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Contingency

No sleepless nights

The fact that the organisers and investors in the event can sleep soundly in the days leading up to the World Cup in Brazil is partly thanks to the British monarch, Edward VII. When the king fell ill in June 1902, shortly before his coronation, the festivities had to be postponed. Because a large number of reservations were then cancelled, a series of court cases ensued, which became known in legal history as the "coronation cases". For the first time, an event cancellation was recognised as a legitimate reason for withdrawing from a contract.

11.06.2014

Nowadays, insurance policies to cover this situation are indispensable. "It can prove very costly if a large sporting event is unable to be held as planned, or in a worst-case scenario, if it has to be cancelled altogether," explains Andrew Duxbury, a Munich Re expert on the insurance of major events. 

Television channels demand their money back for transmission rights, sponsors for advertising, and visitors for tickets. Mascots and T-shirts cannot be sold, hotels remain empty and travel bookings are cancelled. "There are no limits to the kinds of reason for an event cancellation," says Duxbury. "The only important criterion for the policy to attach is that the trigger event must lie outside the control of the policyholder." So natural catastrophes are covered, terrorist attacks, epidemics, a prolonged power outage, or simply a major fire that destroys a stadium, for example, just before the opening ceremony. The problem with sports events on the scale of the World Cup is that they cannot be spontaneously relocated if something happens just before the start of the event," explains Duxbury.

He himself has never experienced one of the major sporting events having to be cancelled altogether. "But on many occasions, I have had to hold my breath," he admits. "Most recently with the Rugby World Cup in New Zealand in 2011. Following the severe earthquake in Christchurch, no matches could be held in that city." But with the combined efforts of everyone involved at the time, they managed to reschedule the matches in other cities. Insurers bore the resultant additional costs. He recalled that there was also an earthquake just a few months before the opening ceremony for the Olympic Games in China in 2008: "But the Chinese still managed to ensure that the Games went ahead as planned."

Duxbury explains that experts in event cancellation insurance have been focusing for years on Brazil as the venue for the World Cup. "From the moment the venue was announced, we have been addressing all the issues related to the risk assessment," he says. The natural hazard exposure of the locations was checked with Munich Re's geoscientific experts. "But Brazil is not seriously threatened by earthquakes, severe windstorms, or other extreme weather events." Other experts assessed the experience the host country has in staging mega-events, how it handles security measures, and how carefully employees and volunteers are checked.

The Munich Re experts also take a look at the emergency plans and the logistics plans. Unlike the Olympic Games in London though, the challenge in Brazil is not only that the traffic systems in the host cities could collapse, but also the huge distances to travel between the different stadiums. "But the event organisers have factored in adequate safety buffers to ensure the players are on the pitch in good time for the kick off. While it is a pity if the spectators do not arrive on time, there is no insurance for this misfortune."

Specialists were also brought in to assess the political risks in the country. "The fact that Munich Re has a subsidiary in São Paulo was a great help in this area. Needless to say, our colleagues on the spot have a much clearer picture of the situation in the country than we do here in Europe," Duxbury admits. He added that they had paid close attention to the unrest in Brazil over the last few months, but pointed out that there were always protests in the lead-up to major events of this kind, particularly in countries with strong social disparities. "Experience has shown that the excitement in the country increases a little day by day until the event itself finally begins."

For Andrew himself, there is now only one scenario that would keep him awake at night: England losing a penalty shoot-out – against Germany.

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