Tragedies such as earthquakes, hurricanes -- even airline strikes -- are imminent dangers that can impede your show, or cancel it altogether. Since there is no city where earthquakes never happen, where windstorms and tornadoes don't threaten and where the labor force is always happy, many show managers have disaster plans in place. But some are planning even further -- by using contingency or cancellation insurance, a coverage that has become very popular in the past several years.

At a recent industry meeting, I moderated a panel discussion that included a show manager, an insurance broker, a claims agent and an underwriter. Each panelist has had longtime experience with contingency insurance, despite the fact that few insurance companies offer cancellation insurance on as broad a basis as most exposition managers want.

Insurers usually provide "business interruption insurance," but such a policy limits itself to physical damage losses, which directly affect the building that houses the event.

To be really protected, many other contingencies must be covered: strikes that inhibit attendees from traveling to your destination; unrelated but perceived hazards such as a recent riot that renders the venue unattractive to potential attendees; and severe weather conditions that close highways and airports, preventing attendees from coming at all.

Because there has been a great deal of misinformation about how this type of coverage works, each panelist tried to touch on important facts that show managers should be aware of when evaluating contingency insurance.

The underwriter
The underwriter, Mr. Kelvin Mercer from Lloyd's of London, described his philosophy when he considers an application for contingency insurance: the immediate need is to fully understand the risk, for it is a given in the insurance business that what an underwriter doesn't know, he charges for.

He needs to know if he's being asked to insure a trade or public show, a convention with an exposition, or simply a convention. He wants to know something about the applicant. What's his track record? Have they ever done anything like this before? Underwriters are obviously more comfortable with seasoned professionals than they are with neophytes.

If you've been in the business for awhile, and have been successful at it, it is a point your broker needs to make when applying for your insurance. Next, the underwriter wants to know exactly what the applicant wants to insure. Does he want to insure both his expenses and his expected net profit or his expected net profit only? In fact, most contingency insurance policies are based on anticipated income, because that figure should cover both expenses and profit.

He wants to know where the event is to be held, which hotels or convention centers will be used, the dates of the event -- including the days allotted for set-up and take-down -- and whether any ancillary activities are planned at other locations.

Also, since non-appearance of key speakers or entertainers is also covered under a contingency policy, he will want to know who these people are and whether back-up arrangements have been made if they don't appear.

Mercer pointed out that if you insist on having your event in South Florida during hurricane season, or in California near the San Andreas fault, you are going to pay more, or you are not going to be able to buy insurance at all. Furthermore, if an airline strike is threatened at a particular time of year -- perhaps a union contract is due to expire, and the employers have already indicated that they are prepared to strike -- underwriters may attach a special exclusion. Contingency insurers are willing to pay for unexpected losses, but if at the time you apply for insurance you have selected dates and a venue where special hazards are self-evident, insurance will be expensive or even unattainable.

Mercer also discussed the red flags he looks for on an application. He said his greatest concern is a late application, one presented very close to the event. He immediately wonders if the sponsor knows something he doesn't. But he doesn't automatically turn down late applications, he just needs to know a lot about what's involved and why the request for insurance is coming in so close to the commencement of the event.

Another concern is an overseas event. Does the American sponsor have good representation in the country of choice? Does he have experience in conducting business overseas? Cross-cultural communications can be tricky and will often contribute to a very difficult claim negotiation.

Sometimes the revenues on an application will look out of balance. For example, if the anticipated revenue doesn't appear to meet the cost of expenses, something must be off kilter. Where will the rest of the money come from?

Another concern is if the profit margin is too high or out of normal range. Obviously, a loss to a show with a 50-percent profit margin would be much greater than a loss to a show with a normal profit margin. He would need an explanation of why the profit margin is so high. If the sponsor is skimping on security, decorating services, etc. to build up his profit, the underwriter becomes suspicious.

