Article / Risk Management
Contingency Market Limbering Up for a Busy Year Ahead

As published in Insurance Day, Monday 27th January 2014

On the 7th February, the world’s attention will focus on Sochi, a small town beside the Black Sea, when the Winter Olympics open’s there. This is the first in a number of major sporting events planned for 2014, and increasingly they face a range of challenges; from construction issues to concerns about the weather, and from terrorist threats to natural disasters.  They also have significant income streams to protect from tickets sales, broadcasting and merchandising.  With nearly every major insurer in the London market and beyond having some form of exposure to these events, there is a lot riding on them going off without a hitch.  Rob Barron and Richard Woods, contingency brokers at Lockton Companies LLP review some of the recent trends.

Capacity is plentiful

The scale of these events means that no one market is big enough to provide cover.  So placements will be combinations of international market cover, reinsurance and self-insurance – as often over $1bn worth of cover will be required for just the cancellation and abandonment of this kind of event. 

Despite this, one problem clients do not have to contend with at the moment is a lack of capacity.  If you compare the market now with ten years ago, when only a few specialist underwriters wrote event cancellation and contingency business, the situation is very different.  Today, there are up to 15 syndicates in Lloyd’s offering this cover.  The result is that it is a buyers’ market, with very competitive rates being offered.

But the risks are significant

With any major event, the income at risk is massive if for some reason the event fails to run at all, or there are scheduling issues.  Risks that have been in the news most recently for the Winter Olympics have centered on the possible non-appearance of whole teams of athletes and terrorism. Previous experience has shown that communicable diseases such as SARS and disruption to travel from volcanic ash are all hard to predict, but their consequences can be catastrophic.

The risks are shared between the governing body of the sport in question – the IOC or FIFA in the case of the key events this year – who typically have responsibility for the major commercial rights such as sponsorship, TV rights and merchandising, with the local organising committee receiving  the income from ticket sales.

Technology outages are becoming an increasingly significant issue with so much of a major -event’s revenue being linked to TV-rights and sponsorship deals.  Signal failure can prevent live coverage and result in a massive loss of viewing figures at critical times.  This is a particular risk when the scheduling of games and particular events is so carefully timed to match peak audience viewing times.

Learning from the past

There are a number of sporting events that over the past few years have experienced problems, causing severe delays, abandonment or cancellation of events.  These include the 2012 British Grand Prix when severe weather conditions resulted in waterlogged car parks and meant that fans had to be persuaded not to attend the practice sessions, the Rugby World Cup in New Zealand had to find replacement stadiums and rearrange schedules following the earthquake in Christchurch; and the 2001 Ryder Cup was cancelled after the 9/11 terrorist attacks in the US.  The learning gained from these events is invaluable when problems arise brokers, insurers and loss adjusters use this knowledge to implement a range of measures to work towards rescuing the event when all seems to be lost and help to mitigate any losses that are incurred .

So it is critical that clients realise that, although pricing is competitive, they should not purchase contingency policies on price alone.  What they need is the most appropriate cover, tailored to their needs and placed with experienced markets that will be there to support them should the worst happen. 

Clients also need to be educated that an early bird catches the worm – and the earlier they involve brokers and insurers in their planning process the more comprehensive and competitive their coverage will be. 

Limbering up

Specialist cover of this kind is the type of business in which the London market excels, and fingers will be crossed that the Winter Olympics goes smoothly and according to plan.  With the World Cup in Brazil, the Commonwealth Games in Glasgow and a host of other major sporting events to look forward to throughout the year, the London contingency market is set for another busy year.

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