Spotlight: Special Events
The Olympic Games began and ended without incident but what if they had been cancelled?
While Italians sadly said farewell to the Torino 2006 XX Olympic Winter Games, held Feb. 10-26, insurers are happy the event came and went without a hitch. For the first time, the International Olympic Committee purchased an event cancellation policy for the Torino games to cover financial losses in the event the Olympics were called off. Many facilities, hotels, broadcasting companies and corporate sponsors also purchased cancellation insurance to mitigate the risk exposures associated with the Olympics, and to cover any economic loss had business been interrupted, according to Aon Risk Services, Chicago.
“The whole aspect of terrorism and terrorism risk has come to the forefront on TV newscasts every day,” said Lori Shaw, director for the contingent products group of Aon Risk Services. “Awareness of terrorism risk was a big motivator in looking into event cancellation to include [insurance] coverage for terrorism. We see that not just at the Olympics, but at trade shows, conferences and any events that could be impacted by the inability to get to the event or the disruption of an event by a terrorism act.”
More than event revenues
Shaw said clients like the IOC often look to event cancellation coverage to insure gross revenues from the event, as well as the cost and expense of hosting the event. “When you’re looking at the Olympics, there’s not only cost and expenses, but there’s revenue from TV contracts and sponsorships,” she said.
An event cancellation policy is an all-risk policy that can be customized and manuscripted to insure a particular event domestically or abroad. “Weather can be included or excluded. Terrorism can be included or excluded. Event cancellation policies are really broad peril policies that are supposed to apply to all risks outside of the controlled. And that can even include the nonappearance of significant participants or performers,” she said.
A single event cancellation policy may have coinsurance or a monetary deductible, Shaw added. “If you’re insuring a music tour that has multiple stops, you might have a two-show or three-day deductible. But it’s not uncommon for a single event to not have any deductible.”
In Torino’s case, the historic stadiums needed greater risk assessment than modern buildings. “Historic buildings have an undetermined value,” said Chris Rogers, risk control director for Aon’s entertainment group. “With a modern building, you know the value and what the costs were. But if you have an irreplaceable building, the values are difficult to determine. Additionally, building standards are not the same as today, so older buildings are more susceptible to damage.”
No riot coverage
What was not covered by the IOC’s event cancellation policy, however, was civil disobedience. So, if a riot occurred or bomb went off, similar to the one at Centennial Olympic Park in Atlanta, it would not be covered by event cancellation. “In Atlanta, the larger concern was liability with spectators in a general public access area,” Shaw said. “You would seek liability coverage, not civil disobedience coverage, for that.”
Fortunately for insurers, the 35,000 spectators and athletes, the games occurred without incident. But in the wake of Katrina, which forced trade shows in the Southeast to be cancelled or moved to other regions, more companies are looking to protect their investments.
“With the proliferation of concerns about terrorism and communicable diseases, we receive inquiries daily from clients wanting to protect their budgets or revenue sources,” Shaw said. Typically, customers buy coverage two to three years prior to large events. “Clients are already in the marketplace buying coverage for Vancouver,” she said. The Winter Olympics in Vancouver will be held in 2010.
With the Beijing Olympics in 2008, there are additional risks underwriters are concerned with that could increase pricing, including the political climate plus concerns about an avian flu epidemic, Shaw said.