RETHINKING RISK FOR LIVE EVENTS: An Event Production Insurance White Paper
To position your staging company for growth and success you need to be able to accurately assess the risk of accidents and safety-related challenges. Risk assessment becomes especially important in a booming event market where even more is at stake. Here’s how to do risk assessment and prepare the proper strategy to protect your business.
Staging company executives are good at calculating the TCO (total cost of ownership) of the latest new projector or other piece of gear they’re thinking of adding to their arsenal of equipment. But do they follow the same due diligence when it comes to risk assessment and protection strategies as they do when shopping for a new 40K lumens projector? Even in a healthy market, staging companies can only be profitable when they properly manage the risks on the business/operations side. Shifting industry dynamics, high-profile accidents with industry-wide repercussions, the increasing number of outdoor events, and escalating safety-related liability exposure have all changed the business landscape. A staging company can only prepare for every contingency if it is up to speed with the latest best practices for risk reduction. These best practices include: examining the cost of not doing the right kind of risk assessment; moving insurance costs from an operating expense line item to a strategic expense; determining the right formula for insurance costs as a percentage of total costs; properly evaluating RFQs when choosing among competing quotes for insurance coverage; and partnering with the right kind of insurance provider.
The Cost of Not Doing the Right Kind of Risk Assessment
AV staging companies are front-line, demanding users of the latest AV technology—high lumen video projectors, switchers, audio rigs, rigging gear, and more. But their biggest challenges are much tougher than buying the right gear. In the live-event business, AV professionals face challenges such as managing freelance labor while simultaneously facing state-by-state enforcement of workers’ comp laws. And liveevent staging companies must deal with other nerve-racking challenges such as talent cancellations and unpredictable weather that can delay an event, shut it down, or in the worst-case scenario lead to a major accident or injuries and the inevitable lawsuits that follow. Because AV staging companies are end-users of equipment and producers of intense, temporary events,
they assume much of the risk regarding liability and safety that a customer or end-user in other AV verticals typically bears. In an installed AV job for a football stadium, for example, the venue itself bears most, if not all, of the safety risk when the venue is in operation. In a live concert or corporate event in that same venue, the AV staging company bears more of the risk associated with attendee safety and other regulatory issues. So the cost of not doing the right kind of risk assessment is potentially extremely high. The wrong claim or lawsuit hitting a company could result in disaster. The company could be wiped out (bankruptcy, and/or shuttering of the business) or worse—criminal charges could be brought if the incident is egregious enough and coverage isn’t adequate.
Although North American concert and corporate staging businesses are setting new industry records for growth, it’s a perilous landscape for even the most seasoned staging companies—not just due to insurance risks, but also because of shrinking margins, labor issues such as workers’ comp, and other factors unique to live-event staging. “There are so many more festivals,” says Steve Daniels, owner of staging company I-MAG Video A/V, Inc. “But is it all high cotton for the staging company? Not necessarily. There is less margin. And the landscape is different. A lot more video is now a part of almost all events. And video intensive usually means lots of LED walls, and you can get hurt financially if you’re stuck with older, heavier equipment.” And Daniels points out that it’s even trickier on the insurance side. As state-by-state enforcement of workers’ comp laws has become more aggressive, for example, it’s more important than ever to purchase private insurance from an industry-specific firm.
“State guys cannot do customization of insurance plans,” says Daniels. “You don’t want to ad hoc your insurance, state to state. You want a professional that’s a specialist in entertainment and staging to help you stay away from the landmines. And that means, in my experience, doing umbrella-type coverage, that also includes safety insurance, with a trusted and industry-savvy provider.” Event service firms—whether in entertainment staging or corporate event staging—now face different cost structures, with increased and different business costs. One example is the new Affordable Care Act, that affects the hiring of, and benefits for, staff. Under the Affordable Care Act, if an IC (independent contractor) works for a staging company on any consistent basis the law now requires the employer to offer healthcare coverage to that IC as if he or she were a full-time employee. This has serious implications for AV event service firms who tend to hire the same technical experts over and over.
