TERRORISM, WAR, communicable diseases, hurricanes, snowstorms, labor strikes …. Not only can the “what ifs” keep you up at night, they can cost your company big bucks.
Nonetheless, while more planners are opting for cancellation coverage since September 11, 2001, many still are not. After all,clauses cover many of the same contingencies as insurance: fires, hurricanes, earthquakes, floods. But these clauses only render the hotel null and void, says James Goldberg, principal, Goldberg and Associates, a Washington, D.C.-based law firm.
So for planners who are concerned with protecting their investment, it might be a good idea to have force majeure language and cancellation insurance for that extra layer of protection. It's a business decision that you need to make after you've done the research, weighed the options, and considered the costs.
The “What Ifs”
An event cancellation policy is designed to protect a company's investment in a meeting should it have to be canceled because of forces beyond the company's control. Before September 11, 2001, that meant just about everything was covered, says James Chippendale, president, CSI Insurance Management, a Dallas-based agency that specializes in event insurance. “But since 9/11, we've had SARS and, of course, terrorism, so event cancellation has been kind of whittled down,” he adds.
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 is included, but by what is excluded, says insurance broker John Buttine, president, John Buttine Inc., New York. Not included are war, communicable diseases (such as SARS), or the financial failure of any party. In the case of a corporate, insurance doesn't cover exhibitors not showing up or low attendance. (However, some policies will cover reduced attendance if it is the result of airport closures in another part of the country.)
Hurricanes, labor strikes, fires, power outages, snowstorms, floods, or other adverse weather conditions are all included. Earthquake coverage is also included, but the price is significantly higher for a meeting 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 with insurance broker, AON Corp., 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 are no warnings for an area and people are just afraid to go, that would not qualify, she says.
Do You Really Need It?
Planners should start their assessment by looking at the location and season of the event, says Paulette Norman, assistant vice president, Marsh Affinity Group Services, Park Ridge, Ill., which offers Expoplus convention cancellation insurance. An event that is being held in Florida during hurricane season might be more at risk than one being held in Chicago in the spring.
The next consideration is whether the meeting is a revenue generator. If not, you probably don't need cancellation coverage. But if it's a trade show or user group meeting, for example, insurance may be more critical.
Then there's the cost. As a rough estimate, for a meeting in Boston that generates $500,000 in revenue, the premium to recover that $500,000 would be about $3,230, Hoffman says.
Insurance premiums fluctuate based on the claims made and the investment results of the insurers, says Buttine. After 9/11, premiums just about doubled as insurers were hit with major claims. The premiums have gone down since then, but they are still higher than they were pre-9/11, says Hoffman. Then in late summer 2004, a once-in-a-lifetime hurricane season hit the insurance industry, which will likely send rates upward.
Where to Start
There are two major underwriters for event cancellation insurance: Lloyd's of London and Travelers. These two companies provide the bulk of the event cancellation insurance that brokers like AON, Marsh, Buttine and CSI sell to groups. Each offers slightly different coverage. Terrorism insurance is not part of either's cancellation package, but coverage can be purchased separately as a result of the federal Terrorism Risk Insurance Act of 2002. TRIA created a three-year federal program that backs up insurance companies and guarantees that certain types of terrorist-related claims will be paid.
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 an act of terrorism occurring anywhere in the United States.
Lloyd's of London has three options. The first, limited, is the same as Travelers' package. Extended offers full coverage for an attack within 25 miles for a period of seven days. TRIA coverage provides full protection for incidents carried out by foreign interests in the United States.
Fear of travel is not included, says Hoffman. “There would have to be something physically preventing attendees from getting to the event,” such as an airport shutdown, road closure, or facilities being damaged, and the attack would have to be certified by the U.S. government.
To get an idea of the cost, a meeting in Boston that generates $500,000 in revenue would cost about $3,230 to insure for cancellation, $3,468 for cancellation plus limited terrorism, and $24,273 for cancellation plus full terrorism, according to Hoffman.
With the TRIA 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. “I've got to believe that Congress is going to renew it because the insurance companies have already said they don't want to write that insurance without some backup,” says John Foster, partner, Foster, Jensen and Gulley, an Atlanta-based law firm. “And the reasons that they installed it in 2002 are still around.”
5 things to remember when deciding on insurance:
EARLY IS BEST — Cancellation policies can be purchased as far as 18 months out and as near as 20 days out, but John Buttine, president, John Buttine Inc., New York, a leading insurance broker for businesses and associations, says don't wait. “You should buy the policy as soon as you have a financial interest in the event.”
USE YOUR HOTEL CONTRACT AS PROTECTION, TOO — While diseases such as SARS are no longer covered by insurance, planners can protect themselves at least as far as the hotel goes by including a communicable disease clause in their, states John Foster, partner, Foster, Jensen and Gulley, an Atlanta-based law firm.
REVIEW POLICIES AND EXCLUSIONS — James Chippendale, president, CSI Insurance Management, Dallas, warns planners to be careful. “Don't just blindly say, ‘We got event cancellation, we're covered for everything,’ because that's not the case,” he says. Just as there are earthquake exclusions in California, some policies might have snow exclusions for northern cities.
GET COMPETITIVE QUOTES — “Prices will vary,” Foster warns. Make sure that the quotes are coming from at least the two major underwriters, Lloyd's of London and Travelers, because they offer slightly different policies in terms of price and coverage.
CHECK WITH YOUR INDUSTRY ASSOCIATION — Meeting Professionals International (www.mpiweb.org) offers Expoplus insurance through Marsh Affinity Group Services, Park Ridge, Ill. (www.expoplus.net). Contact Paulette Norman (800) 323-2106, ext. 34271
Know Your Terms
CANCELLATION INSURANCE is an optional policy that covers planners in the event that an unforeseen force, such as a hurricane, storms, a fire, or a strike, cancels or disrupts a meeting.
A CERTIFICATE OF INSURANCE is a document that demonstrates evidence of an insurance policy.
COMMERCIAL GENERAL LIABILITY INSURANCE covers allegations of bodily injury or property damage at meetings. Most hotels won't let you in the door without it. A broader policy will usually cover all meetings and events. Standard coverage is $1 million per occurrence with a $2 million annual aggregate limit.
INTERNATIONAL OR FOREIGN LIABILITY INSURANCE is for employees who travel outside the United States. It covers basic liability and damage.
TERRORISM INSURANCE covers a company 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 period and distance, to full coverage, which is more expensive.
THE TERRORISM RISK INSURANCE ACT was established in 2002 and created terrorism insurance and provides federal backing for insurance companies after certain circumstances. The act of terrorism must be certified by the Secretary of Commerce.
UNDERWRITERS provide the insurance coverage, which brokers sell to buyers. There are two major underwriters for cancellation insurance: Lloyd's of London and Travelers.
WORKER'S COMPENSATION covers a company if an employee is injured at a meeting or event.