Insurance Coverage for the 2012 Olympic Games Is a Herculean Task
Before the 2012 Olympic Games open in London on July 27, the city will already have experienced an unprecedented round of preparations, notably the construction of stadiums, site venues and housing that is in the process of transforming large parts of London’s long neglected east end.
The official games motto, “Inspire a Generation,” was unveiled on April 18 in a rainy ceremony at Kew Gardens, presided over by committee chairman and former Olympic Champion Sebastian Coe.
London’s insurance community, however, has not been standing on ceremony. Brokers and insurers have been involved in the games since they were awarded to London in 2005. The risks in hosting a competition that goes on for three weeks, attracts thousands of athletes and visitors, and is watched by millions more around the world, are endless.
An overall description of the insurance coverage required is possible, but it doesn’t include many individual details, as the brokers — Marsh is the lead broker — and the insurers don’t, or won’t, provide specific information. In most instances, they are acting on their clients requests not to do so. They also have agreed to “gagging orders,” at the request of the Olympic Organizing Committee, pledging their confidentiality on coverage for the Olympics.
This isn’t as contrary as it seems, as the type of coverage involved, the scope of the risks and other details are not usually disclosed for policies covering any type of major event. “The information we receive from our clients is highly confidential,” said Hiscox event underwriter Elizabeth Seeger.
She explained that although the Olympics are the biggest global sporting event, along with the Football (Soccer) World Cup, they are handled in the same manner as other high profile public events.
“Clients require confidentiality for a number of reasons,” Seeger said. These can include a reluctance to make public the amounts involved in becoming a sponsor for such an event, as well as the details of their insurance coverage, which, she stressed, is an absolute requirement.
Publicizing an insurance policy could lead to opportunist claims from third parties. While some may be legitimate, many are filed simply for nuisance value to obtain money.
“It is important for all involved that we keep that door firmly closed, as making this type of information public will not assist in the running of the event nor be of benefit to those involved,” Seeger said.
While the carriers and brokers may treat coverage of Olympic events more or less as they would other sporting contests, there are differences. An event that goes on for nearly three weeks in more than 60 different sites, involving thousands of athletes and spectators, does pose special problems. The types of coverage required, however, do fall into familiar categories, and the London market is well-prepared to deal with them.
Coverage comprises three main categories: liability, event cancellation and property damage. Each sector covers particular risks, and in some cases they will overlap.
Liability is pretty straightforward. Moving and accommodating all of the athletes and spectators, as well as the officials and other personnel involved in managing the games, is a huge challenge. London’s Olympic budget is a whopping £9.3 billion (more than $15 billion). There will be injuries and perhaps even fatalities, as well as many non-personal injury claims.
Event cancellation coverage is more complicated. “Anyone involved with the games would have obtained (this type of) coverage years ago,” Seeger said. “The earlier the better,” as the terms are broader and less restrictive (in the early stages). Conversely, as the games approach, there are likely to be further conditions and endorsements.
“Risk management is the key to the success of any event; that is why, when we talk to potential clients, we would advise them on how crucial a robust contingency plan can be,” Seeger said. “Planning for the worst can go a long way in helping event organizers secure the type of insurance coverage they need, and insurers should be able to guide them on creating an appropriate plan.”
Event cancellation can cover the costs incurred when a planned event is actually cancelled, which is relatively rare, as they are usually rescheduled. But the costs of rescheduling, including such items as new programs, tickets, rental costs, crowd control, etc., are nonetheless expensive and are covered by policies. “As a result we always encourage our clients to have a contingency plan in place,” Seeger said.
Property damage polices cover the buildings, the outdoor sites, the equipment and the transport vehicles used to stage events. They are at risk from both fire and construction defects, as well as theft and vandalism.
London’s insurance market has been called on to provide all of the coverage that is needed, and fortunately it is uniquely qualified to do so. Seeger explained that the insurers who underwrite the policies generally employ Lloyd’s type of subscription provisions to spread the risk.
In simple terms, companies agree in advance on the risks, amounts and terms they will accept on any given risk. The lead underwriter, who originally accepts the risk, then keeps part of it and parcels out the remainder to other subscribers. Although it’s a more complex process than that, it’s served Lloyd’s well for more than 300 years, and Seeger is sure it will serve equally well to spread the risks of Olympic Games coverage.
