Specialty Insurance

Music Meets Mayhem

Music festivals are high-profit, high-risk events. Mistakes can sink an entire show and put lives in danger.
By: | August 29, 2017 • 8 min read

It should have been idyllic. A private Bahamian island playground for the young and posh, for celebrity influencers, supermodels and thought leaders. Two fantasy weekends filled with music, art installations, five-star cuisine, chartered yachts and luxe tents as well-appointed as any upscale hotel room. Oh, and $1 million in treasure and jewels hidden throughout the island.

The marketing push for the Fyre Festival promised an experience like no other. To be fair, that part turned out to be true.

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Festival attendees, some of whom had paid up to $125K for VIP ticket and accommodation packages, arrived at the island of Great Exuma to behold utter chaos. Trash-filled grounds, feral dogs, FEMA disaster-relief tents, bloodstained mattresses, no electricity, processed cheese sandwiches— and not a stage or a musical act in sight.

The festival actually collapsed weeks before it ever began. But not until the day of the event did organizers admit defeat — taking to Twitter to announce the cancellation, while frantic teens and 20-somethings tweeted frantically for hours, begging authorities to rescue them from the island.

The first class-action lawsuit was inked before all the festival-goers made it back home. Five more followed, as well as suits from an investor, a financing company and an event management company that was hired to provide medical services. Ticket vendor Tablelist filed suit for the $3.5 million it says it needs to refund ticketholders. Lawsuit demands to date are far in excess of $100 million.

Festival organizer Billy McFarland was arrested on a charge of wire fraud. Prosecutors say he used false documents to secure $1.2 million in funding for the event. Some say the entire thing was a scam from the start. Some say it was just an ambitious idea without the level of knowledge or experience to support it. The FBI will weigh in eventually.

The demise of Fyre Festival could be dismissed as a fluke. But only three weeks later, it was announced suddenly that Canada’s Pemberton Music Festival would be cancelled and organizers were declaring bankruptcy. Most were appalled that in lieu of refunds, ticket-holders would have to file a proof of claim form as unsecured creditors.

Experience Matters

These very public festival implosions serve as a reminder that music festivals are intensely complicated to orchestrate. There are countless ways that a misfire could put an entire event at risk. Which is why the insurers that write coverage for festivals dig deep into the details before taking them on.

There’s evidence that Fyre Festival’s organizers shopped around for insurance, but found no takers. That’s no surprise, because first-time festivals have no proven track record, and an untested promoter would do little to instill confidence.

“From an insurance perspective, you want a reputable promoter who has done festivals successfully in the past,” said Susan McGuirl, Head of North America Entertainment, Entertainment Division, with Allianz Global Corporate & Specialty.

Even so, an untested promoter could likely still find appropriate coverage if they chose to partner with reputable and experienced entities.

Peter Tempkins, managing director of entertainment, HUB International

“What I look for when I get involved in a festival is who the actual people are with what I call the feet on the ground,” said Peter Tempkins, managing director of entertainment for HUB International.

“I’m not quite as concerned [with] who owns it; it’s who’s running it — who’s the site manager? Who’s the production manager? Who’s the security director? Who’s the medical director? Because that’s where the important stuff really comes from.”

Underwriters typically know all of the players and their reputations, said Tempkins.

“The festival world, as big as it is, is a very small world, and a lot of the same people or the same companies work on a majority of the festivals.”

That’s why it was worth noting, he said, that of the companies involved with the Fyre Festival, he recognized only one name. Having unknowns on board would prompt a deeper level of research.

“If they say, ‘Oh, John Doe is going to be our security director,’ then I’ll ask people who do festivals what do you know about John Doe? And what do you think about John Doe being a security director for a festival? These are people who I trust, who will be honest with me,” he said.

“If they say they’re going to use Doe Staging, I’m going to research Doe Staging. And if it turns out that it’s something John’s building in his backyard out of old plywood, then I’ll probably walk away at that point,” he explained.

