Covid-19 set to make future Olympic cover a non-runner

It may be commonly described as the “greatest show on earth”, but the Olympic Games is creating one of the insurance market’s biggest headaches.

The sporting event was planned to take place last year, however the onset of Covid-19 and associated lockdown restrictions saw the global competition delayed until this year, where it will now be taking place between 23 July and 8 August in Tokyo, Japan’s capital city.

The games are traditionally the most complex event risk on the planet. The impact of the pandemic has already cost the contingency and cancellation insurance market up to $1bn in losses and there are fears that even if the event goes ahead, these costs may rise, according to James Davies, divisional director of sport and entertainment at EC3 Brokers.

The impact of Covid-19 on the contingency and cancellation insurance sector has bordered on catastrophic, with the postponement of the games being a significant contributor to the eye-watering claims levels of last year.

Plus, the event’s delay has also played its part in the departure of four major underwriting entities from this specific line of business, including Chubb, Markel, Talbot and WR Berkeley. 

Conservatively, the insurance market has seen over $4bn in claims for 2020 on contingency and cancellation policies - this class of business typically generates $600m in premium income annually, Davies added.

He told Insurance Times that the postponement of the games is estimated to have cost the contingency and cancellation market between $500m and $1bn for Olympic-related losses. Should the games be cancelled at the last minute, that figure could rise closer to $3bn.

Local risks

The insurance policy taken out by the Japanese local organising committee has paid out in full following the postponement, with the extra costs of moving the event to 2021 being covered.

Additional policies held by other event stakeholders could see “substantial claims” being triggered, according to market commentators.

It is believed by market commentators that the International Olympic Committee (IOC) has an event cancellation cover with a $800m limit.

The host organisation, sponsors, national Olympic associations, broadcasters and professional sports clubs will all have their own insurance policies, which add to the huge potential exposures surrounding the event.

The month-long festival of sport is unique in terms of the size and scale of the sports which are included. While Tokyo has its name against the games, sporting venues are spread across Japan due to the need for specific conditions, both on land and sea.

Japan also has the added challenge of being in a natural catastrophe prone area. It has major earthquake and tsunami risks, coupled with the country holding part of the games during the traditional peak of its cyclone season.

Covid-19 has only added to these natural issues for organisers and their insurers.

Amid concerns from within Japan itself as to whether the event should be staged, organisers have banned overseas spectators and limited audience numbers. There will be strict Covid-19 protocols for athletes, media, officials and local spectators, but the risks are still a concern for the insurance sector.

Pressing ahead

Fears that a spike in the rate of infection in Japan would demand a cancellation of all or part of the games continues to worry the market.

Only the IOC can take the decision to cancel the games. The Japanese government could order the games to be scrapped, but in doing so, would then assume the costs of cancellation.

Davies explained that the games will go ahead, however.

“The amount of money that is involved from the sponsorship and broadcasting rights is such that the games will be staged,” he said. “The games are covered and the postponement will have been insured.”

Davies explained that the IOC has traditionally taken out long-term contingency and cancellation cover that will protect several games and, therefore, the games will have pandemic cover until the IOC’s existing policy expires.

However, Davies added that pandemic cover is no longer offered by the market - the size of the Olympics is such that it would find it near impossible to obtain pandemic insurance in any future policy.

Andrew Bart, president, loss adjusting, international at Crawford and Company, was part of the team that supported the organisation of the Sydney Olympics in 2000. He said a key part of the event coverage had already been successfully negotiated with the timely construction of the venues.

“The physical risks to the participants and spectators are a concern,” he added.

“The organisers will have systems in place to keep the spectators and athletes safe, but the nature of the virus presents challenges.

“Should there be an issue which means the organisers will be forced to cancel one of the blue riband events, such as the 100 metres on the track or in the pool, or very high profile athletes are forced to withdraw, you may have an issue with broadcasters or sponsors who feel there is a clear lack of attraction.”

Non-physical exposure

The other risk which has become more prominent for Tokyo compared to its predecessors is the threat of cyber attack, added Bart.

His concerns were backed by Paul Mang, chief innovation officer of Guidewire.

“There is an important cyber component when we consider risks related to the Tokyo Olympics and large events in general,” he said.

“We tend to think of these as physical events, exposed to environmental and security risks. But, with the increasing reliance on technologies at events such as the Olympics to manage physical exposure, [this] dramatically increases cyber exposure.

“With the pandemic, the Olympics will be employing more and newer technologies to ensure health and safety, so organisations need to evaluate and manage the nature of tech and cyber risk.”

Looking to the future, Bart added that it was highly likely that future Olympics will see a different approach from underwriters.

“Without doubt the events of the past year will change the thinking of the industry to future event coverage,” he explained.

“We have already seen the response of the sector to pandemic risks and cyber will also be viewed as a pandemic-like risk given the potential for disruption to both the operation and broadcast of the event.”