Individual sport and entertainment attractions have distinct insurance needs that make traditional actuarial and underwriting approaches insufficient. Insurers needs to customize policies according to the unique risks present at different events.
In the article “Insuring a lazy Saturday afternoon: Insurance for entertainment,” Milliman’s Will Carbone uses a hypothetical family outing to frame the distinct insurance needs associated with a county carnival and a baseball game. Here is an excerpt:
On Long Island, traveling carnivals pop up in parking lots all summer long, attracting kids of all ages and fans of Americana. On this sunny Saturday, I packed up the family and we headed down to the train station, the site of this weekend’s festival. My oldest son let us know definitively that our first stop would be the bouncy houses he loves so dearly. Much to our dismay, this particular carnival had all sorts of rides, games, and food, but did not have a single inflatable attraction. “Where is the bouncy house?!”
“Well, not all carnivals have the same rides,” I tried to explain.
This example highlights the difference between providing coverage for traveling carnivals, theme parks, and other one-off facilities compared with a franchised location. With few exceptions, each of these entertainment spaces was tailored to maximize profit.
For small, mobile operations, this means selecting the rides and games that will make them attractive to the host facility. For the insurer providing cover for the carnival, this means that the pricing needs to be done on a more granular level. Typically, the approach is to price the coverage for each attraction rather than for the collective carnival. A premium is determined for each attraction, and the cost of coverage is based on the sum of the premiums for the attractions at the carnival. This simplifies the underwriting efforts as a unique quote is only needed once for each attraction and does not need to be tailored to each insured.
Pricing individual rides becomes difficult when the ride itself is a unique risk. Larger scale operations seek to provide the big thrill that will draw in crowds. Those big thrills are coming not from tried-and-true roller coasters but from the cutting-edge rides that are considered a “one-of-a-kind” experience. By definition, these rides don’t have a credible history on which underwriters can gather data and price the risk, increasing the challenge of pricing these facilities.