Now that competition at the Tokyo Olympic Games is underway, the insurance industry is breathing an enormous sigh of relief.
Earlier this year the Olympic body found itself in a similar situation to March last year, when it postponed the Games by 12 months as the COVID-19 pandemic shut down sports worldwide. Much of Japan is again under a state of emergency due to the third wave of COVID-19 infections, and just weeks before the Games were set to start Tokyo announced that spectators would not be allowed to attend.
The IOC and Japanese organizers had been adamant that another postponement isn’t an option. The Games would have to be canceled, rather than postponed again if they weren’t able to go ahead in Tokyo this summer.
And that had the insurance industry on high alert.
Event cancellation insurers have had a tough year as a result of the pandemic, with festivals, conferences, and sporting events postponed or canceled all around the world. One broker estimated COVID-19 event cancellation losses at $5-6 billion. The Olympics, however, would be by far the largest. The Olympics is a World Cup, it’s a tennis tournament, it’s an athletics tournament. It’s swimming, everything all in one – definitely a huge headache for the insurers tasked with assessing the transferring the risk.
Analysts at Jefferies, one Broker that works with the Olympic Games, have estimated the Tokyo Olympics is insured for around $2 billion, plus a further $600 million for hospitality. The IOC takes out around $800 million of protection for each Summer Games, which covers most of the roughly $1 billion investment it makes in each host city.
In addition, local organizational committees in Tokyo will have taken out a further policy, estimated at around $650 million, while broadcasters are also insured for large sums.
These types of policies will have been bought years in advance and would likely cover cancellation due to infectious diseases. Event cancellation policies that were taken out in the last year, however, would exclude that coverage.
Additionally, many claims have already been filed as a result of last year’s postponement, for issues such as hiring venues or reprinting marketing pieces. Had a cancellation occurred this year, however, any payments made last year for postponement would have been significantly smaller.
Lloyd’s of London insurers are among those active in the event cancellation market, along with international insurers, and global reinsurers such as Munich Re and Swiss Re. According to some, Munich Re has a $500 million exposure to the Tokyo Olympics. Swiss Re has a $250 million exposure, according to chief financial officer John Dacey.
Given how far in advance Olympics policies are taken out, China (2022 Winter Olympics) and even Paris (2024 Summer Olympics) will also likely be covered for postponement or cancellation due to infectious diseases. So now that the Games in Tokyo are underway, the insurance market will begin to turn its eye towards China and the 2022 Winter games, and hope – like the rest of us – that we can put this pandemic in our rear-view.