The United Kingdom also has its own reinsurance program, Pool Re, the government-backed reinsurer that covers terrorist attack-related commercial property losses. It has £4.5 billion [more than $7.3 billion] in assets to cover the Olympic Games. It was established in 1993 after a wave of Irish Republican Army bombings in the city of London, the financial district, were threatening to make commercial property uninsurable, thereby stifling investment in the sector.
In an interview with Reuters Pool Re’s Chief Executive, Steve Atkins, said his team had closely scrutinized its customers’ [the primary insurers] exposure to the Olympic Games to prepare itself for a potential attack during the event. “We wouldn’t normally have interaction with every insurer on every program,” he said. “But with things like the Olympics, we tend to have done that so that if there were anything, we’re already informed about what the insurance arrangements are.”
While Pool Re only covers commercial property, global reinsurers can be expected to accept a portion of the risks primary carriers have accepted for liability and event cancellation and other property losses.
The Potential Threats
The perils that these policies cover run the gamut from slip and falls to terrorist attacks. Seeger described terrorism as “very high risk,” as the games are a potential target for every disaffected group or individual on the planet. One only has to remember the murderous attack on the Israeli Olympic team in Munich in 1972 to realize how great a threat a terrorist act could be.
“Such an act would probably trigger all of the policies involved,” Seeger said.
The terrorist threat is being taken very seriously. The British government currently believes the risk is “substantial,” which is two notches down from the highest “critical” level in its five-tier threat assessment system. Memories of the July 7, 2005, bombings on the Underground and a bus that killed 52 people, and injured more than 770 are still fresh in London.
Preparations to deal with those types of threats are going ahead as well. From May 2 to 10, police and armed forces carried out a series of exercises for planned responses to any threats. The exercises weren’t close order drills either.
News reports confirmed the deployment of two Royal Navy warships — one at Weymouth to protect the sailing events, and one at Greenwich on the Thames, along with Lynx helicopters. Squadrons of RAF Typhoon fighter jets, Puma helicopters — carrying sniper teams — will be on-hand. Airborne early warning helicopters and other fighter planes also will be on station. All in all, 13,500 military personnel will be involved in protecting the games.
The U.K. government is also seriously contemplating the placement of Rapier surface-to-air missiles on several buildings in east London, which has provoked the ire of local residents. These actions are more than contingency planning; the government is putting London on a war footing during the Olympics.
Seeger also pointed out that in addition to planned or organized attacks, there’s the possibility of civil unrest, such as the riots that occurred in London and other U.K. cities last summer. A number of activist groups have indicated that they plan to stage protest marches and demonstrations at various game sites, which could bring insurance coverage into play.
“Our other major concern,” Seeger said, “is the possibility of an outbreak of disease, which could be spread rapidly with all of the air travel.” She cited the SARS outbreak as an example of the type of sickness that could interfere with the Olympics. As the games will bring together large numbers of people in closely packed conditions, they would provide an ideal incubator for the spread of any infectious disease.
Another concern is the likely boycott of the products of some companies who are Olympic Games sponsors by groups who object to such products or the procedures employed in their manufacture. There are also potential disputes over all of the broadcasting rights to the games that have been taken up around the world.
The latest nasty kid on the block — cyber terrorism — is also a potential threat. “All they would have to do is hack into the system to create a real problem,” Seeger said. There have already been several computer glitches involving tickets, although no one has ascribed them to hackers. But, if someone put a malign virus into one of the systems controlling the games, it could disrupt ticket controls and timing mechanisms. A virus also could scramble global communications, including TV and Internet feeds, as well as cell phones and related devices.
Finally there are the “black swans” — events or circumstances that even the best of preparations and contingency planning may have overlooked or discounted, or those that defy advance planning. They include another volcanic eruption in Iceland, a war in the Middle East, solar storms that disrupt communications and electricity grids, a wayward hurricane that goes across the Atlantic, a major scandal, or even a random meteor strike.
An extreme weather event is probably the most likely, either a heat wave or continuous rain. Southeastern England has recently been experiencing a severe drought, accompanied by water use restrictions; however, it has been the rainiest month of April in more than 100 years — drought or flood — take your pick.
All in all, insuring the Olympics is an Herculean task, but the London market is probably better able to deal with all of the risks and potential problems, than anyone else. They have already gone a long way in doing so.