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

Lead Story

Improving the Claims Experience

Insureds and carriers agree that more communication can address common claims complaints.
By: | January 10, 2018 • 7 min read

Carriers today often argue that buying their insurance product is about much more than financial indemnity and peace of mind.

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Many insurers include a variety of risk management services and resources in their packages to position themselves as true risk partners who help clients build resiliency and prevent losses in the first place.

That’s all well and good. No company wants to experience a loss, after all. But even with the added value of all those services, the core purpose of insurance is to reimburse loss, and policyholders pay premiums because they expect delivery on that promise.

At the end of the day, nothing else matters if your insurer can’t or won’t pay your claim, and the quality of the claims experience is ultimately the barometer by which insureds will judge their insurer.

Why, then, is the process not smoother? Insureds want more transparency and faster claims payment, but claims examiners are often overburdened and disconnected from the original policy. Where does the disconnect come from, and how can it be bridged?

Both sides of the insurer-insured equation may be responsible.

Susan Hiteshew, senior manager of global insurance and risk management, Under Armor Inc.

“One of the difficult things in our industry is that oftentimes insureds don’t call their insurer until they have a claim,” said Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.

“It’s important to leverage all of the other value that insurers offer through mid-term touchpoints and open communication. This can help build the insurer-insured partnership so that when a claim materializes, the relationships are already established and the claim can be resolved quickly and fairly.”

“My experience has been that claims executives are often in the background until there is an issue that needs addressing with the policyholder,” said Dan Holden, manager of corporate risk and insurance for Daimler Trucks North America.

“This is unfortunate because the claims department essentially writes the checks and they should certainly be involved in the day to day operations of the policyholders in designing polices that mitigate claims.

“By being in the shadows they often miss the opportunity to strengthen the relationship with policyholders.”

Communication Breakdown

Communication barriers may stem from internal separation between claims and underwriting teams. Prior to signing a contract and throughout a policy cycle, underwriters are often in contact with insureds to keep tabs on any changes in their risk profile and to help connect clients with risk engineering resources. Claims professionals are often left out of the loop, as if they have no proactive role to play in the insured-insurer relationship.

“Claims operates on their side of the house, ready to jump in, assist and manage when the loss occurs, and underwriting operates in their silo assessing the risk story,” Hiteshew said.
“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.”

Both insureds and claims professionals agree that most disputes could be solved faster or avoided completely if claims decision-makers interacted with policyholders early and often — not just when a loss occurs.

“Claims and underwriting need to be in lock-step to collectively provide maximum value to insureds, whether or not losses occur.” – Susan Hiteshew, senior manager of global insurance and risk management for Under Armour Inc.

“Communication is critically important and in my opinion, should take place prior to binding business and well before a claim comes in the door,” said David Crowe, senior vice president, claims, Berkshire Hathaway Specialty Insurance.

“In my experience, the vast majority of disputes boil down to lack of communication and most disputes ultimately are resolved when the claim decision-maker gets involved directly.”

Talent and Resource Shortage

Another contributing factor to fractured communication could be claims adjuster workload and turnover. Claims adjusting is stressful work to begin with.

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Adjusters normally deal with a high volume of cases, and each case can be emotionally draining. The customer on the other side is, after all, dealing with a loss and struggling to return to business as usual. At some TPAs, adjuster turnover can exceed 25 percent.

“This is a difficult time for claims organizations to find talent who want to be in this business long-term, and claims organizations need to invest in their employees if they’re going to have any success in retaining them,” said Patrick Walsh, executive vice president of York Risk Services Group.

The claims field — like the insurance industry as a whole — is also strained by a talent crunch. There may not be enough qualified candidates to take the place of examiners looking to retire in the next ten years.

“One of the biggest challenges facing the claims industry is a growing shortage of talent,” said Scott Rogers, president, National Accounts, Sedgwick. “This shortage is due to a combination of the number of claims professionals expected to retire in the coming years and an underdeveloped pipeline of talent in our marketplace.

