Risk Management

Risk Insight: Sports, Recreation and Entertainment Industry

An Opinion by Philip Cronje, Aon South Africa’s Strategic Account Manager in its Commercial Risk Solutions Division

The Pandemic’s effect on the SRE Sector

The Sports, Recreation and Entertainment (SRE) industry has been one of the hardest hit by the pandemic with large parts of the industry still fighting to survive. Aon’s global COVID-19 Risk Management and Insurance Survey, conducted at the end of 2020, sheds some light onto the SRE sector’s response to the pandemic.

  • Prior to COVID-19, 84% of respondents had not identified pandemic or a major health crisis as a top 10 risk in the company’s risk register. Additionally, 74% of respondents did not have a formal pandemic plan in place.
  • Sixty-seven percent of respondents have seen their business severely impacted and expect it will take significant time to recover — 63% expect the impact to their business to last over a year, and 37% expect it could take longer than 24 months.
  • Forty-two percent of respondents reported a demand-led impact on its supply chain, which is consistent with government restrictions during the pandemic.

The focus in this industry has been on managing the immediate impact of the pandemic. The industry remains deeply concerned about the future macroeconomic shocks that are likely to follow the pandemic. Reduction in spending and travel associated with macro conditions creates future volatility for an industry already hit hard financially by the pandemic. Ongoing government regulations that restrict numbers at events in addition to future geopolitical tensions that may deter or restrict travel have the potential to exacerbate this volatility.

Event Cancellation

COVID-19 has been a seismic shock to the event cancellation market. From the onset of the pandemic, it became very clear that event organisers did everything within their power to mitigate the threat to their events from COVID-19. They invested huge amounts of time, energy and money to do everything possible to ensure their events could continue. However, in most cases, they were met with overwhelming challenges that forced the necessary cancellation of these events. 

Current market estimates put the total loss estimate of the event cancellation insurance industry at around US$6 billion and I expect at least half of market participants (insurers) to have suffered individual losses that are as great as the total market event cancellation losses of 2019.

I do not believe that any event organiser – whether a sports event organiser, business event organiser of trade shows, exhibitions or live music event promotors – will be ready to invest money in staging events until they are sure their event is likely to proceed as planned in a COVID-19 safe environment. It is a huge distance away from where we are right now.

It is, however, giving players in the SRE field opportunity to innovatively reinvent themselves in these trying times, with many shifting to online platforms and small-scale productions that are unique and able to circumnavigate COVID-19 risks. Faced with severe adversity, resilience will prevail, and it is encouraging to see these developments.

Insurance cover in the SRE market

Most organisers of medium to large scale events understand the benefit of buying event cancellation insurance. Communicable Disease cover was always a policy exclusion which could be bought back on payment of an agreed additional premium. Therefore, all organisers had the option to buy the communicable disease aspect of cover if they deemed the cost to be acceptable. Currently, all event cancellation insurers are excluding communicable disease cover and are extremely unlikely to start offering this cover in any worthwhile way.

Lessons are being learned, and changes will be made. Many aspects of event cancellation policy language are being scrutinised, with clause wording that is likely to be amended to provide clarity. The market will develop new ways to consider aggregate communicable disease risk and in the face of this, it is likely that overall market capacity will reduce while premium rates will increase to reflect the new reality.

Innovation in the insurance market will see the development of new solutions to address the need for communicable disease cover. In addition, the need for malicious cyber risk cover is growing in the SRE market as the industry’s dependence on digital platforms grows.

A year later, the SRE sector has a better understanding of the ‘new normal’ in which it now operates. It is also crucial to engage with an expert broker in the SRE sector who understands your need for innovative insurance solutions that offer custom-made coverage and integrated services to guard against the unique and new risks you face in this dynamic and unpredictable sector.

Once the pandemic has passed – and it will pass – we are all looking forward to attending big events such as music concerts, theatre productions, sporting events and exhibitions that have all been noticeably missing from our lives during the last year.

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