London Olympics 2012
Risks & Opportunities for (Re)insurers
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
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?
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.