Organizers typically work with insurers well in advance. Major festivals require numerous types of coverage in addition to cancellation insurance, including general liability, workers’ compensation, commercial auto, umbrella policies, and typically terrorism coverage as well. Some event organizers will also opt for E&O and D&O coverage, and possibly crime coverage.

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The costs involved are quite high. Cancellation insurance alone will typically cost 1 percent to 1.5 percent of the overall cost of an event. General liability is priced per head, and will vary depending upon a variety of factors including whether it’s an overnight event. The total bill for insurance can be quite steep.

Some, however, say it still isn’t pricey enough. In a blog post written six weeks before the Fyre debacle, David Boyle, contingency class underwriter for Argo Insurance, explained that Argo as well as a number of its peers decided to stop providing coverage for festivals “at least until something gives.”

“Failure of festival organizers to better implement proven risk mitigation procedures and of insurers to charge a genuinely risk-reflective price will lead to further losses and more insurers with loss-making books of festival insurance business will decide that enough is enough,” he said.

Boyle cites numerous reasons why festivals are so risky to insure, but experts say drugs and alcohol are at the top of the list, and, of course, all of the shenanigans you might expect when those substances are free-flowing.

A December 2016 Canadian study found that alcohol and drugs were a factor in 13 percent of all reported music festival deaths between 1999 and 2014, and the majority of all non-traumatic deaths.

California’s Hard Summer festival, produced by a division of concert giant Live Nation, had four fatalities between 2013 and 2015. The earliest was ruled to be death by natural causes, although MDMA (Ecstasy) was involved. The other three were directly related to MDMA overdose.

“You get past the underwriting, you get past the insurance, you get past everything else … to me, it’s all about safety. ” — Peter Tempkins, Managing Director of Entertainment, HUB International

In May 2016, two people died of MDMA toxicity and 57 more were hospitalized after attending the Sunset Music Festival in Tampa.

Two months later, tragedy struck the Hard Summer festival yet again, claiming the lives of three more young people, despite the copious warnings and a white “amnesty” box set out for people to place illegal drugs in before going inside the venue.

Drugs are the problem that organizers and insurers can’t get ahead of, despite warning flyers, safety messages, bag searches and drug-sniffing dogs. That’s one reason that staffing levels and on-site personnel are scrutinized by insurers, as well as every other issue that could put people at risk.

Allianz utilizes risk services professionals with a keen eye for potential problems, said McGuirl.

“Our crew is pretty seasoned, they literally walk around and look at all the components of the festival, with the utmost focus on safety,” she said.

That means looking closely at weather planning, evacuation planning, medical facilities, parking structures, campsites, communication systems and more.

The focus, she said, “is always on the safety of the patrons — those people who are buying tickets and going to the event to have a good time … making sure that they are treated well, that they’re safe and then they can go home.”

“You get past the underwriting, you get past the insurance, you get past everything else … to me, it’s all about safety,” agreed Tempkins.

“My daughter’s 25. She’s going to shows, and I want her coming home at night.”

The Price of Mistakes

Even established, respected organizers struggle with the risks. The Fyre Festival is far from the most shocking example of under-prepared promoters.

Woodstock ’99 – the second reboot – was an organizer’s worst nightmare, which had a lot to do with judgement missteps of the organizers themselves, one of whom happened to be legendary promoter John Scher.

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Mistakes were made. Toilets overflowed. Garbage collection ceased. Overwhelmed security staff gave up and walked away. Add drugs and alcohol, 100-degree temperatures, grossly overpriced concessions and the rage-filled music of hardcore rock bands. It was a powder keg. Aggression and violence were rampant. Assaults and rapes in the mosh pit were reported.

And then a sponsor made the baffling decision to hand out 100,000 candles near the close of the event.

The powder keg was lit, quite literally.

The festival culminated in a riot. People used the candles to set ablaze the overflowing garbage, then began destroying structures to add fuel to the fires. Everything burned, including tents and merch stands. A 50-foot speaker tower was toppled. Trucks exploded.

