Sabine Bach
The financial risk of mega-events
International competitions like the World Cup and the Olympic Games have become commercial mega-events involving enormous financial risks for the organisers. In order to cover such events, the insurance industry needs both a high level of know-how and sufficient capacity.
The winter Olympics in Turin, the World Cup in Germany, tennis at Wimbledon — 2006 has already seen its fair share of major sporting events with a global audience. And it seems that just as the curtain comes down on one event, preparations are already under way to stage the next one. While 2007 features smaller world cups in cricket (in the West Indies) and in rugby (in France and the British Isles), 2008 will see the staging of the European football championships in Austria and Switzerland and the summer Olympics in Beijing, two mega-events whose financial risk has skyrocketed in the last few decades.
Most of the revenue for these events comes from the TV broadcasting rights. The more popular an event is and the higher the expected viewing figures, the more TV channels can charge for advertising time and the more expensive the broadcasting rights are to acquire. Back in 1984, the broadcasting rights for the Los Angeles Olympics were sold for US$ 225m. At the Athens Olympics 20 years later, the price of the TV pictures had more than trebled (see chats: TV stations are the real winners).
Given the enormity of the sums involved, it is vital to clarify well in advance of an event who will pay for any economic losses, for example when TV pictures cannot be transmitted or if events have to be abandoned or cancelled. As conventional lines of insurance cannot cover such risks completely, event organisers risk having to bear some or all of the costs or facing major claims from the sponsors.
Creativity, knowledge, experience
Such unusual risks, for which the law of large numbers is only of limited value, require creativity, an acute awareness of the hazards involved and international experience on the part of insurers. Munich Re has many years of technical expertise in cancellation-of-events insurance and can draw on its wide range of know-how at the company and at its many international business units.
Munich Re's Geo Risks Research Department plays a vital role in this process. The experts in this unit help us to evaluate natural hazards such as hurricanes and earthquakes and to assess weather conditions relevant to cancellationof-events insurance. Investigations showing the impact of climate change on losses in individual classes of business provide additional support for the assessment.
Munich Ecoconsult offers its clients services for the risk management of big events. It provides extensive consultancy and risk inspections during the planning and execution phases and also draws up security concepts and reports.
Among the biggest risks at a mega-event are its full or partial cancellation and the failure of TV broadcasts. This is not only of relevance to such big occasions as the Olympic Games and World Cup but also to events like trade fairs or world exhibitions, the financial risks of which have also grown enormously over the years.
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