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Failure to insure against pandemic will catch out many Asia-Pac sports properties

Tokyo's Olympic Stadium. Image Credit: Tokyo 2020 website

  • Few sports events have insurance for cancellation due to a pandemic, according to specialist Circles Group
  • The insurance industry is expected to pay out up to $6bn in claims for cancelled events in sport and other genres
  • The Tokyo Olympics and Wimbledon are among the major events expected to generate claims in excess of $100m

Only a small minority of sports properties in Asia have insurance to cover losses from event cancellations due to Covid-19. Most organisers have in recent years chosen not to pay the extra cost to extend their insurance to cover cancellation due to communicable diseases, according to Tommy Elliot, regional director, Asia Pacific, at the Hong Kong office of specialist events insurer Circles Group.

Tommy Elliot, regional Director, Asia Pacific, at specialist events insurer Circles Group.

Luxembourg-based Circles Group has been providing insurance for domestic and international sports events globally, as well as trade fairs, concerts and other types of events, for 20 years. It’s been working in Asia-Pacific for seven years, supplying event insurance via a network of specialist brokers.

“Based on our personal experience, aside from maybe some of the key, international, large sport events across the region most organisations would not have had coverage in the form of event cancellation insurance, with the specific extension for what we would call communicable disease coverage,” Elliot says.

The International Olympic Committee, the Tokyo 2020 Organising Committee and the major Olympics broadcasters such as NBC in the US, are among those that had insurance to cover the cancellation of Tokyo 2020, Elliot says. That event, of course, has not yet been cancelled, but it appears that an insurance claim will still be made by one or more stakeholders. Insurance company Swiss Re, which says it has a 15-per-cent market share of the event cancellation business globally, has said it has $250m of ‘exposure’ to the Olympics – meaning it could potentially have to pay out this much in insurance claims. The company says it has further exposure in the mid-triple-digit millions to other event cancellations this year. Another company, Munich Re, also said it has exposure to the Olympics in the triple-digit millions of euros.

Event cancellation policies typically cover one or more of several scenarios, such as:

  • The complete cancellation of the event before it commences;
  • The postponement of the event;
  • The complete abandonment of the event after it starts;
  • An interruption of the event.

Wimbledon is one of the few other major events known to have had insurance that covered the cancellation of this year’s tournament. Trade publication Insurance Times reported that Wimbledon organiser the All England Lawn Tennis Club has been insuring itself against cancellation due to a pandemic for the last 17 years, and is set for a £114m payout. The AELTC was reported to have paid about £1.5m per year for the insurance, £25.5m over the whole period. The payout is not expected to cover its entire expected revenues from this year’s tournament, even factoring in its cost savings from not running it.

The events insurance industry as a whole is set for an enormous hit due to payouts under cancellation insurance during the pandemic. Trade publication Insurance Insider estimated that industry losses could be between $3.7bn and $6.3bn globally this year. The publication puts Swiss Re’s losses alone at between $500m and $950m.

But outside Tokyo 2020 and a handful of the very biggest events, the sports industry will not be a major beneficiary. Many event organisers will have cancellation insurance, but cancellation due to communicable diseases is typically sold as a rarely-taken optional extra.

“When customers are considering their insurance coverage for events, they normally don’t ask specifically for that communicable disease extension.” Elliot tells SportBusiness. “And when it was offered, oftentimes it was one of the first things that the client would cross off the list to save cost.”

Cancellation causes that are typically covered as standard include weather, terrorist attacks or threats of terrorist attacks, a failure to deliver critical equipment and travel problems for competitors.

Even in Asia, where event organisers had experience of cancellations due to the SARS and MERS outbreaks in the past two decades, take-up of communicable diseases insurance was low.

Elliot says: “We tend to get the response, ‘Ah, that’s not going to happen again’, or, ‘My event’s in Australia, we’ll never have an issue like that’.”

Cost is one of the main reasons for the low take-up. A communicable diseases extension could double the cost of some insurance policies, although the costs are highly variable, particularly depending on the event’s location and the recent history of disease outbreaks there. Event cancellation insurance is typically calculated as a percentage of an event’s total expenses or revenues. Elliot says the percentage can range from 0.4 per cent to more than 2 per cent of those figures. An extension to cover communicable diseases would, prior to Covid-19, have cost another 0.2 to 1 per cent.

Insurance is typically taken out by the event organisers, although in some cases for major events, broadcasters and other commercial partners will also seek to insure their investments in rights.

“That’s quite common for larger sporting events,” Elliot says. “So, for the Olympics, big broadcasters like NBC out of the US would have their own event cancellation policy covering their loss of revenue.” Certain broadcasters in India also take insurance to cover their major cricket rights deals, he adds.

Right now, due to the pandemic, no insurance company will offer protection against cancellation due to communicable diseases “for the foreseeable future”, Elliot says. He adds: “If you would have come to us even in late November or early December, depending on where the event was, probably…anywhere outside of China we would have offered the extension under the cancellation policy.”

Discussions involving insurance companies and governments are currently taking place on how to provide such insurance going forward.

Unsurprisingly, interest in event cancellation insurance is expected to grow in the wake of the pandemic. That will be very welcome for the events insurance business – or at least those that remain in it after the losses they shoulder this year. The anticipated $4bn-$6bn in payouts must be balanced against annual premiums of about $300m-$350m earned globally by the sector, Elliot says.

“It’s going to take a while to pay that back. I think, as a result, you will potentially see insurance companies perhaps pull out of the market. But then you may see other players come in, as well.”

Circles Group will be one of the companies hoping to capitalise on a pick-up in demand, Elliot says.

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