Boomtown is the latest festival to fold over insurance row
Boomtown 2021 is the latest large-scale UK festival to cancel it’s event this summer, citing a lack of insurance to cover COVID-19 last minute closures.
The UK festival industry has been dealt a series of severe blows this year following the news that despite being allowed to go ahead, the events will not be offered government underwritten COVID-19 insurance should restrictions prevent the events from taking place at the last minute.
So far, Glastonbury, Shambala, Blue Dot, BST Hyde Park, Download and the Bristol Harbour Festival, among others, have all pulled the plug on their 2021 events, citing a lack of insurance as the reason for their withdrawal.
In a statement earlier today, explaining the decision to cancel its 2021 festival, the organisers of Boomtown said, “After almost half a year of collective campaigning to the government, sadly COVID specific cancellation insurance for events still does not exist at this point in time. This means anyone putting on an event this year, will be doing so without the safety net of insurance to cover them should COVID prevent them from going ahead in any capacity.”
Festival industry experts argue that the amount of cover they would need to underwrite the cancellation of an event, is far lower than the revenue generated by the industry should the events go ahead, because they support thousands of UK small businesses and charities.
Ideally, a government-backed indemnity scheme that operates as a form of Covid insurance by providing financial support if festivals are affected by coronavirus, similar to a scheme that has kept film and TV production rolling in the UK, would solve the issue.
Other European countries are supporting their festival industries. In December, Germany announced a €2.5bn (£2.3bn) event cancellation fund to support event organisers.
Massive losses for the festival industry
Last year, the UK festival industry lost 90% of its revenue due to COVID-19 cancellations. Hopes that it will be able to bounce back in 2021 have been largely dashed by the lack of insurance underwriting from the UK government.
In January, Jamie Njoku-Goodwin, chief executive of UK Music, warned, “Lack of notice and available insurance options will mean much of the 2021 summer music season can’t go ahead. The clock is ticking, and any day soon we could see major festivals and events start pulling the plug for lack of certainty. There will need to be a concerted effort from industry and the government together.”
However, on March 25th, the UK government defended its decision to not to provide state-backed insurance to music festivals and other large-scale events after restrictions are lifted. Culture Minister Caroline Dineage said that although the film and TV industries were receiving government support, the risks in COVID-19 preventing filming were small compared to the festival industry.
However, many promoters are already on the financial brink after cancelling their 2020 festivals and will not be able to survive the heavy losses incurred due to their events being cancelled this year.
Boomtown organisers described the situation as complex, saying, that going ahead without insurance would be a "huge gamble into an 8-figure sum.”
They added, “Unfortunately, without any clear indication of what size events will be able to take place, and the conditions in which we will be able to operate, we have come to the conclusion that time has simply run out for us to be able to proceed in a way that would live up to our high safety and production standards for the event we had planned.”
Insurtechs are winning the race with legacy system companies
Nestled in its own place within the world of financial services, insurance is arguably more unpopular than retail banking.
That’s hardly surprising given that, from a customer service perspective, insurance is something of an off-kilter transaction. You pay a sizable premium in exchange for a service you hope you will never have to use. This image problem is exacerbated by ubiquitous tales of insurers not paying out when it is time to make a claim.
The insurance sector has long been due to an overhaul, and this is where the disruptive force of insurtech comes in - one of fintech’s most upwardly mobile subcategories. Accordingly, last year, insurtech in the UK alone attracted £262m in investment, a growth of 60% on 2019, according to Tech Nation. Insurtech’s momentous growth has been captured in a new report by The AI Journal exploring this burgeoning sector.
What exactly is insurtech?
Put simply, insurtech refers to technological innovations that seek to make insurance cheaper to buy and more efficient to use. In a similar vein to fintech, the large, established institutions have been dipping their toes into insurtech, but it’s the disruptors who are genuinely looking to shake up the status quo, diving into and exploiting those areas that traditionalists have little imperative to explore.
Examples are price comparison sites (one of the earliest forms of insurtech that was eventually snapped up by the insurers it initially sought to disrupt), claims software, customisable policies, or even smart-tech-enabled dynamic policies whose premiums can fluctuate depending on changing circumstances.
The latter, for instance, could use someone’s fitness tracker or smartwatch to monitor fitness levels, thus reducing the premium of a life insurance policy; or track a GPS system that records the location of a car and assesses risk levels accordingly.
Most consumers tend to shop around for their insurance needs and perhaps end up buying their contents insurance with one provider, their car insurance with someone else, and their pet insurance with yet another underwriter. Managing all these different policies, with their varying renewal dates and payment terms can be complex. This has led to the increase in apps that pull everything together.
More prosaically, insurtechs are developing AI that uses machine learning to act as an insurance broker, eliminating the need for a human intermediary and therefore offering more cost-effective and impartial advice.
Insurtechs and risk
But there are some obstacles in the way of insurtech’s continued evolution.
Insurance companies are averse to risk. Understandably so, as at the crux of the industry is the role of the actuary, whose job it is to analyse and measure the probability and risk of future events. So it’s little wonder that there’s a reluctance among the traditional players to welcome the disruption that insurtech brings.
Insurance is heavily regulated, a minefield of legality and labyrinthine jurisdiction, which means the idea of shaking it up can be anathema. And why would they, when their old-school business models are working perfectly fine?
There’s an understandable nervousness and unwillingness to work with startups, who themselves need to work with the bigger firms in order to underwrite risk.
While it seems like a catch-22 situation, there is growing, if cautious, interest from insurance companies, who can see the benefits of insurance with a friendlier face, innovative solutions, and a competitive edge through differentiation. As that tentativeness dissipates, the growth of insurtech will gather even more momentum.
Tom Allen's analysis is based on the findings of a new report on the fintech and insurtech industries produced by The AI Journal.