Olympic-sized Risks

The Olympic Games feature 36 disciplines, 205 nations, 10,500 athletes, 33 competition venues and more than 170,000 staff (including 70,000 volunteers and 100,000 contractors). Nine million spectators will attend the games in person, while an audience of three to four billion will watch most of the events live on television.

Staging the Olympics is a big business, with revenues generated through TV rights, sponsorship, ticket sales, corporate hospitality and souvenirs running into billions of dollars. Highly competent risk management efforts, often undertaken years in advance, are required to deal with such risks. 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.

Cancellation policy wordings vary as they are adjusted to individual requirements, but 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 will be in the region of US$400 million.

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; and

• organizer’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$42 billion to ensure smooth operation from start to finish. London must seek to emulate this in a very different economic, political and geographic environment, which has to be managed also from an insurance and reinsurance perspective.

PERILS OF THE OLYMPICS

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.

The lion’s share of exposed revenue is generated by the sale of television screening rights. Contracts are negotiated with the national television corporations. The sums of money involved are huge. In 2003, the International Olympic Committee sold the main TV rights to NBC for US$2.2 billion to cover Vancouver and London.

Security threats cannot be ignored. This is well-known, certainly since the terrible incident that overshadowed the Munich Olympics in 1972, when 11 Israeli athletes were taken hostage and a total of 17 people lost their lives. London might look attractive to activists as a large multicultural city, but security will be at the forefront of the authorities’ minds. The U.K. government is committed to spending more than US$1.6 billion — or some 10% of the overall organization costs — on security measures at the Games. It is also highly experienced in counter-intelligence and policing such risks. Numerous test events were conducted successfully, including during the period of the London riots.

In terms of assessing terrorist exposure, we will always use our 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:

• The host’s experience in organizing such an event, including an analysis of its police and security forces.

• Main venues: are they built for the purpose of mitigating exposures?

• Athletes’ transportation.

• Employee and volunteer vetting procedures.

• Contingency plans.

Terror cover provided will generally be limited by time. Prescribed triggers will specify which authorities are able to cancel or suspend the event. Realistically, for such global sporting events, the government of the host nation decides such matters. However, considerable vested interests exist in ensuring that the event continues, as was the case with incidents in Munich and Atlanta.

Additionally, individuals may seek to achieve a certain degree of notoriety, as was experienced on the Thames during the famous Oxford vs. Cambridge University Boat Race in April 2012, when one activist brought the race to a halt. Other similar irritations are possible related to the challenge of transporting thousands of spectators and athletes around London. Indeed, all businesses in London — including the Munich Re Group offices — have specific contingency plans that include staggered work hours and working from home during the busiest time of the Games.

Unique events such as the Games lend themselves to creating tailor-made coverage. Ground-up cover is common, but deductibles must be considered carefully. Usually, additional loss mitigation costs are included in the cover. These costs can be considerable, as the organizers 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 successful 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.