Lon­don Olympics 2012

Risks & Op­por­tu­ni­ties for (Re)in­sur­ers

Insurance - - COVER STORY - by An­drew Duxbury

Long be­fore the open­ing cer­e­mony for the Olympics on 27 July, par­tic­i­pants, or­gan­is­ers, sports en­thu­si­asts and (re)in­sur­ers were look­ing with ex­cite­ment to­wards Lon­don. An­drew Duxbury, Un­der­writ­ing Man­ager Mu­nich Re, Lon­don (Gen­eral Branch), ex­am­ines one of the main in­surance as­pects sur­round­ing the world’s largest sport­ing event.

The Olympic Games Lon­don 2012 fea­tured 36 dis­ci­plines, 204 na­tions, 10,500 ath­letes, 33 com­pe­ti­tion venues, and more than 170,000 staff (in­clud­ing 70,000 vol­un­teers and 100,000 con­trac­tors). Around nine mil­lion spec­ta­tors at­tended the games in per­son, whilst an es­ti­mated au­di­ence of three to four bil­lion watched most of the events live on tele­vi­sion. The Olympics are big busi­ness, with rev­enues gen­er­ated through TV rights, spon­sor­ships, ticket sales, cor­po­rate hos­pi­tal­ity and sou­venirs run­ning into bil­lions of dol­lars. To deal with such risks, highly com­pe­tent risk man­age­ment is needed, of­ten years in ad­vance. Can­cel­la­tion in­surance can pro­tect th­ese fi­nan­cial in­ter­ests from the moment when cities are awarded the Games un­til the Olympic flame is ex­tin­guished at the clos­ing cer­e­mony. Whilst can­cel­la­tion pol­icy word­ings vary as they are ad­justed to in­di­vid­ual re­quire­ments, cover is fun­da­men­tally sought to pro­tect against any un­fore­seen can­cel­la­tion, aban­don­ment, in­ter­rup­tion or re­lo­ca­tion of the Games – in­clud­ing the open­ing and clos­ing cer­e­monies. Mu­nich Re’s fi­nan­cial ex­po­sure to the com­plete can­cel­la­tion of the Lon­don Games this sum­mer was in the re­gion of €350m. The ma­jor un­der­writ­ing con­sid­er­a­tions in­volved in cov­er­ing such large events in­clude: Con­trac­tual com­mit­ments/li­a­bil­ity of in­sured (TV/spon­sor­ship/ticket con­di­tions) The po­lit­i­cal risk en­vi­ron­ment (war, in­ter­nal un­rest, ter­ror­ism ex­po­sure, etc.) Ex­po­sure to nat­u­ral haz­ards (earth­quake, wind­storm, flood­ing) Host coun­try’s ex­pe­ri­ence in host­ing large global events

Se­cu­rity ar­range­ments

Host coun­try’s in­fra­struc­ture

Or­gan­iser’s con­tin­gency plans Re­mem­ber the mag­nif­i­cent spec­ta­cle in Bei­jing four years ago? The events were metic­u­lously ex­e­cuted, but the Chi­nese government spent an es­ti­mated US$ 42bn to en­sure smooth op­er­a­tion from start to fin­ish. Lon­don had to em­u­late this in a very dif­fer­ent eco­nomic, po­lit­i­cal and

The Olympics are big busi­ness… To deal with such risks, highly com­pe­tent risk man­age­ment is needed, of­ten years in ad­vance.

ge­o­graphic en­vi­ron­ment which has to be man­aged also from an in­surance and rein­sur­ance per­spec­tive. The ob­vi­ous in­sur­able per­ils in­clude weather, nat­u­ral catas­tro­phes, acts of ter­ror, com­mu­ni­ca­ble dis­eases, venue dam­age, power fail­ure, satel­lite or trans­mis­sion fail­ure, ri­ots, strikes, civil com­mo­tion, and na­tional mourn­ing. Each type of sport has its own tech­ni­cal chal­lenges, as does each venue. Nat­u­ral catas­tro­phes can jeop­ar­dise the hold­ing of an event even when the des­ig­nated venues are not di­rectly af­fected. In 2008, China was hit by a ma­jor earth­quake only a few months be­fore the open­ing of the Olympic Games, pos­ing a great hu­man­i­tar­ian chal­lenge and sub­ject­ing the coun­try to con­sid­er­able eco­nomic stress. None­the­less, the Games were held as planned. But not ev­ery coun­try would have been able to do this in a sim­i­lar sit­u­a­tion. In some cases where sports fa­cil­i­ties are de­stroyed or can­not be used, events can be re­lo­cated to other venues. This hap­pened, for ex­am­ple, at the 2011 Rugby World Cup in New Zealand fol­low­ing the earth­quakes in Christchurch. By unit­ing their ef­forts, all those in­volved suc­ceeded in con­duct­ing the games at other lo­ca­tions. The in­sur­ers bore the re­sul­tant ad­di­tional costs. But the Olympics are unique in that they are very re­liant on the Olympic park and within that park the main sta­dium. If some­thing were to hap­pen to the sta­dium very close to the Olympic Games it would be a real chal­lenge. Ob­vi­ously, there are many other venues but the open­ing and clos­ing events are in­te­gral at driv­ing view­ing fig­ures, as are the ath­let­ics. So with­out that sta­dium, or­gan­is­ers would have a very real prob­lem. The lion’s share of ex­posed rev­enue is gen­er­ated by the sale of tele­vi­sion screen­ing rights.

