Protecting Critical Association Revenue Streams: Managing the Risks of Event Cancellation

By Brian Lynch • April 17, 2018

In many cases, annual conventions and trade shows represent the most significant revenue-generating opportunities of the year for associations. These special events are of the utmost importance to any association that relies on this revenue stream. So what happens when unforeseen circumstances – such as inclement weather or communicable diseases – cause these special events to be cancelled or experience a dramatic decline in attendance? This is an issue association executives and meeting planners have been working hard to address more frequently with the recent string of natural disasters and concerns about terrorism our country has been seeing in the news as of late.

The good news is that the risk of an event cancellation can be drastically reduced with some careful planning. Many associations are finding that event cancellation insurance is a critical solution to protect against financial consequences in the face of an event cancellation or crisis that curtails participation. Without an event cancellation policy in place, associations can be left with substantial revenue shortfalls that could have lasting effects on their operating budgets and also compromise their ability to deliver important member services.

What is event cancellation insurance?

So what exactly is event cancellation insurance, and how can you go about obtaining a policy to protect your association? Ames & Gough has reviewed a number of policy forms offered by carriers offering event cancellation insurance. In this article, you will learn about the protection it can afford your association when you’re faced with circumstances beyond your control.

Event cancellation policies can be structured to provide coverage for circumstances that include severe adverse weather (hurricanes, tornados, floods, etc.); acts of terrorism; venue unavailability due to fire, earthquake, structural collapse, gas leaks and flooding; labor strikes, including a transportation strike that would prevent members from attending; power blackouts and wildfires; communicable disease and pandemics; the non-appearance of a key speaker or entertainer; major riots and civil commotion; and national mourning. Event cancellation insurance can be arranged to protect gross revenue and the expenses incurred for hosting one or more functions. Events of any size can be insured, and many associations opt to cover events that are expected to generate $100,000 to $50 million in revenue – or more.

Types of coverage

Associations generally have the option to obtain coverage of anticipated revenues and/or expenses. Many opt for both the revenue and expense coverage; however, they may choose not to fully insure both revenues and expenses due to the fact that most event cancellation policies automatically provide an additional 20 percent sublimit for “financial commitments.” These commitments include costs and expenses for which the insured association is contractually liable, such as hotel room blocks, food and beverage contracts, and meeting room rentals. Thus, organizations generally reduce the overall coverage limit purchased to recognize the presence of this financial commitment coverage. Before making such a decision, be sure the insurance policy you purchase includes a “financial commitments” sublimit and that you understand how it will apply to your specific situation.

Event insurance rates

Premium rates for event cancellation policies generally range from 1 to 2 percent of the total projected revenue expected from the insured event. However, there are a few factors that can affect these costs that your association should consider, such as:

  • The geographic region. Events being held in areas vulnerable to windstorm, earthquake and other natural disasters may see higher premiums.
  • Time of year. Seasonal weather and climate conditions bring more risk, and events scheduled in certain areas during those times of year may have higher insurance costs.
  • Number of events. A concentration of events in a certain region during a risky time of year may result in higher premium, while several events spread over time and different geographies may help reduce costs. Thus, it’s often preferable to purchase coverage sooner rather than waiting.

To manage costs, associations with multiple events often can obtain better pricing by packaging the events of one, two or three years together under a single insurance policy. This gives your broker the advantage of volume leverage in negotiating more favorable rates with insurers.

These conferences and other special events play a critical role in generating the revenues associations need in order to maintain their operations and to provide all of the services they’re able to offer. There is no question that, with careful planning and by working with an experienced broker to put the appropriate coverage in place, associations can manage their risk and protect their revenue streams. Although these unforeseen circumstances can have devastating financial consequences for associations, purchasing an event cancellation policy can provide the critical protection they need. Organizing an event of any size without a backup plan could prove a lot more costly than anyone would have imagined.

About The Author

Brian C. Lynch is a Client Executive at Ames & Gough and the leader of the association/non-profit division, located in the Washington, DC office. He joined Ames & Gough in 2016, having more than eight years of insurance industry experience and bringing an in-depth understanding of executive liability exposures and coverages, providing insurance placement, renewal planning, carrier negotiations and related client support services. Previously, Brian was a vice president with Boston Insurance Brokerage, Inc.  Brian holds a Management Liability Insurance Specialist (MLIS) designation. Additionally, Brian is a consultant member of ASAE as well as an ASAE Young Professional member. Brian earned a B.A. degree in broadcast communications from Elon University in 2006.