Specialty Insurance

Event Cancellation Insurance is Pricey: But Oh-So Necessary

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

4 Companies That Rocked It by Treating Injured Workers as Equals; Not Adversaries

The 2018 Teddy Award winners built their programs around people, not claims, and offer proof that a worker-centric approach is a smarter way to operate.
By: | October 30, 2018 • 3 min read

Across the workers’ compensation industry, the concept of a worker advocacy model has been around for a while, but has only seen notable adoption in recent years.

Even among those not adopting a formal advocacy approach, mindsets are shifting. Formerly claims-centric programs are becoming worker-centric and it’s a win all around: better outcomes; greater productivity; safer, healthier employees and a stronger bottom line.

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That’s what you’ll see in this month’s issue of Risk & Insurance® when you read the profiles of the four recipients of the 2018 Theodore Roosevelt Workers’ Compensation and Disability Management Award, sponsored by PMA Companies. These four programs put workers front and center in everything they do.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top,” said Steve Legg, director of risk management for Starbucks.

Starbucks put claims reporting in the hands of its partners, an exemplary act of trust. The coffee company also put itself in workers’ shoes to identify and remove points of friction.

That led to a call center run by Starbucks’ TPA and a dedicated telephonic case management team so that partners can speak to a live person without the frustration of ‘phone tag’ and unanswered questions.

“We were focused on building up a program with an eye on our partner experience. Cost was at the bottom of the list. Doing a better job by our partners was at the top.” — Steve Legg, director of risk management, Starbucks

Starbucks also implemented direct deposit for lost-time pay, eliminating stressful wait times for injured partners, and allowing them to focus on healing.

For Starbucks, as for all of the 2018 Teddy Award winners, the approach is netting measurable results. With higher partner satisfaction, it has seen a 50 percent decrease in litigation.

Teddy winner Main Line Health (MLH) adopted worker advocacy in a way that goes far beyond claims.

Employees who identify and report safety hazards can take credit for their actions by sending out a formal “Employee Safety Message” to nearly 11,000 mailboxes across the organization.

“The recognition is pretty cool,” said Steve Besack, system director, claims management and workers’ compensation for the health system.

MLH also takes a non-adversarial approach to workers with repeat injuries, seeing them as a resource for identifying areas of improvement.

“When you look at ‘repeat offenders’ in an unconventional way, they’re a great asset to the program, not a liability,” said Mike Miller, manager, workers’ compensation and employee safety for MLH.

Teddy winner Monmouth County, N.J. utilizes high-tech motion capture technology to reduce the chance of placing new hires in jobs that are likely to hurt them.

Monmouth County also adopted numerous wellness initiatives that help workers manage their weight and improve their wellbeing overall.

“You should see the looks on their faces when their cholesterol is down, they’ve lost weight and their blood sugar is better. We’ve had people lose 30 and 40 pounds,” said William McGuane, the county’s manager of benefits and workers’ compensation.

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Do these sound like minor program elements? The math says otherwise: Claims severity has plunged from $5.5 million in 2009 to $1.3 million in 2017.

At the University of Pennsylvania, putting workers first means getting out from behind the desk and finding out what each one of them is tasked with, day in, day out — and looking for ways to make each of those tasks safer.

Regular observations across the sprawling campus have resulted in a phenomenal number of process and equipment changes that seem simple on their own, but in combination have created a substantially safer, healthier campus and improved employee morale.

UPenn’s workers’ comp costs, in the seven-digit figures in 2009, have been virtually cut in half.

Risk & Insurance® is proud to honor the work of these four organizations. We hope their stories inspire other organizations to be true partners with the employees they depend on. &

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