Can­cel­la­tion in­surance can pro­tect the fi­nan­cial in­ter­ests from the moment when cities are awarded the Games un­til the Olympic flame is ex­tin­guished at the clos­ing cer­e­mony.

Con­tracts are ne­go­ti­ated with the na­tional tele­vi­sion cor­po­ra­tions. The sums of money in­volved are huge. In 2003, the IOC sold the main TV rights to NBC for US$2.2bn to cover Van­cou­ver and Lon­don. Se­cu­rity threats can­not be ig­nored. This is well known, cer­tainly since the ter­ri­ble in­ci­dent which over­shad­owed the Mu­nich Olympics, where 11 Is­raeli ath­letes were taken hostage and a to­tal of 17 peo­ple lost their lives. Lon­don might look at­trac­tive to ac­tivists as a large multi-cul­tural city, but se­cu­rity was at the fore­front of the au­thor­i­ties’ minds. The UK government spent over £1bn – or some 10% of the over­all or­gan­i­sa­tion costs – on se­cu­rity mea­sures at the Games. It is also highly ex­pe­ri­enced in coun­ter­in­tel­li­gence and polic­ing such risks. Numer­ous test events had been con­ducted suc­cess­fully, in­clud­ing dur­ing the pe­riod of the Lon­don ri­ots. As­sess­ment of ter­ror­ism ex­po­sure: Mu­nich Re al­ways uses its own in-house and con­tracted third-party po­lit­i­cal risk ex­per­tise to un­der­stand lo­cal ex­po­sure. Global events can also im­port in­ter­na­tional is­sues into a ter­ri­tory. To as­sess th­ese, se­cu­rity would in­clude in­for­ma­tion such as:

Host ex­pe­ri­ence – Po­lice/se­cu­rity forces

Main venues – Pur­pose-built?

Ath­letes’ trans­porta­tion

Em­ployee and vol­un­teer vet­ting pro­ce­dures

Con­tin­gency plans Ter­ror cover pro­vided is gen­er­ally lim­ited by time. There are pre­scribed trig­gers spec­i­fy­ing which au­thor­i­ties are able to can­cel or sus­pend the event. Re­al­is­ti­cally, for such global sport­ing events, it is the government of the host na­tion which de­cides such mat­ters. How­ever, there are con­sid­er­able vested in­ter­ests in en­sur­ing that the event con­tin­ues – as was the case with in­ci­dents in Mu­nich and At­lanta. Ad­di­tion­ally, in­di­vid­u­als some­times seek to achieve a cer­tain de­gree of no­to­ri­ety, as was ex­pe­ri­enced in April on the Thames dur­ing the fa­mous Ox­ford vs. Cam­bridge Univer­sity Boat Race, where one ac­tivist brought the race to a halt. Other sim­i­lar ir­ri­ta­tions seemed pos­si­ble from the trans­port chal­lenges of mov­ing thou­sands of spec­ta­tors and ath­letes around Lon­don. In­deed, all busi­nesses in Lon­don (in­clud­ing the Mu­nich Re of­fices) had spe­cific con­tin­gency plans which in­clude stag­ger­ing work­ing hours and work­ing from home dur­ing the busiest time of the Games. Mu­nich Re has his­tor­i­cally been a lead­ing provider of un­der­writ­ing ex­per­tise and ca­pac­ity for very large global sport­ing events, from the Olympics, World Cup foot­ball and rugby to For­mula 1, golf, ten­nis and ski­ing. The Group’s risk ap­petite, bal­ance sheet strength and abil­ity to sup­port such unique events help to cre­ate tai­lor-made cov­er­age. Ground-up cover is com­mon, but de­ductibles must be con­sid­ered care­fully. Usu­ally, ad­di­tional loss mit­i­ga­tion costs are in­cluded in the cover; and th­ese can be con­sid­er­able, as the or­gan­is­ers of the last Win­ter Olympics in Van­cou­ver learned. A com­bi­na­tion of too lit­tle or too much snow at any one time or venue cre­ated huge chal­lenges. We con­tinue to see the very largest global risk man­aged events as a cor­ner­stone of our con­tin­gency un­der­writ­ing strat­egy, and af­ter the Olympic Games in Lon­don the fo­cus will soon move to the up­com­ing events in Rus­sia and Brazil for which Mu­nich Re has al­ready com­mit­ted ca­pac­ity. i

The lion’s share of ex­posed rev­enue is gen­er­ated by the sale of tele­vi­sion screen­ing rights. ... The sums of money in­volved are huge.

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