A combination of Covid-19, aging Baby Boomers, and cash-strapped Millennials are forcing adult nightclubs to rethink their business models in a shrinking market. The liability risks adult entertainment operations face are severe. Other threats require these establishments to protect their operations by including standard business insurance coverage in their adult entertainment risk management planning.
In this guide to Adult Entertainment Insurance Programs, we'll provide details on the types of insurance policies adult nightclubs need to mitigate their risk of loss.
What is Adult Entertainment Insurance & Who Needs It?
Adult entertainment insurance encompasses all varieties of adult bars and nightclubs and the business of adult entertainment video and film production. For purposes of this report on Adult Entertainment Insurance Programs, we will focus on the nightclub side of the company, leaving insurance for adult entertainment film businesses for a separate guide.
According to IBISWorld.com and measuring by revenue, the market size of the Strip Clubs industry in the US is $7.2bn in 2021. Expectations are for a -1.5% decline this year following a 17.4% decline in 2020 because of Covid-19. Without the pandemic, IBISWorld states it would have growth predictions for the adult nightclub industry in 2021.
Adult nightclubs and bars are also known as:
● Strip Clubs, Adult Clubs, and Exotic clubs.
● Gentlemen's Clubs.
- Ladies' Cabaret, and more.
In addition to prudent management practices, many of the coverages included in Adult Nightclub Program Insurance are often a requirement for club owners and operators. There are various types of coverage that adult nightclubs require. The establishments range from lavish clubs with expensive cover charges and valet parking to local bars offering occasional side entertainment. Details of the types of business insurance policies that adult nightclubs need are below.
Club owners are responsible for everything that happens on their premises. A General Liability policy protects them from third-party lawsuits claiming bodily injury, personal injury, property damage, or advertising injury. Examples are a visitor slips and falls on wet stairs, faulty construction fails and causes damage to an adjacent building, a competitor sues claiming the insured's business is using its copyrighted advertising material.
Commercial Property Insurance
- commercial property policy covers losses related to physical assets such as buildings, signs, storage sheds, contents, stock, and inventory. Specifically, it pays for losses from fire, explosion, storms, theft, wind, and vandalism. Exclusions include floods, earthquakes, and wind damage in coastal areas. It is advisable to seek specific coverage for them if the risk applies to the locale.
Liquor Liability Insurance
When establishments serve liquor to patrons, they are subject to Dram Shop laws that make Liquor Liability insurance necessary to protect the business from crippling lawsuits. Victims and survivors seeking compensation will sue the club, claiming it is responsible for drunk driving accidents involving injury, death, or property damage. Because alcohol-related lawsuits often involve grave injury or death, they must defend, making adequate coverage a requisite.
Assault & Battery
When alcohol is on the menu in adult entertainment spots, even a well-run club can have unwanted experiences for its clientele. Assault charges occur when there are verbal or physical threats to a patron, creating rational fear their safety is in danger. Battery is an unlawful use of force to another person, such as punch or kick, or when a patron experiences unwanted touching from staff or another customer. Assault & Battery insurance will help pay legal defense expenses, medical bills, and settlements for claims covered by the terms and conditions of the policy.
Products & Completed Operations
This coverage is also known as Products Liability insurance. Bars and restaurants that serve food are at risk of product liability claims for incidents of food poison. Undercooked food is considered a defective product. If a business offers services, clients can claim the service either harmed them or caused damage property they own. The coverage intends to help pay legal fees and for medical bills related to the claim.
An adult entertainment establishment may need one or both types of coverage for planned events outside of normal business operations and often at off-location premises. Both are typically insured as one-time events.
Event Cancellation Coverage covers unexpected expenses that arise due to a delay or cancellation of the event. The policy can help reimburse the insured business for unexpected costs related to canceling or rescheduling an event. A photographer or DJ fails to appear, and a replacement charges much higher last-minute rates.
Event Liability Coverage helps to pay expenses if the business is at fault for injuries or property damage. An employee backs a van into band equipment causing damages. A guest trips on an exposed electrical wire and breaks a leg. These are examples of property damage and bodily injury claims where Event Liability Coverage helps to reimburse for covered injuries and damages.
Special Events coverage is most often for private functions, including:
● Birthday parties
● Retirement parties
When applicable, Terrorism Insurance is optional coverage added as a policy endorsement or rider. The Insurance Information Institute provides the following description:
Terrorism coverage is a public/private risk-sharing partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. The Terrorism Risk Insurance Act (TRIA), which was enacted by Congress in November 2002, ensures that adequate resources are available for businesses to recover and rebuild if they are the victims of a terrorist attack. Under TRIA, all property/casualty insurers in the US are required to make terrorism coverage available.
Terrorism Insurance protects claims of damaged property, losses for business interruption, bodily injuries, and related liability claims against the insured's business. Fire claims resulting from nuclear, biological, chemical, and radiological (NBCR) attacks are typical policy exclusions depending on state laws and policy provisions. The only terrorism insurance claims covered are those events officially certified by the US Department of the Treasury as acts of terrorism with further stipulations. Check your policy language thoroughly to understand the scope and limitations of the coverage.
Equipment Breakdown insurance offers protection against losses for physical product breakdowns such as ranges, refrigerators, ovens, freezers, fryers, and sound equipment. It also helps reimburse for financial damage incurred by commercial equipment failure or breakdown.
Adult Entertainment Insurance Costs (and what factors affect the price)
Because the cost of insurance for an Adult Entertainment Insurance Program has so many variables, it's impossible to pinpoint pricing. In general, premiums for Adult Entertainment insurance coverage range between $3,000 to $5,000 annually. Endorsements and other conditions will affect the rate. Some typical impacting cost factors include:
● The club's physical size and the legal occupation capacity.
● The geographic location.
● Owner's experience in the business.
● The number of years the business has been in operation.
● Previous claims history.
● Annual sales and revenue.
● Whether alcohol is served.
Many other rating considerations unique to the insured business can affect the annual premium. Policy limits, exclusions, and endorsements also factor into Adult Entertainment insurance costs.
Here are example policy limits from the RMS Hospitality listing in ProgramBusiness.com Market Directory.
● General Aggregate Limit - $2,000,000
● Products-Completed Operations Aggregate - $2,000,000
● Personal & Advertising Injury - $1,000,000
● Each Occurrence Limit - $1,000,000
● Liquor Liability Limit - $1,000,000
● Fire Damage Limit (Any One Fire) - $100,000
● Medical Expense Limit Excluded
● Assault & Battery Available Up To - $1,000,000
● Excess Limits Available Up To - $5,000,000
- Hired/Non-Owned Auto Liability Limit - $1,000,000
Best Adult Entertainment Insurance Programs
Adult Entertainment Coverage is highly specialized due to the unique nature of the business. Finding and working with qualified program managers who have experience in the Adult Entertainment insurance marketplace is crucial. RMS Hospitality Group, which you will find in the ProgramBusiness.com Market Directory, has underwriters who are adult entertainment insurance specialists with decades of experience in this business class.
Its annual participation in a Nationwide Adult Club Expo ensures its underwriters are current on relevant political and legal information affecting the business. Its expertise includes "in-house" legal counsel with knowledge of liquor law liability issues/venues nationwide. Additional benefits include no insurance branch office or wholesale channel conflicts to interfere with providing an "A+" XV Insurance company where RMS has the "pen" with insurance carriers. This feature allows RMS HG to rate, quote, and issue policies for the insurance carriers with authority.