“The lack of investment in ensuring a positive work environment, training, and technology for claims professionals is finally catching up to the industry.”

The pool of adjusters gets stretched even thinner in the aftermath of catastrophes — especially when a string of catastrophes occurs, as they did in the U.S in the third quarter of 2017.

“From an industry perspective, Harvey, Irma and Maria reminded us of the limitations on resources available when multiple catastrophes occur in close succession,” said Crowe.

“From independent and/or CAT adjusters to building consultants, restoration companies and contractors, resources became thin once Irma made landfall.”

Is Tech the Solution?

This is where Insurtech may help things. Automation of some processes could free up time for claims professionals, resulting in faster deployment of adjusters where they’re needed most and, ultimately, speedier claims payment.

“There is some really exciting work being done with artificial intelligence and blockchain technologies that could yield a meaningful ROI to both insureds and insurers,” Hiteshew said.

“The claim set-up process and coverage validation on some claims could be automated, which could allow adjusters to focus their work on more complex losses, expedite claim resolution and payment as well.”

Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

Predictive modeling and analytics can also help claims examiners prioritize tasks and maximize productivity by flagging high-risk claims.

“We use our data to identify claims with the possibility of exceeding a specified high dollar amount in total incurred costs,” Rogers said. “If the model predicts that a claim will become a large loss, the claim is redirected to our complex claims unit. This allows us to focus appropriate resources that impact key areas like return to work.”

“York has implemented a number of models that are focused on helping the claims professional take action when it’s really required and that will have a positive impact on the claim experience,” Walsh said.

“We’ve implemented centers of excellence where our experts provide additional support and direction so claim professionals aren’t getting deluged with a bunch of predictive model alerts that they don’t understand.”

“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners.” — Dan Holden, manager, Corporate Risk & Insurance, Daimler Trucks North America

Many technology platforms focused on claims management include client portals meant to improve the customer experience by facilitating claim submission and communication with examiners.

“With convenient, easy-to-use applications, claimants can send important documents and photos to their claims professionals, thereby accelerating the claims process. They can designate their communication preferences, whether it’s email, text message, etc.,” Sedgwick’s Rogers said. “Additionally, rules can be established that direct workflow and send real time notifications when triggered by specific claim events.”

However, many in the industry don’t expect technology to revolutionize claims management any time soon, and are quick to point out its downsides. Those include even less personal interaction and deteriorating customer service.

While they acknowledge that Insurtech has the potential to simplify and speed up the claims workflow, they emphasize that insurance is a “people business” and the key to improving the claims process lies in better, more proactive communication and strengthening of the insurer-insured relationship.

Additionally, automation is often a double-edged sword in terms of making work easier for the claims examiner.

“Technology can certainly expedite the claims process, but that could also lead to even more cases being heaped on examiners,” Holden said.

“So while the intent is to make things more streamlined for claims staff, the byproduct is that management assumes that examiners can now handle more files. If management carries that assumption too far, you risk diminishing returns and examiner burnout.”

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By further taking real people out of the equation and reducing personal interaction, Holden says technology also contributes to deteriorating customer service.

“When I started more than 30 years ago as a claims examiner, I asked a few of the seasoned examiners what they felt had changed since they began their own careers 30 year earlier. Their answer was unanimous: a decline in customer service,” Holden said.

“It fell to the wayside to be replaced by faster, more impersonal methodologies.”

Insurtech may improve customer satisfaction for simpler claims, allowing policyholders to upload images with the click of a button, automating claim valuation and fast-tracking payment. But for complex claims, where the value of an insurance policy really comes into play, tech may do more harm than good.

“Technology is an important tool and allows for more timely payment and processing of claims, but it is not THE answer,” BHSI’s Crowe said. “Behind all of the technology is people.” &

Katie Dwyer is an associate editor at Risk & Insurance®. She can be reached at [email protected]