No amount of cov­er­age can mit­i­gate all the risk of 2026 Olympic bid: ex­perts

Calgary Herald - - CITY+REGION - AMANDA STEPHEN­SON astephen­son@post­media.com Twit­ter.com/Aman­daMsteph

A 2026 Olympic bid would be back­stopped by “lay­ers of in­sur­ance poli­cies” to pro­tect tax­pay­ers from fi­nan­cial risk, ac­cord­ing to Cal­gary’s bid com­mit­tee.

How­ever, some ex­perts cau­tion there is no in­sur­ance that of­fers full pro­tec­tion against the host of un­fore­seen cir­cum­stances that could strike the Games and send costs sky­rock­et­ing.

Cal­gary’s pro­posed bid al­ready sets aside more than $1 bil­lion in con­tin­gen­cies to buf­fer its bud­get. The bid cor­po­ra­tion has said it also plans to spend ap­prox­i­mately $20 mil­lion to pur­chase $200 mil­lion in in­sur­ance cov­er­age specif­i­cally for con­struc­tion cost over­runs — a pro­posal that was key to se­cur­ing the fund­ing agree­ment reached in late Oc­to­ber, be­cause the fed­eral gov­ern­ment promised to com­mit an ad­di­tional $200 mil­lion in Olympic fund­ing to match the value of the pro­posed in­sur­ance pol­icy.

Drew Fitch, Cal­gary 2026 CFO, as­sured a coun­cil com­mit­tee ear­lier this week that dis­cus­sions have al­ready taken place with AON, the world’s sec­ond-largest in­sur­ance bro­ker and also the City of Cal­gary’s in­sur­ance bro­ker. He said the bid cor­po­ra­tion has been as­sured that it is pos­si­ble to pur­chase such a pol­icy. “There’s noth­ing un­usual here,” Fitch said. “They (AON) also com­mented to us, that with re­spect to Olympic bids in North Amer­ica, ev­ery­one has been down this path in con­sid­er­ing cost over­run in­sur­ance.”

But while many po­ten­tial host ci­ties may have talked about cost over­run in­sur­ance, Brad Humphreys, an eco­nom­ics pro­fes­sor at the Univer­sity of West Vir­ginia and for­merly of the Univer­sity of Al­berta, said he isn’t aware of any Olympic city that ac­tu­ally went ahead and pur­chased such a pol­icy. The rea­son, said Humphreys (who co-au­thored a re­port eval­u­at­ing tax­payer li­a­bil­i­ties as­so­ci­ated with Bos­ton’s pro­posed host­ing of the 2024 Olympic Games), is be­cause the poli­cies don’t ac­tu­ally pro­tect against the fac­tors that pose the big­gest fi­nan­cial risk.

In fact, Cal­gary’s bid com­mit­tee has al­ready ac­knowl­edged an in­sur­ance pol­icy would not pro­tect against cost over­runs that oc­cur be­cause of a change in scope of the project. Humphreys said that’s a prob­lem, be­cause scope changes

— ad­just­ments and en­hance­ments to pro­posed con­struc­tion projects — are one of the main rea­sons over­runs oc­cur. “Think about it from the in­sur­ance com­pany ’s per­spec­tive,” he said. “You can get in­sur­ance for a car wreck, be­cause that’s a rare event. You can’t get in­sur­ance for oil changes be­cause those are go­ing to hap­pen. And change of scope over­runs hap­pen all the time with the Olympics.”

The pro­posed pol­icy would pro­tect against over­runs that hap­pen for other rea­sons — such as ad­verse weather or labour dis­rup­tions.

Anne Kl­effner, a pro­fes­sor of in­sur­ance and risk man­age­ment at the Univer­sity of Cal­gary ’s Haskayne School of Busi­ness, said she can un­der­stand the ap­peal for Cal­gary 2026. “I think there is some real at­trac­tion in the idea of buy­ing some­thing that they can bud­get for now that re­duces un­cer­tainty in the long run,” Kl­effner said.

John Fur­long, who headed the Van­cou­ver Olympics or­ga­niz­ing com­mit­tee, said the 2010 Games did not have any cost over­run in­sur­ance. The Van­cou­ver Games ran into over­runs while build­ing their ath­letes’ vil­lage, which Fur­long blames on an over­heated con­struc­tion mar­ket and the im­pact of the global fi­nan­cial melt­down.

“The size of the con­tin­gency in the Cal­gary bud­get — I have never seen one this strong,” Fur­long said. “It’s far be­yond any­thing I have ever seen, and it’s way higher than the one we had in Van­cou­ver. So the level of pro­tec­tion this bud­get has, be­fore you even dial in this in­sur­ance, is ex­tra­or­di­nary.”

In ad­di­tion to the pro­posed cost over­run in­sur­ance, Cal­gary 2026 would also be seek­ing sev­eral other in­sur­ance poli­cies in the event of a suc­cess­ful bid. Th­ese poli­cies would pro­vide cov­er­age for a range of other risks — ev­ery­thing from coun­tries boy­cotting or not par­tic­i­pat­ing; tech­ni­cal mal­func­tions af­fect­ing TV broad­cast; or out­right event can­cel­la­tion due to war, ter­ror­ism, or a global pan­demic.

Cal­gary 2026 spokesper­son James Mil­lar said it is too early to say what th­ese poli­cies would cost, as po­ten­tial risks will need to be as­sessed closer to the start of the Games. “There are so many vari­ables on cov­er­age choices,” he said in an email. “What we choose to cover and how much is based on risk pro­file at the time for each in­stance.”

There is some real at­trac­tion in the idea of buy­ing some­thing that they can bud­get for now that re­duces un­cer­tainty.

Comments

Newspapers in English

Newspapers from Canada

© PressReader. All rights reserved.