So staging companies have to examine the new laws and the costs and procedures involved with hiring only those firms who carry their own insurance. Then they need to determine if it would be more cost-effective to deal with those companies over time (because they too have rising costs, such as insurance) than it would be to continue to hire individual freelancers in the traditional way. “State governments, also, are now forcing more costs onto the staging company,” says Richard Oster, owner of the major staging company POW Productions. “Whether from the patchwork of workers’ comp rules, or other labor laws, it’s so complex that we outsourced all our personnel to a third party PEO (professional employment organization). Also, the business models have changed on the client side. On big tours, they all have accountants that are all about the bottom line—it’s much more competitive now and less relationship-based than it was in previous years.”
Daniels, Oster, and all staging company owners and managers agree that the days of a show producer hiring an independent contractor (staging company) who doesn’t carry his or her own insurance are gone, because the downstream ramifications can be catastrophic.
Consider the Indiana State Fair stage collapse in 2011. Before a scheduled performance by Sugarland at the Indiana State Fair in August 2011, a wind gust from an approaching severe thunderstorm hit the stage’s temporary roof structure, causing it to collapse. The structure landed among a crowd of spectators, killing seven people and injuring fifty-eight others. According to the final incident report released by Thornton Tomasetti, the failure was due to the inadequate capacity of the lateral load resisting system, which was comprised of guy-lines connected to concrete “Jersey barrier” ballast. In December 2014, the law firm representing victims of the Indiana State Fair stage collapse reached a settlement totaling nearly $50 million. In all, nineteen companies were part of the settlement. (A twentieth company named in the class-action lawsuit, ESG Security, headed toward trial in 2015.) Also in December 2014, attorneys for victim Jordyn Polet asked the Indiana Court of Appeals to throw out the law that limits the amount of damages the state can give out after a tragedy. Indiana law caps compensation at $5 million, although in 2012 the General Assembly voted to make an additional $6 million available for victims of the 2011 stage collapse. Unfortunately, incidents like the Indiana State Fair stage collapse have been mirrored in other industry accidents. In 2012, criminal charges were brought against Toronto-based Optex Staging and Services following a scaffolding collapse at Toronto’s Downsview Park hours before Radiohead was scheduled to play on June 16, 2012. The Ontario Ministry of Labor laid thirteen criminal charges against three companies and one engineer in connection with the fatal stage collapse—Live Nation Canada Inc., Live Nation Ontario Concerts GP Inc., Optex Staging and Services Inc., and an unidentified engineer.
Managing Risk: Best Practices in Live-Event Staging
These high-profile disasters in the staging world have moved the staging industry toward adopting new best practices to deal with risk. AV staging company executives today view the insurance cost paradigm differently. Insurance cost, they now believe, should no longer be an operating expense line item. Rather, insurance is a necessary and strategic expense and the question they are asking is: “What if I don’t protect my company properly?” The focus now is on an event safety mindset 24/7. In the past, stagers asked, “If I buy an insurance policy, am I considered a safe vendor?” And the answer? Not necessarily. Insurance companies are starting to pay more attention to client firms’ internal best practices and to reward those companies that follow them. Insurance companies ask whether the executives are driving safety throughout the company, starting with management, and then driving that mindset through to the technicians. Every company needs to have documented safety education and safety contingency regimes in place for all staff, from executives and technicians to freelance laborers. Safety education for live-event staging companies is getting a big boost from the Event Safety Alliance (ESA, eventsafetyalliance.org), working in harmony with other industry associations such as PLASA. The scope of the ESA is the standardization of safety practices within the staging and live-event industries. The ESA acts as a source of information on best practices for safety for live events and publishes the Event Safety Guide (available on eventsafetyalliance. org.) The best practices contained within this guide are scalable regardless of venue or type of event. The guide addresses, for example, rigging best practices that are generally applicable regardless of event type or venue—concert or corporate event, indoor or outdoor. The ESA’s Event Safety Guide evolved in response to a series of accidents within the live-event industry. The goal was to formulate a series of best practices culled from the experience and insight of top professionals within the event industry, as well as from relevant life safety standards currently applicable by groups such as OSHA, NFPA, ICC, and PLASA. PLASA and the ESA, for example, have publicly announced their mutual support for each other’s efforts. PLASA’s central focus is the creation of necessary equipment technical standards and protocols. The ESA concentrates on the human side and smart decision-making. By encapsulating and disseminating the work of PLASA, OSHA, NFPA, ICC, and other standards-writing bodies, the Event Safety Guide consolidates the majority of the industry’s best practices and sources in one resource. The ESA is proactive on other fronts as well. The organization hosted the first-of-its-kind Summit for Safety Event Leadership Training in New York in late 2014. And the ESA recently teamed up with Take1 Insurance, the leading insurance provider to the live-event industry, to host an extensive series of webinars focused on producing safer live events.
