Australia’s contingency insurance market is maturing, with the increased awareness of contingency risks and insurance policy options driving a marked increase in the take-up of contingency insurance in recent years, according to local specialist insurer Beazley.
Beazley has seen steady year on year growth in the number of contingency policies among its clients – with a 23.8% growth in 2014 on top of strong growth in the previous year.
Beazley Head of Contingency Australia Damian Kerin attributes the growth to two factors: Public interest in extreme weather events, and growing understanding of contingency insurance by event organisers.
“Extreme weather events like floods and bushfires have been very expensive, and have prompted many businesses to consider how these types of risks affect their businesses. Even without extreme weather events, rain can significantly impact turn-out and revenue for events such as fun-runs or outdoor festivals,” Mr Kerin said.
“The events and advertising industry is also becoming more aware of the many contingency insurance covers available and how they can be used. A few years ago, the majority of our book was event cancellation, while today we see growing interest in other policies designed to attract customers, such as prize indemnity,” Mr Kerin commented.
Growing interest in liability and prize indemnity insurance
The majority of Beazley’s contingency policies were to cover event cancellation risks, which made up approximately three quarters (76%) of all claims in 2014.
Event cancellation is popular among event managers, who need to neutralise risks that can lead to severe financial loss and negative impact to reputation, including natural hazards and weather risks (flood, bushfires), terrorism, requisition of venue by a public authority, public health (e.g. communicable diseases such as ebola), fire and so on.
The remaining quarter of contingency risks insured include: non-appearance (14%), prize indemnity (8%) and liability (2%).
In particular, Mr Kerin believes prize indemnity will grow in the Australian market as advertisers and sponsors look to offer large prizes. Prize indemnity insurance is designed to help organisers offer promotions and prizes, as well as protect them from over-redemption when promotions have greater than expected take-up rates.
Beazley says growth of event cancellation and prize indemnity would signal a mature contingency insurance market.
“Prize indemnity insurance is usually popular in developed insurance markets, however it is poorly understood in Australia. We think it will become more prevalent as companies look more closely at their marketing or promotions budgets and consider how they can offer larger prizes without the cost,” Mr Kerin said.
“Greater use of prize indemnity is a sign insurance buyers are using contingency insurance to its full potential as a viable business tool to drive increased sales and revenue, rather than treating it as a compulsory grudge purchase”
Importance of tailored approach
Mr Kerin also emphasises the importance of a tailored approach in contingency insurance, due to the unique and one-off nature of many events.
“Our customers value Beazley’s experience in this area, and our ability to provide a bespoke policy for their event, as opposed to a one-size-fits-all approach. Our policies provided in an easy read format can be tailored against very specific outcomes, such as the ticket revenue, exact temperature or level of rainfall,” Mr Kerin said.
Beazley’s specialist approach to contingency insurance is further underpinned by investing in a comprehensive global database of weather statistics to support the pricing of weather products and event cancellation covers.
Backed by the global capital strength and scale of Lloyd’s of London, Beazley is able to offer a wide range of policies from its local underwriting team in Australia.
Beazley’s local team in Australia has been underwriting contingency risks since 2010.