Insuring Entertainment Venues In the Wake of the Terrorism Era

While no one truly wants to admit it, terrorism is here to stay… at least for the time being. The War in Iraq has further provoked the unstable global political climate, and the results are uncomfortable at best. U.S. Attorney General John Ashcroft recently revealed new intelligence that Al Qaeda is planning a major terrorist attack on American soil as soon as this summer.

But here in the United States, life goes on. While there’s no doubt that the large majority of Americans are concerned with terrorism, most are able to go about their daily activities with thoughts of terrorism in the back of their minds. And while we’re going about our daily lives, we’re enjoying them too, relying on the same entertainers and entertainment that we always have. Famed-musician Prince went on tour this summer to play his pop hits for the last time. The Los Angeles Lakers and the Detroit Pistons went head-to-head in the NBA Playoffs. And across the nation, summertime festivals have been rampant, sprouting up for any reason need be.

Entertainment insurers and brokers are faring well amidst terrorism concerns and the hard market. Nevertheless, the two forces combined have provided for a challenging marketplace, especially considering the limited number of companies willing to provide entertainment insurance in the first place.

“It certainly is a concern—it has been my experience that insurance companies are concerned about the high exposure for venues,” said Richard Rutkin, vice president at Canoga Park, Calif.-based L.A. Xcess Insurance Brokers Inc. “And that really comes back to the issue of terrorism and the concern of massive numbers of people in one location that could be injured in an attack. You get something like the Staples Center [located in Los Angeles] where you’ve got a lot of people congregating there all the time for big events and that certainly has to be a concern to any insurance company and reinsurers.”

“It’s a completely different underwriting question when two risks such as the Madison Square Garden in New York City is being insured vis-á-vis the Des Moines Iowa Convention Center,” said Jack Cave, managing partner at Los Angeles-based Entertainment Brokers International, with offices in New York and London. “One is going to be deemed a much higher profile venue that would be a much more attractive target as far as terrorism is concerned compared to the other. While certainly, it could be a disruptive and devastating event, but the general view seems to be that the people that engage in that kind of activity [terrorism] are looking for rather significant venues to attack.”

Stricter underwriting is key
So just how do large venues such as the Staples Center or Madison Square Garden maintain insurance? Given today’s political climate, who in the world would want to insure them?

Well, the answer, according to many experts, lies in the numbers. As other insurers have done over the course of the hard market, the few companies in the entertainment business have returned to stricter underwriting.

“You have a somewhat limited market,” Nancy Baughman, owner and consultant at Valencia, Calif.-based Baughman Risk Management said. “You have insurance companies that don’t want to participate in entertainment insurance. Some of them have just backed away and said that the loss ratio, the man-hours it takes to manage an entertainment risk, isn’t cost effective.

“The biggest concern is just stricter underwriting. They’re really looking again at the whole concept of insurance as based on a law of numbers,” Baughman continued.

“As far as venues are concerned, there’s a series of issues that must be addressed that are very contingent upon the contractual arrangements running between the tenant that’s using the venue, the venue itself, and all the vendors that are supporting the activity going on in the venue,” Cave said. “All of these are taking place simultaneously while an event is occurring. They all are in various types of contractual arrangements with each other and they all are providing insurance for the liability that they would have in the event that any of their activity was deemed to be at fault or negligent and caused loss, bodily injury or property damage to others.”

“A tremendous change has taken place since Sept. 11,” Rutkin said. “I find that there were many types of festivals and events that we used to insure for lower premiums. And the availability was much greater. Now there’s a greater limitation of what insurance companies are willing to consider and how many people they are willing to allow at the event. For a long time after 9/11, there were very few that would consider writing a festival or event that would include more than 5,000 people. We’re starting to see a relaxation of that more; some of the carriers now are willing to look at some of the larger events where you have 10,000, 20,000, 30,000 people. And I’m sure there are situations where they’ll do 60,000 to 100,000 people now. But right after 9/11, it was nearly impossible. Unless it was a very large organization and they had history with a carrier that they were willing to renew, it was very difficult to get anything new done.”

The threat of terrorism requires insurers to take a hard look at the venue’s safety plan. Underwriters need to be more cautious when it comes to issuing coverage, requiring more documentation and utilizing risk managers to ensure that the venue is aware of and enforcing proper safety measures.

“You have to make sure that they have higher security; that they’re watching who’s coming in there; that the promoters have levels of insurance but they’re also making sure that everyone else is carrying their own insurance, like workers’ comp for their own bands or their own crew. Everything has to be answered a little stricter than everyone’s been used to,” Baughman cautioned.

“I think that the promoters have been hit hard but I don’t think it’s as hard as everyone thinks. I think the media builds a lot of this up. And it all boils down to presenting a risk, good underwriting and for the benefit of everybody, make sure it’s in order. Just do your homework. This is a tighter market and you have to do it the right way. We’re a little spoiled,” Baughman added.

Some things never change
Even in today’s world climate, popular or controversial celebrities remain just as insurable as they have always been … or not been.
“There are a handful of very high profile entertainers that they look at very carefully,” Rutkin said. “Controversial artists have been difficult for a long time and remain difficult. Rap and Hip-Hop artists are extremely difficult to place coverage for. Many insurance carriers have exclusions for these performers and performances. The venues require the promoter to supply insurance coverage for the concert and name them as an additional insured. Most venues don’t get involved in insuring these concerts directly; they try to remain contingent on any liability. I have heard of several instances where the venue simply cancels the concerts if the promoter doesn’t come up with adequate insurance for the event.”

