WHEN KATRINA BLEW THROUGH the Gulf states, she just may have blown your budget for meeting cancellation insurance as well.

James Chippendale, president of CSI Insurance Management, a Dallas-based agency, says he got word from “the largest underwriter of event cancellation insurance in the country” that there's a “good chance” the Katrina disaster will affect the rates for events exposed to 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 windstorm coverage, a rate for adverse weather, etc.” While many of the pricing components are unaffected by the Katrina disaster, 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 is not 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 is, it's a localized problem in terms of how long New Orleans will be out of commission as a destination.”

Protect Your Revenue

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,” says Hubbard. “We're not cutting back on what we're willing to offer.”

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

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 means you will not have to pay the hotel bill for unused guest rooms and meeting space, but it does not allow you to recoup the revenue that the event would have generated, return fees to your exhibitors, or pay vendors. That is 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; that's 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 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 has 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.”

Jump on the Bandwagon

If the idea of event cancellation insurance is looking better and better in the wake of Katrina, you are not alone. “There's been a spike in requests for information,” says Chippendale. He estimates that a normal week would see 20 to 30 event insurance inquiries; 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 held true on the other side of the country for Hubbard: “The phone has been ringing off the hook,” he says.

Perhaps meeting organizers are now reading what the scientists are saying: The theory behind the increase in hurricane activity, which started in 1995, is that powerful storms run in cycles of 20 years or so. Katrina's damage may be of historic proportions, but you can bet there is more to come.

Two Ideas for Keeping Costs Down

To reduce or avoid the higher surcharges that are expected to raise the cost of event cancellation insurance in windstorm-affected areas, Jack Buttine, president of John Buttine Inc., a New York insurance agency, has two suggestions.

First, he says, groups might consider a cancellation policy that includes a reasonable deductible. A 5 percent winter weather deductible has been common on policies written for, say, a Chicago meeting in February, but hurricane coverage has not typically been priced that way. A second pricing option is a co-insurance policy, where the insurance company pays some portion of your loss. For example, a 15 percent co-insurance policy will pay 85 cents for every dollar of the claim.

Buttine illustrates the difference: 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 5 percent co-insurance policy, 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.