“From an insurance perspective, you want a reputable promoter who has done festivals successfully in the past.” — Susan McGuirl, Head of North America Entertainment, Entertainment Division, Allianz Global Corporate & Specialty

The final tally exceeded $2 million in damages (counting both structure damage and the cost of stolen or destroyed merchandise.) Forty four rioters were arrested.

All things considered, it’s actually a bit mystifying that insurers didn’t turn their backs on the festival industry altogether right then and there.

But the bands play on.

As for the Fyre Festival, its earlier promise to come back and get it right in 2018 is highly questionable, particularly now that a group of investors have filed a petition to force the company into bankruptcy.

“The music industry is a very small industry,” said Tempkins. “If you make a mistake, depending on the mistake, sometimes you can recuperate from it and sometimes you can’t.

“When they come back — or try to come back — people remember.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

2018 Most Dangerous Emerging Risks

Emerging Multipliers

It’s not that these risks are new; it’s that they’re coming at you at a volume and rate you never imagined before.
By: | April 9, 2018 • 3 min read

Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation.

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Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.

More recently, underwriters expressed fears about the aggregation of risk from lawsuits by football players at various levels of the sport. Players, from Pee Wee on up to the NFL, claim to have suffered irreversible brain damage from hits to the head.

That risk scenario has yet to fully play out — it will be decades in doing so — but it is already producing claims in the billions.

This year’s edition of our national-award winning coverage of the Most Dangerous Emerging Risks focuses on risks that have always existed. The emergent — and more dangerous — piece to the puzzle is that these risks are now super-charged with risk multipliers.

Take reputational risk, for example. Businesses and individuals that were sharply managed have always protected their reputations fiercely. In days past, a lapse in ethics or morals could be extremely damaging to one’s reputation, but it might take days, weeks, even years of work by newspaper reporters, idle gossips or political enemies to dig it out and make it public.

Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

These days, the speed at which Internet connectedness and social media can spread information makes reputational risk an existential threat. Information that can stop a glittering career dead in its tracks can be shared by millions with a casual, thoughtless tap or swipe on their smartphones.

Aggregation of uninsured risk is another area of focus of our Most Dangerous Emerging Risks (MDER) coverage.

The beauty of the insurance model is that the business expands to cover personal and commercial risks as the world expands. The more cars on the planet, the more car insurance to sell.

The more people, the more life insurance. Brand new technologies, brand new commercial covers. It all works well; until it doesn’t.

As Risk & Insurance® associate editor Michelle Kerr and her sources point out, growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.

This aggregation of uninsured value got a recent proof in CAT-filled 2017. The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of it was uninsured.

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This uninsured gap threatens to place unsustainable pressure on public resources and hamstring society’s ability to respond to natural disasters, which show no sign of slowing down or tempering.

A related threat, the combination of a failing infrastructure and increasing storm severity, marks our third MDER. This MDER looks at the largely uninsurable risk of business interruption that results not from damage to your property or your suppliers’ property, but to publicly maintained infrastructure that provides ingress and egress to your property. It’s a danger coming into shape more and more frequently.

As always, our goal in writing about these threats is not to engage in fear mongering. It’s to initiate and expand a dialogue that can hopefully result in better planning and mitigation, saving the lives and limbs of businesses here and around the world.

2018 Most Dangerous Emerging Risks

Critical Coverage Gap

Growing populations and rising property values, combined with an increase in high-severity catastrophes, are pushing the insurance protection gap to a critical level.

Climate Change as a Business Interruption Multiplier

Crumbling roads and bridges isolate companies and trigger business interruption losses.

 

Reputation’s Existential Threat

Social media — the very tool used to connect people in an instant — can threaten a business’s reputation just as quickly.

 

AI as a Risk Multiplier

AI has potential, but it comes with risks. Mitigating these risks helps insurers and insureds alike, enabling advances in almost every field.

 

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]