Assessing Insurance Options
Driving a culture of event safety throughout your company is essential. But every executive has to plan for unforeseen events and manage risk. How do you assess risk if you’re running a live-event staging company? And what is the cost if you don’t manage risk well? As we’ve seen, the cost could be extremely high. If a large claim or lawsuit hits a company, the company could be wiped out (bankruptcy) or worse—criminal charges could be filed if the incident is egregious enough and coverage isn’t adequate. And while most executives recognize those risks in theory, it’s not easy to assess risk when choosing among competing quotes for insurance coverage. Why, for example, would two of three quotes for insurance coverage be fairly close in terms of overall price while the third is 50 percent less? What coverage is missing from the third quote that has been included in the other two? Automatically taking the cheapest insurance option, when the ongoing business as well as peoples’ lives may be at stake, is not a good long-term strategy. Likewise, paying too much for insurance—because your insurance provider is lumping your business in with more risky ones—is not a wise business decision either. The right formula for protection and successful company growth will rely on known best practices for costs, based on tailoring your coverage to your specific business activity and on allocating the right percentage of your gross income to insurance. As the live-events industry has evolved, patterns have emerged regarding best practices for allocating spending for insurance based on gross income. Generally, spending for most staging companies breaks down as follows: roughly 50 percent of total costs for equipment; 40 percent for labor (staff and freelance); and 10 percent for insurance. But the right formula will result, more importantly, from choosing the right risk management partner in the form of an industry-specific insurance provider that knows the staging business. The right kind and amount of insurance should be determined by what you do. Does your insurance provider understand your business? Does your insurance provider understand the different risk factors for a Tier II (rental with operator) compared to a Tier Ill (rental with operator plus staging)? Does your insurance provider understand how a promoter-someone who is responsible for the spectators, marketing, security, and concessions for a concert or an event-is different from a Tier II staging company or a Tier Ill event service firm that is just doing the rigging? The cost of insurance carried by a promoter may not be as high as the cost of insurance carried by a Tier Ill rigger, simply because the rating methodology is different.
Promoters are often charged insurance rates based on head count because they are generally responsible for everything that goes on inside the four walls of the venue, including spectator liability. Event rental firms are charged differently, with dry rental firms typically charged on the lower end of the spectrum and rigger/stagers on the higher end.
"We're vey meticulous about how we rate event rental firms," says Scott Carroll, underwriter/broker at Takel Insurance and one of the country's top experts on insurance for live-event staging companies. "We don't have one flat rate for an over-the-counter dry rental firm and for a rigger/staging company. That does not make sense. We charge a range of rates depending on our assessment of the exposures associated with the individual firm. A dry rental firm will be charged the lowest in the range of rates, whereas a rigger might be charged the higher rate within the range. It makes more sense to charge a rate against the actual exposure."
Regardless of what those base rates are, staging companies are rewarded or penalized based on practices that produce higher or lower risk exposures than the base rates would warrant. Insurance carriers will apply credits to rates when an insured company does something extraordinary to reduce exposures. One example might be an event rental firm that uses dual drivers instead of just one (similar to having two pilots in the cockpit of a commercial aircraft). Conversely, an insured company that has multiple auto accidents but does nothing recognizable to effect change may have a credit applied to their rate (an additional charge)-or the carrier may not be willing to renew the insured because they don't feel their rates can properly reflect the true risk.
The bottom line when it comes to best practices for allocating spending for insurance is this: the right kind and amount of insurance should be determined by what you do. You need an insurance provider that understands your business.
The AV rental and staging market is experiencing a healthy boom. Business travel is up. Large companies once again have bigger budgets for their corporate meetings. And the entertainment segment of the market is thriving with many more music tours and festivals than ever before. But when it comes to assessing risks and costs associated with management, operation, staffing, and insurance, are stagers really doing all the necessary due diligence? Many are not. AV staging companies and other live-event producers must rethink all costs. Staging companies must ask the hard question: What is the cost of not doing the right kind of risk assessment? At the same time, they must also adopt new industry best practices to further minimize both known and potential risks.
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