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The 2018 Winter Olympic Games in Pyeongchang, South Korea wowed the world recently. What is the one thing that such spectacular events just can’t do without?Allianz SE
A year ago, Michael Furtschegger took a call from a TV broadcasting station seeking insurance for the 2018 Winter Olympics. The station wanted cover for costs associated with equipment, studio hire, flights, hotel room bookings etc in case the Pyeongchang Games were canceled for any reason – natural catastrophe, epidemic, war.
“If the Olympics were canceled, wouldn’t that actually be a reason to go and report?” asked Furtschegger. A few seconds of silence on the end was followed by, “Good point.” Furtschegger did not make a sale that day.
“But for sponsors, large corporate clients and others who may use the Olympics for client entertainment, cancellation insurance is critical, because of the big dollars involved in such events,” he says.
Furtschegger, as Head of Entertainment International at Allianz Global Corporate & Specialty (AGCS), assesses the risks of events such as massive music concerts and tours, sports or corporate events. The soccer World Cup and the Olympics are the two biggest shows on the planet and both are always on the radar. For such multi-billion-dollar events, Allianz has the appropriate insurance solutions to offer.
Long before the first competing skier raced down the piste or an ice skater turned a spin on the ice, insurers got involved in the preparation for Pyeongchang. There are many risks in an event that goes on for over two weeks, attracts millions of athletes and visitors, and is watched by millions globally.
The involvement of an insurer in the Olympics typically begins when the International Olympic Committee (IOC) announces the winning bid city. Insurance coverages such as event cancellation, liability, property damage and others are required by various stakeholders to cover the enormous expenditure related to such an event.
There is big money at stake: advertising and broadcasting rights, infrastructure projects, multi-billion dollar investments of both the host country and the sponsors, the preparation and financial
commitment required from national sporting delegations, as well as the private travel expense of millions of visitors from all over the world.
The Beijing 2008 Summer Games cost $42.58 billion, the Sochi Winter Games in 2014 topped that at $49.96 billion. In comparison, Pyeongchang is small change at $13 billion, but insurance still needed to be in place years before.
Property policies cover venues, equipment and transport vehicles used to stage events. They are at risk from construction defects and fire, as well as theft and vandalism. Accommodating and moving the athletes, officials and spectators is also a massive challenge. There will be injuries and maybe even fatalities, as well as non personal injury claims.
Beyond that, insurance needs cascade downwards. Service providers, such as catering and security firms, would already have insurance as part of their business requirements, but each competing nation and some athletes may organize additional cover. For example, for travel and health, car hire and baggage and goods.
An Olympic bobsleigh has a price tag of a minimum of $30,000. Other specialized equipment also needs coverage. To get an edge on the Pyeongchang slopes, the Austrian team sent three Wintersteiger machines for ski sharpening and preparation well ahead of the Games. The total value is in excess of $120,000, so insurance covers shipping and use.
“It is fair to say that without insurance, there would be no Olympics,” Furtschegger asserts, “For, without insurance, who would actually undertake the massive investment risks required to bring the Games to realization.”
For any major sporting event, the types of cover and the risks associated are confidential as are other details. So Furtschegger politely declines to answer questions concerning cover amounts. But he does reveal that the Winter Olympics are insured for less than the Summer Games, which draw more athletes over a slightly longer period.
“Clients require confidentiality for a number of reasons,” Furtschegger says. These can include a reluctance to make public the amounts involved in sponsorship, as well as the details of their insurance coverage, which is normally a requirement.
But, if the Olympics were to be canceled, the consequences would be devastating as the collected revenue would fail to match the multi-billion-dollar expenses. “This is why the organizers, sponsors, broadcasters and teams take out insurance in the first place.”
In the run-up to Sochi, Munich Re estimated the economic impact of a cancellation to be more than $5 billion. As the income generated from Olympics Games has increased over time, organizers, sponsors and teams have become keener to transfer some of the risks to the insurance market. Event insurance would dull the impact of cancellation by compensating buyers if the Games or individual events are abandoned or canceled. Earthquakes, heavy snowfall or windstorms could trigger a payout as could civil unrest or an outbreak of communicable disease. The tension between North and South Korea was one concern in the run-up to Pyeongchang. Ironically, the Games seemed to have de-escalated the political situation.
Cancellation either before or during an Olympics would be an unprecedented event. The only Games ever to be canceled were because of the First and Second World Wars. Even the terror attack at the 1972 Munich Summer Olympics did not prevent the Games from proceeding. “The risks of cancellation, abandonment, interruption and postponement have not changed significantly over the years, in my opinion,” says Furtschegger. He leads the international expansion of the Allianz Entertainment team, which has been a major player in the U.S. market for film and event insurance for decades.
“Even though sporting events are getting larger and more expensive to host, safety features within stadiums have improved and organizers are working more closely with authorities to develop contingency plans in the event of an incident.”
Of course, as with any live event, there is always some residual risk. One that Furtschegger sees as being of increasing concern is a cyber-attack, but organizers are no different from companies in terms of exposure. “Cyber risks are increasingly accumulative and interconnected, and if not managed well, can have a devastating impact. But here again, insurance can help diffuse the risks through cyber insurance,” he finishes.
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