As Brazil copes with the Zika-virus outbreak, political turmoil, civil unrest, crime, water sanitation and the looming threat of terrorist attacks, thousands of athletes, fans and officials are making their final preparations for the Summer Olympics. While none of the crises look likely to derail the Rio 2016 Games, the list of concerns reads like the list of covered exposures in a well-designed cancellation of event insurance policy.
The International Olympic Committee is not alone in struggling to cope with the world of extreme events. Just look at some major sporting events that have recently been canceled, relocated or postponed:
- National Football League (Buffalo)
- English Premier League (Manchester United)
- Major League Baseball (Pittsburgh and Miami)
- Southeastern Conference Football (LSU and Tennessee)
If the list were to be expanded beyond sports, the number of concerts, events and conventions suffering the same fate is too large to compile. So, what should be considered when planning an important event, whether large or small?
Zika is the latest of many infectious diseases to result in global travel advisories, the banning of large concentrations of people or implementation of public health control measures Communicable disease resulting in quarantine or restriction in people movement by a national or international body or agency is simply one exposure that concerned parties can eliminate through effective use of insurance solutions.
See also: How to Think About the Zika Virus
In today’s world of extreme weather events, once remote weather-related possibilities are becoming more and more frequent. Previously safe geographic areas have experienced hurricanes, earthquakes, wildfires, snowstorms, hailstorms, etc., all of which can leave event planners madly scrambling to determine the extent of damage incurred and whether their carefully choreographed event can go on. Even if the adverse weather does not damage the venue(s) of the event itself, the mega-facility guidelines of the nation may require the requisition of the venue by emergency personnel or evacuees in the event of a hurricane, wildfire, dam-breaking or some other catastrophe.
Despite recent World Health Organization warnings, foremost in the worries of most risk managers for large-scale events is the rise of terrorist actions worldwide. Protection against terrorist acts can be included in cancellation of event policies for an additional cost. Such coverage would typically exclude the use of nuclear, chemical or biological materials, or radioactive contamination post-Fukushima, but even these eventualities can be covered if a thorough market analysis is conducted. Many policies do not require that a terrorist event actually take place; they can be designed to protect an entity’s financial interest if the event is affected by the mere threat of terrorism, if the threat is confirmed by a recognized competent authority on the state, national or international level.
Key person coverage:
For events that rely on the attendance of certain personnel, performers or speakers, organizers can buy coverage specifically protecting against the non-appearance of key people.
Public sector strikes:
Public sector strikes, particularly those involving transportation services, and damage or loss of utility service to a venue also lead to many events being canceled, relocated, postponed or interrupted and are all insurable exposures.
Business interruption coverage:
Contingency insurance exists to provide protection for the expenses an entity occurs in organizing an event as well as the revenue the event should generate for the organizers, promoters, municipalities, etc. There is no “boiler-plate” solution for a specific event. It is essential that the event organizers and insurance representatives spend time evaluating the actual financial exposures the entity has. Expenses are normally the easiest to determine because they are fixed costs. However, many streams of revenue are often ignored if too much attention is given to the largest items, such as ticket sales, instead of supplementary income generated from merchandise sales, concessions, sales, lost sponsorship monies or even parking fees for attendees.
See also: The Defining Issue for Financial Markets
It is equally essential to determine who the financial responsibility ultimately rests with. Sponsorship contracts serve as a good example of complex obligations. If a corporation has agreed to spend millions to be the signature sponsor of an event, and the event is moved to a different venue where companies other than the sponsor already occupy desired signs and exposure, it should be determined if the expense is a sunk cost to the sponsor or if the hosting party has to reimburse the sponsor. This contract clause should dictate who receives the insurance policy benefit. Experience in determining financial exposure that each party incurs when events are in their initial planning stages is invaluable when custom-designing insurance policies to cover all possible financial liabilities.
It is only a matter of time before a global spectacle of an event is canceled due to an unforeseen peril. While the emotional loss experienced by the participants and attendees is high, the financial impact can be mitigated or completely eliminated through the insurance market.