Finally, with so many hotels and convention centers undergoing renovation or new construction, the issue of incomplete buildings is a concern. Mercer said there is an exclusion for events scheduled to take place in incomplete buildings,but that doesn't mean these risks cannot be entertained. Essential technical information, such as a report from the architect or the contractor and the relationship between the part of the building under construction and the part of the building designated for the event, is necessary to underwrite this type of exposure.

The claims adjuster
The claims adjuster, Geoffrey McGowan of T.T. North Inc. in Chicago, discussed how he would respond if 50-percent of exhibitor time was lost due to a break-down of the air conditioning system during a mid-summer show.

He said he would begin by offering an equitable refund to the exhibitors and an allowance to the sponsor for lost gate receipts. He would also pay for other unanticipated expenses, such as emergency air conditioning equipment, alternate facilities if they were available, extra expenses involved in notifying attendees of the situation, etc.

He was asked if a whole day had to be lost in order to receive a refund. He said he would calculate the loss based on a percentage, or a weighted percentage, of the hours lost, allowing for Saturdays and Sundays being the heaviest days, particularly for a public show.

He was also asked if there was a certain point at which a show must be shut down in order to collect insurance. As long as the booths are set up and the exhibitors on hand, there is no need to cancel a show, he said, even if the attendance is sparse due to a heavy snowstorm. He would pay the claim based on the reduced attendance.

The philosophy in paying these claims is to try very hard to make the sponsor whole, or as whole as he can be made. By the same token, it is not the responsibility of the insurer to make the sponsor more than whole -- in other words, to enable him to profit by the misfortune.

The show manager
The show manager, Jeff Plummer of S & L Production Inc. in Severn, MD, explained that he had had two separate losses within a year, the first uninsured and the second insured.

The first show was in Miami in August, which is the beginning of the hurricane season. In fact, as his South American buyers -- a significant audience for his exhibitors -- were arriving, his show was in the process of being dismantled because of an impending hurricane. He did what he could to make amends, but he had to contend with a rather volatile contingent of buyers who were on their way to Miami when the alert came -- too late to be warned -- as well as a very emotional group of exhibitors who had lost expected sales.

There was no insurance, so Plummer had to deal with the situation the best he could. He took his lumps on the Miami show, he said, but the experience convinced him to buy cancellation insurance for a Maryland Home and Garden Show seven months later.

Unbelievably, an impending East Coast blizzard seriously diminished that show's attendance on Thursday and Friday, and by Saturday there was a full-blown snow storm. Once again, he was faced with distraught exhibitors. But, this time, he was able to send them refunds within 45 days. And the resulting goodwill did two things: made him a host of friends and assured an excellent exhibition participation for the following year.

He was asked if there was a lot of hassle about getting his claim settled. In this case, he said, he was dealing with an experienced adjuster who understood his situation, even though his show was new. Together, they were able to reach an equitable settlement with almost no difficulty.

The insurance broker
While I acted as moderator, I made several observations as the panel proceeded. First, there are few insurers offering broad cancellation insurance, but it can be best accessed through the handful of broker-administrators who advertise in EXPO, all of whom will welcome inquiries directly or from other brokers. Currently, the rates are competitive -- as low as 1/3 of 1 percent based on anticipated revenues.

Next, I urge prospective buyers of insurance to purchase the coverage as early as they can, because a building that has sustained damage can be out of commission for a long time, and a fire in September can sometimes render a building unavailable right through the following August. Also, once the insurance is in place, the possibility of a strike that becomes apparent later will not negate the coverage.

Finally, we discussed exhibitors who complain about the dollar value of the sales they may have lost due to the cancellation or curtailment of an event. Unfortunately, this is something insurers shy away from. It is such an intangible. However, if an individual exhibitor approached an insurer and said he had a proven track record at the show -- for example, at least $25,000 in T-shirt sales for the past four years -- they could probably reach an agreement.

Conventions and expositions are big business, and they're getting bigger. They are significant producers of income for their sponsors, and the fact that this income can be insured is a significant management tool. Contingency or cancellation insurance covers a broad range of contingencies, has very few exclusions and can be an sound way to protect your business.