Insurance Council says live events insurance impossible without government intervention

"Coverage for pandemics is not possible without government involvement"

Insurance Council says live events insurance impossible without government intervention

Insurance News

By Daniel Wood

Following the cancellation of music festivals in NSW, South Australia and Victoria due to the COVID-19 Omicron surge, entertainment industry leaders renewed calls for a federal insurance scheme for live events.

In response to questions from Insurance Business, the Insurance Council of Australia (ICA) has reiterated that insurance coverage schemes for pandemic induced losses, including for live music events, will only be possible with government help.

“The Insurance Council of Australia recently commissioned an independent study to look at options to mitigate the economic effects of future pandemics and it concluded that insurance coverage for pandemics is not possible without government involvement,” said an ICA spokesperson.

In July 2020 the ICA released a study by the Australasian strategic analytics firm, Finity. The report found that due to “significant challenges to insurability posed by COVID-19 and pandemics,” traditional private sector insurance coverage to address pandemic risk is “effectively impossible.”

The ICA spokesperson said that given the risk the pandemic continues to present to events, Australian insurers are now excluding coverage for pandemics.

However, the spokesperson also pointed out that pre COVID, very few event promoters actually took out cover for pandemics due to high premiums and the then low exposure to pandemic risk.

The ICA also said that its findings are consistent with those of the Organisation for Economic Co-operation and Development (OECD).

“It highlighted that planning for future pandemics will require governments, the insurance industry and the private sector to work together on business interruption solutions,” said the spokesperson.

In December, the Victorian government launched Australia’s first COVID-19 event insurance. The 12-month scheme offers cover for creative, sporting, business and community events with revenue or costs ranging from $20,000 to $10 million.

“This innovative Australian-first insurance product delivers confidence and certainty for event organisers, who deliver the festivals, conferences, sport and community events that make us the nation’s event capital,” said Danny Pearson, Victoria’s Minister for creative industries.

COVID-19 Event Insurance policies will provide a 100% payout if cancellation is forced due to public health orders from either the Victorian or Commonwealth government. Event organisers can apply through an online process.

It’s unclear if the event organisers for Victoria’s postponed heavy metal festival Unify Forever sought coverage under this scheme. Insurance Business has reached out to the organisers for clarification.

Respected insurance industry veteran, Dallas Booth wants the COVID-19 event insurance announced by the Victorian government to be seriously considered by other Australian states.

“Especially for some of these bigger events that cost a lot of money to stage,” he said. “It’s a huge loss if they have to cancel at the last minute,” added Booth.

The Morrison government has rejected calls for a government funded insurance program for live events.

According to The Guardian, the Department of Prime Minister and Cabinet claimed that market failure is not an argument for government intervention “if the failure does not have a material impact on the functioning of the wider market.”

However, Booth said the leisure, tourism and entertainment sectors were “absolutely impacted” by the COVID lockdowns.

During an Insurance Business interview in November, Booth gave the example of the Byron Bay Blues Festival. The event was cancelled by the NSW health minister less than 24 hours before it was due to start because of the discovery of a local COVID-19 infection. Organisers were expecting about 15,000 people.

However, Booth stopped short of supporting a federally backed insurance scheme for the entertainment sector, a move supported by music industry bodies.

In the United States, Chubb chairman and CEO Evan Greenberg has called for public-private partnership programmes involving the US federal government that leverage insurance, infrastructure and risk sharing to manage the impacts of pandemics.

Through Chubb’s proposition, smaller businesses would have access to “rapid liquidity, providing predictable, efficient and prompt payment,” Greenberg explained to a Senate Committee hearing. This liquidity, he said, would require government subsidisation of the premium charge to ensure affordability and participation in the programme.

Larger businesses with greater financial resources would not get subsidisation of premiums under the Chubb plan. Rather, the government would create a reinsurance facility solely to cover business interruption pandemic risk for those entities at an appropriate price. 

“Private insurance companies could write policies at market terms, retain a portion of the risk, then reinsure the rest of the government facility,” said Greenberg. “Our proposed framework builds on these concepts. Depending on the severity of a future pandemic, this may only turn out to be a partial solution. However, it is a robust, fiscally responsible plan.”

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