With sex-centric event organisers struggling to access insurance, insurers are being accused of turning their backs on the new breed of sex-related organisations
It seems that the insurance market has emerged from the Covid-19 pandemic with a very different appetite for sex, with companies operating in the sex event industry struggling to find affordable – or any – cover.
Some insurance commentators believe the reluctance of insurers to write business which they view as sexually-related is indicative of a misuse of the moral hazard objection and signposts a potential area where insurance is failing to keep up with the times.
According to financial website Investopedia, “a moral hazard is an idea that a party protected from risk in some way will act differently than if they didn’t have that protection. In the insurance industry, [a] moral hazard occurs when insured parties take more risks knowing their insurers will protect them against losses”.
A well reported example of this conundrum centres around sex party company Killing Kittens, which organises masked, women-only sex parties. The business, which launched in 2005, is now part of a growing marketplace that includes other sex-linked, female-only event organisations, such as Lady Liquid Love and Skirt Club.
Killing Kittens was vocal in its struggles to find cover for its events last year, however industry insiders told Insurance Times that the issue is not as straightforward as it seems.
Had Killing Kittens simply wanted cover for its UK operations, cover could have been found without much difficulty. However, the organisation also hosts events in the US - and it is this cover which is more difficult to find.
Killing Kittens and Skirt Club both declined comment when approached by Insurance Times.
A ‘reputational problem’?
The publicity surrounding Killing Kittens’ cover struggle has initiated a bigger debate over the insurance industry’s approach to sex-related risks and the use of the moral hazard objection as a reason not to provide cover.
Marc Loud, partner and commercial manager at broker Park Insurance, which has expertise in supporting companies in the sex industry, said the post-pandemic insurance market has made it more difficult to place risks associated with sex event organisations.
“We have seen capacity leave the market,” he told Insurance Times.
“It has always been complex. For risks such as Killing Kittens and swingers’ clubs, there is capacity out there. However, it is the liability areas which cause the biggest problem.
“We are seeing a rise in popularity for sex clubs. The concern for some insurers is that these clubs may contain high profile individuals - should there be a cyber attack and membership details are stolen and publicised, [this could create] some large exposures.”
Loud added that for other areas of the market - such as gay saunas and sex shops - there are licensing and liability issues.
If the sauna is licensed as an adult company, then there is less of a problem to find suitable insurance. If it is licensed as a leisure or fitness organisation, however, then insurers will be more reluctant to provide cover, Loud noted.
He explained that for sex shops, the rise in the importation of goods from China has created problems for insurers to pursue claims around product liabilities, which has put further pressure on the ability of these organisations to obtain cover.
However, Loud thinks the coverage problems run deeper still.
He said: “I believe insurers do not want to be identified as providing cover for such companies.
“It is more of a reputational problem for insurers. They do not want to be identified in claims which may generate publicity.
“In the past, the way they have circumvented the issue is to move the risks to MGAs. They provide the capacity, but it is the MGA’s name which is on the policy.”
Loud’s views appear to have some validity - none of the insurers approached to discuss the application of moral hazard restrictions were willing to comment for this article.
Addressing unconventional client risks
Brokers believe that the reluctance from insurers to engage with the new breed of sex-related event organisations gives rise to concerns that the industry is not keeping up with society’s changing attitudes.
Ashton Lark group chief executive Peter Blanc said the insurance industry is being too quick to dismiss risks, rather than seeking solutions that address clients’ needs.
“The approach to moral hazard has changed,” he explained.
“In the past, if a person who had been convicted of fraud numerous times was seeking insurance, the underwriter would rightly view them as presenting a moral hazard.
“Where firms are doing nothing illegal but may be viewed to be in areas which could be considered controversial, insurers are using the moral hazard defence to refuse cover.
“Killing Kittens is a case in point. As an industry, we should not simply be looking to refuse cover because it is not deemed to be conventional. As an industry, it should be a case of how we work with these new companies to meet their insurance needs.”
Blanc added that “my challenge as a broker and the challenge for insurers is to seek to solve risks to allow businesses to operate”.
He continued: “Insurers will refuse to accept such risks, yet in their annual reports will been keen to publicise how much they embrace diversity and inclusion.”
Blanc said the pandemic has not help brokers’ cause here either because of the lack of in-person communication with underwriters.
“Prior to Covid, brokers [that were looking to place a] risk that could be seen to be less attractive would often meet with the underwriter [to discuss] five risks - four of which would be very straightforward and attractive. [They] would [then] look to collaborate with the underwriter to place the [fifth risk]. That has been harder [to do] with the lack of face-to-face meetings,” he explained.
Despite the challenges around insuring the sex event market, Blanc feels this is an area that needs to be tackled by the insurance sector.
He said: “We have a role to play in society to support [businesses] and if the risks are properly managed, we should be approaching them with a view as to how we can work to meet their needs.
“If that means we need to innovate, then we innovate.
“Society is changing and we need to recognise those changes and assess the risk on its merits.”
Case study: Swingers’ club sees cover cost nearly double
Andrew* has been running a members club for couples in the east of England for over a decade. In recent months, he has found the issue of insurance to be a major challenge.
From its small beginnings, the club has now grown significantly and with the need for a larger premises has come the requirements for more insurance - something that has been a real struggle to obtain.
“The past two years saw the company have to cease operation due to the restrictions around Covid-19”, Andrew told Insurance Times.
“However, our members have been loyal and were keen to see the events resume. What we did not envisage was the huge rise in applications for membership we have received since the restrictions around indoor events have been lifted.
“It has shocked us all in terms of the numbers.”
When Andrew sought to renew the insurance covers required to operate the club’s events, he came up against a change in the willingness of underwriters to provide cover.
“My broker, which has been working with us for the entire time we have been operating, said he had struggled to get cover, especially given that we were now in a position to host bigger events,” Andrew said.
“It took far longer than we had hoped, but he did eventually get a policy for us – [however], it was almost double the cost of our previous one.
“Our broker said some of the insurers that would have provided a policy before the pandemic are no longer willing to do so and prices have increased for all types of insurance.
“Thankfully we have been able to offset the costs with the rise in membership income, but I am worried if there are more price increases next year.”
*Name has been changed.