Zika Virus Could Make Scoring Event Insurance More Difficult

By | June 15, 2016

Fears over the spread of the Zika virus are likely to dampen the Summer Olympics set for Rio de Janeiro in August and other summer events.

The virus could also make it more difficult for summer event organizers to find or afford insurance as insurers weigh the risk of insuring events in the midst of another potential global communicable disease outbreak.

The Zika virus is transmitted to people via infected mosquitoes. According to global health agencies, the virus can spread through sexual contact and also to unborn babies. As of June 8, there had been close to 700 reported Zika cases in the United States, according to the Centers for Disease Control and Prevention (CDC).

The most serious effects of the virus include microcephaly in infants and Guillain-Barre syndrome, a severe and progressive neurological disorder. Other symptoms, which may last up to a week, include fever, rash, joint pain, muscle pain, headache and conjunctivitis. Currently, there is no vaccine to prevent the virus and no medicine to treat it. The CDC recommends rest, fluids and over-the-counter pain medication.

The CDC has placed its emergency operations center on a “Level 1” status – its highest level of activation – as a result of the Zika outbreak. That level of activation has only occurred three times in the past: during the Ebola outbreak in 2014; during the H1N1 pandemic in 2009; and after Hurricane Katrina in 2005.

Recently, Rio’s mayor assured the Olympic Executive Board that the outbreak is under control in his Olympics city. Weather conditions are expected to improve the situation, since the onset of the dry season begins in summer there.

The World Health Organization (WHO) said this week that the risk of the Zika virus spreading globally as a result of the Olympics in Rio is “very low.”

Insurance Issues

Moving or cancelling the Olympics could be costly for Brazil as well as for insurers. The insurance industry is on the hook for an estimated $1 billion in potential claims, according to Andrew Duxbury, an underwriting manager for Munich Re. Duxbury told Bloomberg that most of that coverage is being provided by several large reinsurers including Munich Re, Swiss Re, and Hannover Re.

Despite preventive measures being taken in Rio and elsewhere, the Zika virus is expected to complicate procuring certain types of insurance, including event coverage.

There are two types of insurance coverage for events: business interruption and event cancellation, according to Dan Burns, president of PFS, a managing general underwriter for Lloyd’s of London, Chubb and other companies. The Chicago-based PFS specializes in coverage for professional sport franchises, stadiums, as well as professional and amateur athletes.

Both policies offer broad coverage for communicable diseases.

“What clients typically do is they purchase this coverage not knowing what the next outbreak of something is going to be, but they are therefore protected against it,” Burns said.

If the government or a third party deems an event too risky and either cancels it or stages it elsewhere, the policy would come into play.

According to Burns, there are various revenue streams that could be affected as a result of moving a game or cancelling an event including ticket sales, concessions sales, parking fees, merchandise sales and revenue from signage sponsors.

Both Burns and Royal Oakes, a Los Angeles-based attorney with Hinshaw & Culbertson, say insurers may be reluctant to offer Zika specific coverage because of the uncertainty surrounding the illness combined with public health concerns.

“The bottom line is that the Zika virus is going to make insurance harder to get and the coverage that the policyholder can obtain is going to be more expensive,” said Oakes.

Coverage disputes that could arise often relate to what the parties knew when they made the deal, said Oakes.

“Oftentimes insurance companies zero in on misrepresentations by policyholders,” Oakes said.

The state of mind of the policyholder can be an issue as well as the state of mind of the insurer, he said. This includes an insurer’s awareness of various types of risk along with common knowledge that results from high publicity of the virus.

“It just gets more complicated to the extent there’s unstated knowledge on the part of either side when you get to a coverage dispute down the road after the policy is issued and there’s a loss,” Oakes said.

Insurance agents don’t typically get involved in coverage disputes unless there is evidence of misrepresentation or negligence.

Stadium owners, host cities and committees could become defendants targeted in a coverage dispute involving a sporting event, Oakes said.

Oakes believes insurers can mitigate the risks associated with large events by avoiding boilerplate language in policies. Instead, he said, policies should contain specific clauses that address the facts, such as the risks associated with the Zika virus. He said insurers need to be very clear and explicit about what is and what is not covered.

“Many coverage disputes in high profile cases are triggered because the policies are simply not as clear as they should be,” Oakes said.

There’s no need to reinvent the wheel. Past experience in covering large events, such as the Super Bowl, World Series, NBA playoffs and the Olympics, will help in crafting special language in the policy, he said.

Organizers of events in Latin America are already feeling the insurance effects. Gary Flynn, at insurance broker JLT Specialty, told Reuters in March that insurers are excluding the Zika peril from any new events policies in the area, although any existing policies bought before the risk was known are still good.

American Tourists

Meanwhile, it appears that while the Olympics in Rio may not be cancelled or moved, the hosts face a challenge getting Americans to show up for the summer games.

Half of Americans believe the 2016 summer Olympic games should be delayed or canceled due to Zika, and almost two thirds have no interest in traveling to Rio de Janeiro or Brazil due to the virus, according to a survey by travel insurance provider Allianz Global Assistance.

In fact, nearly half of Americans (49 percent) think that the Olympics should have been delayed (34 percent) or canceled (15 percent) to protect people from the virus. To this point, 48 percent would rather wait to attend the 2020 Summer Olympics in Tokyo.

Recent acts of terrorism throughout the world have also played a factor in Americans’ hesitation to travel to the Summer Olympics with 28 percent reporting terror acts have made them less interested in attending.

“Unfortunately for countries where Zika can be found, not even the iconic Summer Olympics are enough to draw in American tourists,” said Daniel Durazo, director of communications at Allianz Global Assistance USA. “Travelers are proceeding with caution by either completely disregarding travel to Brazil or by hyper focusing their trips to Rio without extending their stays past the Olympics. This is bad news for any host country that spends billions of dollars bringing in the games and expects to make the return from tourism.”

Johnson is editor of ClaimsJournal.com, where a version of this article was originally published.


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