Traditional insurance carriers are well prepared with life insurance and disability income plans that fit the needs of most people. If you’re an accountant and become disabled so you can’t work, having a disability income policy can help maintain your normal lifestyle.
But what if you are the rock icons U2, and you’re in the midst of a 110-show, all-stadium tour, destined to be the biggest ticket-selling and top-grossing tour of all time, potentially selling 7.1 million tickets and grossing $717 million? Particularly when you know the tour was delayed from starting last year because Bono had to undergo emergency back surgery. If the surgery had happened during the tour, even missing only three stadium shows could cost a top grossing act like U2 north of $6 million dollars — a tall order for insurance companies to fill.
When the business managers and tour promoters sit down to figure out their potential revenues, they need help protecting their investment from the outset from possible perils of an arduous journey, whether it is inclement weather, death, illness or injury to the artist, even a terrorist attack. Adequate protection for a mega tour absolutely falls beyond the scope of what a traditional insurance carrier can handle, whether it’s for a high-profile rock tour or an up and coming country act performing a summer tour at a string of open air venues.
This is when the focus turns to a handful of companies that are able to provide the high-level of coverage needed when the rich and famous go about what most people would never consider “a normal day at work.”
Coverage for this class of business is known as non-appearance insurance and it’s designed to protect the policy owner if a show, or series of shows is missed, postponed, abandoned or rescheduled.
The insurance is typically underwritten on a broad policy form that covers perils from the death of one or more scheduled artists to venue destruction, and many perils in between. Sometimes it may cover a large single event like a New Year’s Eve concert, where a lot of money is at stake and a simple stomach bug lasting 24 hours can derail the entire event. Other times, insurance may be needed for multi-city mega tours and an entirely different risk profile emerges.
One interesting risk facing insurers specializing in this class of business is the aging population of some of the most productive touring artists. Traditional insurance companies go into a relationship with the knowledge that their client will likely work into their 60s, which isn’t the case with most performers (unless you’re Mick Jagger and still prowling around concert stages nearing 70). Most recording artists have a very short window for top earnings but are incredibly productive when they tour.
All artists come with their own set of challenges to insure. Bruce Springsteen proudly claims “No Surrender” as his epic concerts tend to reach three hours in duration and are rarely missed or rescheduled. When dealing with performers whose cancellation record is not nearly as pristine as Springsteen’s, you have to be more cautious when underwriting a 30-city tour.
As you might expect, we’re seeing much more non-appearance coverage in the music industry, especially when a big act goes out on the road. The artist’s management figures out the potential income from the guarantees plus percentages put up by the promoters, and then they factor in what the loss would be if the artist failed to complete all or part of the tour. Lost shows can be the result of many perils. From voice problems to the death or serious illness of a close relative of the performer, such perils can delay or cause performances to be abandoned.
Other issues include the total number of shows and how close they’re scheduled together, which can put a strain on the singer’s voice, and just overall life on the road, which can be arduous. This was particularly important in 2010, when four of the “Top 10″ highest grossing acts were well into their 50s and 60s.
Careful attention is placed on the artists’ prior non-appearance record, the show schedule and the design that needs to be developed to meet both the client’s and the underwriter’s needs as risk takers. Deductibles, co-insurance provisions and other numerous details come into play. It is clearly part science and part art to develop the design, price and policy form that serves the client, while providing reasonable risk for the underwriters of this class.
For example, Exceptional Risk Advisors, recently had a case in which a famous recording artist was preparing for a worldwide concert tour to promote her top-selling debut album and needed non-appearance coverage beyond what a traditional insurance carrier was able to provide. The coverage protected her from losing potential earnings if she had to cancel a tour appearance due to death, illness or other unexpected events.
Professional business managers recognize the potential risks and magnitude of a possible loss. Each one has their own philosophy as to what they will and won’t insure. Sometimes, this is driven by where the artist is in their career financially. Sometimes, it is based on the past experiences of the business management firm. Most buyers of this insurance typically look to protect a percentage of their guaranteed income (usually 50 percent to 75 percent), while other artists are far more concerned with making sure their expenses are hedged if a show goes awry.
The music industry has a substantial variety of risk management exposures that require a special approach. Fortunately, there are sources available that can provide extremely high-levels of insurance, even for those who, at first glance, appear to be “uninsurable.”