“A lot has to do with reputation,” Baughman said. “If you bring in a band that’s absolutely outrageous or an actor/actress that’s just undesirable and has a terrible reputation, but you bring it in with a representative that’s strong—a good attorney, CPA or business manager—you know that someone’s trying to monitor this and keep it a clean account and that brings clout. A good broker brings clout. A good insurance company, they know the history of these clients better than anybody. You have to work these accounts 30 or 60 days minimum in advance. You can’t put it through in a rushed manner. It doesn’t do the client any justice.”

Cave said that the key to insuring high profile individuals is again, strict underwriting. Agents and brokers need to understand the ins and outs of the client that they are trying to insure. “It is true that high profile individuals do attract more attention than lesser known individuals,” Cave said. “Accordingly, we pay particular attention to the details of the tour or performance to be insured and all of the inherent risks that are a part of the account to be underwritten. High profile accounts are generally written for higher limits of coverage, therefore, the cat exposures are amplified by the limits exposed.”

Film sets and nightclubs
Large entertainment venues and celebrities aren’t the only things posing challenges to insurers—film and television production sets, nightclubs, international sporting events and large political gatherings also weigh heavy on the minds of the industry.

The recent tragedies in nightclubs around the country—the Rhode Island fire, a deadly stampede in Chicago—have posed significant concerns about the safety of these venues to insurers. Many companies won’t even write such venues, said Camille Brown, an account executive at New York-based E.G. Bowman Company Inc. “A lot of the occupancy rules are not enforced. The fire doors and emergency exits, although they may be well lit, are usually chained shut because people try to get in through those doors.”

It becomes a problem for agents and brokers when insurers don’t want to write the risk—leaving the agent to turn to the nonstandard market, Bowman said. Premiums are usually higher and the client doesn’t want to pay.

Insurers are asking more questions about venue safety and the use of special effects in shows. “It’s certainly caused them to ask many more questions and put right out there in greater view the fact that there are exclusions for pyrotechnics and there are exclusions for stunts in events and that they need to know these things well in advance and get approvals before any of these types of events can include those areas of entertainment,” Rutkin said. “Companies are saying ‘I don’t care what it is, we need to know, no matter how big or how small. We need to have all details, we need to have knowledge of who’s doing the pyrotechnic if that’s going to be done, what experience they have, whether they have insurance to provide in the event that they are negligent.’ They’re very concerned about that and are looking at it very carefully. And they’re not as apt to just automatically add the coverage.”

As for production sets—both film and television—terrorism is a concern, but not to the same extent that it is for venues. Instead, natural and man-made catastrophes pose the biggest risk to motion picture productions.

“Over the years there have been a number of films that have been shut down as a result of hurricanes—in Hawaii and Southeast Asia and other places where filming was taking place on locations with weather-created problems,” Cave said, citing a recent weather-related loss on the film production of “Troy,” which was shot in part on location in Cabo San Lucas, Mexico.

“The film business per se has not yet been significantly impacted by insurance over terrorism simply because location filming is happening all over the globe. War torn countries or countries where civil unrest is running at an all time high, certainly create a lot of problems for location filming and as a general rule most insurers are very reluctant to expose their capacity to loss [where there is] a high potential for significant loss to the insurance company.”

High profile events
Also on the mind of insurers are the upcoming Olympic Games in Athens, Greece. And beyond that, the presidential election in November 2004 will be preceded by political party gatherings and conventions across the nation. These high profile events are keeping insurers on their toes.

“Clearly, events such as the Olympics pose significant risks to underwriters, particularly terrorism exposures,” Cave said. “In addition, there are a large number of venues and various locations all to be insured over a period of time that require a great deal of thoughtful underwriting to make sure that all the contractual as well as physical exposures have been considered.

“Political events, especially this election year, will be very carefully underwritten, since they are clearly targeted risks for terrorist attacks,” Cave added. “Security requirements will be very complex and difficult to work with, however, to assure that the event is adequately protected, they will be required.”

Despite the terrorism concerns looming over the entertainment industry, insurers are dealing with the challenges.

“It’s currently at a crossroads now,” said Dana Berry, director of hospitality and gaming at Aon Risk Services in Chicago. Berry said that many carriers are still hesitant to write a large casino or large venue in today’s climate. “The reason that’s so tenuous right now is because you’re one big loss away from where people would decide they don’t want to write those risks anymore. And as with any type of work, if you’ve only got one or two carriers legitimately that can write them and those large carriers decide that they don’t want to write them, you’re going to see two things happen—an inability to really get any capacity for a large risk, and for the capacity you can get, it’s going to be extremely expensive.”

“There have been a lot of changes in the pricing of insurance in general,” Cave added. “Rates have increased rather substantially across the broad market and certainly within the entertainment marketplace since Sept. 11. They’ve flattened out considerably in the most recent 12-month period and one would suspect that they would remain relatively static for the balance of this year. 2005 pricing may well show some deterioration barring major events that could impact the industry at large. On the other hand, if the industry is relatively calm as far as large loss activity, then there could well be some softening in pricing in 2005.”