Coverage concepts for big events

Cancellation-of-events insurance

This covers the costs incurred (minus any savings and repayment of revenues) if an event has to be cancelled, postponed or relocated, provided that the policyholder is not responsible for the circumstances leading to the losses and that the losses are not excluded.

It is based on an all-risks policy, which stipulates various exclusions, such as losses due to nuclear energy. The inclusion of natural hazards (earthquake or hurricane) is standard practice. Other potential loss events include property damage, technical problems, decrees of public authorities and weather hazards.

There were significant uncertainties at the 2006 World Cup regarding the possibility of terrorist attacks in particular. The spread of avian influenza virus H5N1 was also discussed by some politicians as a reason for a possible postponement of the World Cup.

Failure of TV broadcasts

TV advertising, perimeter advertising and sponsorship monies are the main source of revenue for sporting events with a global audience. These revenues must be indemnified if TV pictures cannot be transmitted. Possible risks resulting from the use of satellites are evaluated by our experts in the Aviation and Space Division.

TV rights insurance

This is a special cancellation-of-events insurance specifically designed to cover the substantial advance payments made for the winter and summer Olympics. TV stations pay enormous sums for the broadcasting rights to these mega-events. The US TV company NBC Universal alone paid US$ 613m for the winter Olympics in Turin. In certain cases, for example the non-appearance of the US team, this money has to be reimbursed either partially or even in full.

Prize indemnity insurance

Many companies nowadays like to run prize competitions and advertising gimmicks during major sporting events. The costs of valuable prizes are not usually paid for by the organisers, as they remove this liability from their balance sheet.

For example, Munich Re has reinsured countless policies which refund the buyer the price of a plasma TV should a certain country win the World Cup. As this type of incentive is deemed unfair competition in Germany, most enquiries for this cover came from the London market.

Such risks are assessed by our actuaries, who calculate adequate prices on the basis of various risk models. Another variation on this policy is cover of the bonuses that national football associations have promised their players if they become world champions.

Residual value insurance

Munich Re writes this non-traditional form of cover in the field of entrepreneurial risks. It is usually closely associated with leasing business. Its objective is to guarantee the owner, renter or lessor of a property the difference between the projected residual values and actual values on a specific date stipulated in the policy.

Indemnification is made if the insured value stated in the policy exceeds the actual market value. In the case of the Allianz Arena in Munich, the cover requested was for a value of 70% of the building costs after a period of 15 years. The main criteria for assessment of this risk are the future usability or reusability of the property and the existence of a liquid alternative market, which in turn depends on the number of potential interested buyers.

In the case of residual value insurances for buildings, we work closely together with our asset management company MEAG, which supports us with assessment of a risk but could also add the insured risk to its portfolio in the event of a loss. The verdict on the Allianz Arena was negative because utilisation of a football stadium is closely linked to the fortunes of the local football clubs, and other potential uses are severely limited.

Weather insurance

Any open-air concert or event held outdoors is exposed to the vagaries of the weather. As only a fraction of the 3.2 million tickets at the 2006 World Cup were made available for public sale, it was decided to meet public demand by setting up publicviewing areas in many cities, with stages, state-of-the-art technology and giant screens, which would show all 64 games live.

The top sponsors of the organising committee and supported this project to the tune of €700,000 per location. The costs for electricity, water, toilets, cleaning, security, security staff and the like were paid for by the cities hosting the matches.

Some cities such as Berlin, which expected to incur costs of about €3m on the public-viewing areas, took out cancellation-of-events insurance, primarily to insure against the effects of the weather on these public viewings (temperature, rain, hail, windstorm).

Merchandising

Before any big event there is always some uncertainty as to whether there will be sufficient demand for the merchandising products acquired at huge expense. An income stream guarantee insurance can cover retailers against the possibility of being left with a shop full of cuddly toys and the like.

At the same time, it is also possible to insure against the eventuality that demand for products cannot be met. This covers the costs of extra shifts and overtime.