Assessing large event risks

Sonja Kaufmann, 27 May 2013

Swiss Re Corporate Solutions provides event cancellation coverage for some of the most renowned entertainment and sporting events in the world. Event organisers face enormous expectations and strict deadlines — and they cannot be slowed by every 'what-if' scenario. Swiss Re Corporate Solutions supports the successful execution of such events by helping to manage the risks intelligently.

Events of this sort range from a multi-site sporting event/competition taking place in one city or country over just a few days or weeks, to a lengthy concert tour covering the world’s biggest cities. Clients rely on Corporate Solutions' capacity, product design skills and underwriting expertise.

"We are a very well-known player in the market," says Sonja Kaufmann, Senior Contingency Underwriter. "Brokers approach us when they need to place such a large risk. The London wholesale market is the largest 'hub' for risks of this kind. We also get in contact with large sports federations such as FIFA or IOC, as well as large tour promoters."

Events such as Olympic Games or Football World Cups are extremely large and complex risks. However, they are high quality risks. Ms. Kaufmann highlights that when it comes to large sporting events, the host nation's reputation rides upon the success of the occasion. "There is meticulous planning and monitoring at every stage, as well as full scale testing prior to the event and contingency plans for relocation / postponement. Security is top notch and overall the events are supervised by very experienced governing bodies."

Equally important: events of a magnitude such as the Olympics and the World Cup have a long history, with no incidents that have ever caused a cancellation or abandonment (except for the two World Wars).

In terms of size, the London Olympics were one of the largest sporting events ever, with USD 1.3 billion worth of insured value. However, some commentators suggested that the total market exposure to cancellation (considering the risks to TV networks, local organisers, sports federations, merchandisers, etc.) was between USD 5 and 6 billion. Ms. Kaufmann highlights that there's not enough insurance capacity in the market for a single-risk of that size.

"The key insurable perils are terrorism, natural catastrophes, communicable diseases/pandemics and boycott," she comments.

Insurance cannot cover every risk. It cannot be offered against insufficient funding or lack of interest in the event (resulting in low attendance). There are also a number of standard exclusions within insurance policies, which include war and terrorism. These standard exclusions can be bought back to ensure an adequate level of coverage.

Underwriting considerations for event cancellation take into account lots of information: funding, organisation, loss history, the experience of organisers, contingency plans, susceptibility to natural catastrophes and state of the venues, to name but a few. It is also important to review the existing contracts between, say, the TV networks and the federations and organisers.

"For underwriting, all risk factors are assessed and priced individually (eg venues, infrastructure, experience of organisers, security, natural catastrophes and weather exposure, war/terrorism etc.) In this respect we also speak, for example, to our natural catastrophe or political risks experts and calculate probabilities of occurrence," says Ms. Kaufmann.

Large concert tours are also a specialty of Swiss Re Corporate Solutions, and the company enjoys a solid reputation in this market. Concert tours are a growing industry, though, with more events to be insured and more insurers offering coverage.

Today bands put on ever-more spectacular performances, often playing to millions of fans across dozens of cities in the course of their world tour. Lights, special effects, staff, machinery and other attractions drive operating costs up and up, sometimes approaching nearly USD 1 million per day. Transport, cancellations and failures (either of performers or their equipment) can all undermine the best-laid plans.

The assessment of risk for a concert tour is similar to underwriting for large events, although there is more relative weight on non-appearance (and there is more loss experience here). "Because if the band can't play, that's it – that's the end of it. In a large sporting event, one game cancelled or postponed won't stop the show," Ms. Kaufmann indicates.

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Sonja Kaufmann

Senior Underwriter Contingency, Swiss Re

Sonja Kaufmann is a Senior Underwriter in the Contingency and Crime team, based in Zurich. She transferred to Swiss Re Corporate Solutions in 2009 and has over 20 years of specialist insurance experience, gained mainly in the London and European market and overseas.

Ms Kaufmann previously worked as Special Risks Underwriter in the reinsurance division of Swiss Re.

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