[b]This weekend’s rare double-header of major rugby and F1 action will be eagerly awaited in the UK. But how do organisers and commercial stakeholders in sporting events like these handle the possibility of cancellation? [/b]
[b]With major events from the Olympic Games downwards running as businesses the need for contingency plans are imperative. BritSport Weekly asked two risk management and cancellation insurance experts to explain the principles behind event coverage.[/b]
[b]Lennox Batten, sports specialist at broker Marsh, explains how good risk management helps to place the appropriate cancellation insurance policies. [/b]
“Many of the world's largest events owners and organisers who look to insure their exposures are finding the insurance market as flexible and responsive as it has been over the last couple of years. They are better able to achieve most if not all their insurance goals, be it in terms of breadth of coverage, the actual limits they need, or at a more acceptable cost, and sometimes a combination of all three.
Whilst this current state of affairs is strongly influenced by the traditional insurance market forces of recent favourable claims experiences and good profitability for underwriters, some of the events themselves have also assisted in this process and have themselves to thank.
A major priority for these events, up there alongside the need to maximise their revenue streams to the full, is the imposition of a thorough, comprehensive and robust risk management system (whereby risks are recognised, analysed, controlled or minimised and thereafter actively retained or transferred). Whilst not all risks may be known or quantifiable, the quality of the Risk Management process undertaken by the event goes a long way to providing underwriters a clear understanding of the risks associated with that particular event. This in turn provides a better comfort level towards that risk and can be evidenced by the Underwriters willingness to commit larger limits and/or at more competitive rates when offering cover.
Furthermore, with all major events (from the Olympics downwards) running themselves essentially as businesses as opposed to sporting events, and with their revenue streams being critically event specific rather than annual, their increasing desire to buy insurance has also helped determine the marketplace we have today.”
[b]Julian Vereker, business development director, THB Clowes, advises those considering buying cancellation insurance to take advantage of bespoke policies. [/b]
“The propensity for event organisers to buy cancellation insurance is based primarily on two factors. 1. The anticipated total loss of income resulting from a cancellation and the significance of that loss on the organiser.
2. The perceived probability of an event taking place which leads to cancellation.
Smaller scale sporting events such as point-to-point races are often more consistent buyers of insurance based on the first factor as the cancellation of one event can cause the loss of their entire years revenue.
Larger scale events will often buy insurance based on the second factor. Obvious examples of this are major tennis and cricket events in Britain where adverse weather has a very real chance of impacting the event and major motorsport events in Far East Asia where the threat of communicable diseases such as avian flu are considered high.
An F1 event like this weekend’s Brazilian Grand Prix has a lot resting on it - and not just for the drivers and teams. The promoter of the event will have a large range of liabilities including the fee paid up front in order to host the event.
In addition, contracts will be in place with all the support services surrounding the event (hospitality, entertainment, logistics etc.) which, in most cases will stipulate indemnification should the event be cancelled.
In spite of this, by no means do all F1 event promoters take out cancellation insurance. Whether they do so or not may depend on their exposure to points one and two mentioned above, and their approach to risk – are they risk averse or risk takers?
Meanwhile, individual companies (such as the support services listed above) who have a very significant vested financial interest in the event can and sometimes do take out their own third party cover providing some security over and above any contract they may have with the promoter in the event of cancellation.
THB Clowes advice for those considering buying cancellation insurance for their sporting event is to take advantage of the fact that this is not an ‘off the shelf’ policy. The bespoke nature of cancellation insurance means that you have the chance to be very specific in defining what you require the policy to cover.
Therefore you can reduce premium costs by omitting some elements of cover and/or reducing the sums insured limits. This is where a good broker with genuine long term experience in the sports contingency market can help event organisers create a policy which is a good fit with the risk profile of their event and eliminate any unnecessary costs.”
