Posted by Liz Holtby, Vice President, Operations, Meeting Escrow Inc.
“If we purchase event insurance, should we also consider escrow accounts for our advance deposits?” This is one of the top questions we get asked by clients.
The answer is a definite “yes”!
You should consider both solutions because event insurance and advance deposit escrow are different but complementary components of a solid event risk management strategy.
Here are 3 things every planner should know about these 2 options:
#1. Key Difference: Insurance is Risk Mitigation, but Escrow is Risk Avoidance
Event insurance “mitigates” (or reduces) the impact to your organization if something bad happens.
Examples:
A) If a physical accident like a rigging collapse causes bodily injury or death, 3rd party liability coverage can mitigate the exposure your organization might face from civil lawsuits.
B) If a major weather event stops your keynote speaker and a certain number of attendees from reaching your event location, insurance can mitigate the impact to your organization by replacing a percentage of the lost revenue.
Advance deposit escrow protection, on the other hand, avoids any risk to your organization’s capital by holding the funds you’ve committed to guarantee hotel rooms or venue space in a secure escrow account until program delivery. No matter what happens, the deposits will not be in harm's way.
Insurance mitigates the impact of a wide range of risks whereas advance deposit escrow avoids financial risk.
#2. Key Similarity: Insurance & Escrow costs must both be reasonable compared to the protection provided
Event insurance is paid in the form of a premium based on the amount of coverage required.
Similarly, escrow accounts typically involve a minimum account fee and a percentage of the funds being held in escrow.
In both cases, the cost of the protection must make sense in terms of the protection you are getting.
Examples:
A) If your organization wants to insure $100K in attendee registration revenue, and the event insurance premium is $50K (50% of the $100K in revenue), you likely won’t purchase the insurance. But if the premium is only $500 (0.5%) you would likely consider it.
B) If you have $36K in advance deposit commitments for your venue and hotel contracts, and the escrow fees are quoted at $12K (33% of the $36K in deposits) you probably won’t move forward. But if the fee was only $1,200 (3.3%) you would likely consider purchasing the protection.
Event insurance premiums and event deposit escrow fees must both be reasonable compared to the protections offered, otherwise, they will not provide sufficient value to your organization.
#3. Key Difference: Insurance provides value with a negative outcome, but advance deposit escrow provides value with negative and positive outcomes.
Event insurance is designed to protect you in case of a negative outcome (physical injury, loss of revenue, reputation damage etc.). If nothing happens (always a good thing), there is no additional benefit.
Advance deposit escrow protects your company's deposits (which would normally be paid directly to suppliers and most often used for cash flow) in case of default or other catastrophic events (a negative outcome). However, in addition, because your organization also retains beneficial ownership of the funds, your balance sheet and debt covenants are strengthened, and your opportunity costs are reduced because you earn interest on the deposits (a positive outcome).
Event insurance provides value with a negative outcome, but escrow offers value with negative and positive outcomes.
Summary
Meeting Escrow's advisors will help you analyze your risk management needs and advise the best strategy and most cost-effective solutions. Our Advance Deposit Escrow solution, combined with event insurance provided through our strategic partners, will ensure your organization can move forward safely and securely with in-person, hybrid, or virtual events as we begin the road to recovery from the COVID pandemic.
For more details on Meeting Escrow’s Solutions, please contact info@meetingescrow.com.