some backup, and the reasons that they installed it in 2002 are still around.”
Shop Early and Understand Exclusions
Cancellation policies can be purchased as far as 18 months out and as near as 20 days out, but, Buttine says, don't wait. “You should buy the policy as soon as you have a financial interest in the event,” Buttine advises. “You're a better consumer. The further in advance you buy it, the more days of coverage you get.”
In theory, the premiums will be the same no matter when you buy it. In reality, things happen that change rates, says ALA's Ross, who buys for the next event as soon as the doors close on the last. “You have to buy it way in advance, because if you don't, something weird can happen in the city and they quickly exclude that.”
She recalls planning an ALA event in San Francisco when blackouts started occurring. When she went to get cancellation coverage six months out, blackouts were excluded. If she had bought it six months earlier, blackouts would have been covered. SARS was the same thing. Insurance bought well in advance of last year's epidemic would have covered it, but since then, it has been excluded.
While diseases such as SARS are no longer covered in event cancellation policies, it's important to note that “planners still need to include communicable disease in termination clauses in hotel contracts,” advises lawyer John Foster. If an outbreak occurs, the contract can then be terminated “without liability if either party's ability to perform the contract (i.e., provide the hotel or hold the meeting) is affected,” he says.
As exclusions are a fact of life, CSI's Chippendale warns planners to review policies and exclusions carefully before signing. “Don't just blindly say, ‘We got event cancellation. We're covered for everything.” That's not the case,” he says. Just as there are earthquake exclusions in California, some policies might have snow exclusions for a northern city in winter or hurricane exclusions for coastal destination in September.
Another caveat: “Get competitive quotes from different companies because the price will vary,” Foster advises. And make sure that the quotes are from at least the two major underwriters, Lloyd's of London and Travelers, because they offer slightly different policies in terms of both price and coverage, adds Goldberg.
The underwriter is looking for three things on applications, explains Hoffman: the location of the meeting, the date, and gross revenues and expenses associated with it. Goldberg says planners should request a copy of the policy and not just a premium quote.
Buying cancellation insurance is in one way just like buying any other type of insurance, Goldberg says. “Do I want to spend the money and sleep a little bit better,” he asks, “or do I want to take a chance it isn't going to happen to me?”
Commercial General Liability Insurance: Covers bodily injury or property damage at meetings. Most hotels and convention centers won't let you in the door without it. A broader association policy will usually cover all meetings and events.Standard coverage is $1 million per occurrence with a $2 million annual aggregate limit. Umbrella policies of $5 million or $10 million are common and can be purchased for additional coverage.
Cancellation Insurance: Optional policy that covers planners in the event that an unforeseen force — such as a hurricane, storms, fire, or strike — cancels or disrupts a meeting. Allows the planner to keep his/her profit, return all or a part of exhibitor fees, and pay expenses.
Terrorism Insurance: Covers the association if the event is affected by a terrorist incident. There are several options, from limited coverage whereby the attack must take place within a certain time and distance period, and full coverage, which is more expensive.
Workers Compensation: Covers an association if an association employee is injured at a meeting or event. Most organizations are required to have a workers compensation policy.
Premium: Cost or rate that must be paid by the insured to the insurance company based on a variety of risk factors.
Underwriter: The company that actually sells the insurance policy. There are two major underwriters of cancellation insurance for associations: Lloyd's of London and Travelers.
Insurance Broker: A company that represents the buyer by obtaining the best insurance from insurance companies (or underwriters) at the lowest price possible.
Directors and Officers Insurance (D&O): Coverage for association board members in the event they are sued for actions made on behalf of the association. The type of D&O insurance for associations generally protects employees, volunteers, and committee members, as well as members of the board.
International or Foreign Liability Insurance: Required for associations that hold meetings or have employers or representatives who travel outside the United States. It covers basic liability and damage.
Certificate of Insurance: A document that demonstrates evidence of an insurance policy. Venues often require association to have these certificates. Planners or show organizers should try to get proof of insurance from all vendors and contractors. If a claim is filed for negligence by a vendor or contractor and the vendor or contractor isn't insured, the association or show organizer might be named.
Four steps to buying cancellation insurance
Determine how the loss of revenue from the event would affect your organization's bottom line.
If the impact is significant, determine which type of contingencies you need to buy coverage for, and shop around as early as possible for coverage policies.
Get competitive quotes from different companies.
Review policies and exclusions carefully before signing.