The renaissance of live music events is fuelling opportunities for contingency insurers worldwide.
Today’s music industry is almost unrecognisable compared to 20 years ago, transformed by the impact of digitalisation. In 2000, music sales accounted for 60% of industry revenue. By 2013 this had dropped to just 36%. The music industry has endured a very public realisation that music sales, once the cornerstone of the industry, can no longer be counted on.
One way to compensate for this loss of income has been the renaissance of live music events. The music industry is now competing with bigger and more expensive shows, drawing in more fans at higher prices. In 2015, the top 100 worldwide tours generated a gross income of $4.7bn (£3.9bn), an increase of 11% on 2014. Taylor Swift topped the list, selling more than 2.25 million tickets, grossing over $250m and playing 83 shows in 53 cities.
Performers now rely on a cult of fans to attend live events, eager to capture the moment with a Snapchat story or Instagram post. This transformation has in turn impacted the insurance industry, specifically the contingency market.
Contingency insurance covers everything from event cancellation, non-appearance of performers, to death and disgrace. It ensures that, if the show can’t go on, the organisers receive compensation for covered losses. This can add up when venue hire, tickets, loss of profits and artists guarantees are taken into account.
A history of self-insurance
Self-insurance by European promoters used to be commonplace. A tour of a major artist is typically tendered to local promoters, who are then responsible for organising the show, venue, and ticketing. Local promoters can spend a lot of money in advance and, therefore, need cover in case the show is cancelled.
As events get larger, the amounts at risk increase. Artists are directly competing with each other and, with tickets ranging from $50 to $150, fans have to prioritise the events they can afford to attend. An exciting, creative and attractive event typically involves significant spending on the set and performance, resulting in escalating costs.
Weather disruptions, terrorism and ageing artists have meant that contingency losses have been larger globally from 2014 to 2016 than in previous years. As the potential risks and costs both increase, local carriers are under greater pressure. Insurers with larger books of contingency risks are now often needed to carry any losses.
Emerging market growth
Artist tours used to focus mainly on Western Europe and the US. However, they are now far more likely to have a more international reach. Recent live events in South America include major bands such as the Rolling Stones, Guns N’ Roses and Aerosmith, all of which require larger contingency cover.
Bigger venues and improved infrastructure in Brazil, following the football World Cup, are making it more accessible and profitable for artists to perform in Sao Paulo, Rio de Janeiro or Porto Alegre. Across Asia, an emerging, more affluent, middle class, with an appetite to attend concerts and festivals, is fuelling a similar trend.
This in turn has provided a growth opportunity for contingency insurers in many new regions.
Artists also want cover
There has also been a rise in artists buying non-appearance cover in case they are unable to fulfil their commitments. Most artists want to cover their guarantees, and many have their own operating companies to help facilitate the insurance, payments and royalties.
The contingency insurance market continues to face a growing demand as the impact of the music industry’s transformation takes effect. Experience and underwriting insight is allowing the insurance sector to continue to innovate, ensuring it remains in a position to support the continued growth of the live event industry, and helping musicians and promoters.
This article appeared in Insurance Post on 8 December 2016.