Insurers may face billions in losses

LONDON • Global insurers face a hefty bill if the coronavirus outbreak forces the cancellation of the Summer Olympics in Tokyo, with estimates of the cost of insuring the sporting showpiece running into billions of dollars.

Japan has more than 240 cases of the disease, which is known officially as Covid-19, with six deaths reported as of yesterday.

Prime Minister Shinzo Abe has ordered numerous sporting events cancelled as it tries to contain the epidemic, but has pledged that the Olympics, in which the country has invested an estimated US$26 billion (S$36.22 billion) since clinching the hosting rights in 2011, will go ahead as planned from July 24. But fears persist that the Games may be postponed, moved or even called off, a decision International Olympic Committee (IOC) member Dick Pound was reported last week as saying would need to be taken by May.

Potential losses from axing the world's biggest sporting event will generally be higher the later a decision is made, said Adrian Thomas, a director at insurance broker Aon.

"If they have to cancel two to three weeks before the event start date, they have spent everything they have to spend," he added.

"If you have three months to go before the event's start date, they have an opportunity to save some event costs."

The IOC takes out about US$800 million of protection for each Summer Games, which covers most of the roughly US$1 billion investment it makes in each host city.

Insurance sources have estimated it would pay a premium of about two to three per cent, giving a bill of up to US$24 million to insure the Tokyo event, with the policy covering for setbacks ranging from war to natural disasters.

While diseases like the coronavirus are often excluded from standard event cancellation insurance, Alli MacLean, the global product leader (contingency) at German insurers Allianz said " the majority of large event policyholders would purchase communicable disease coverage".

Last Friday, Munich Re board member Torsten Jeworrek said his company was a provider of cancellation insurance for Tokyo and the amount was "in the hundreds of millions of euros".

Analysts at financial services firm Jefferies have estimated the insured cost of the 2020 Olympics at US$2 billion, including TV rights and sponsorship, plus US$600 million for hospitality.

Insurance sources say policies for most major sporting events are underwritten by Lloyd's of London or the broader London commercial insurance market.

Beazley and Tokio Marine Kiln are among Lloyd's insurers to have insured or reinsured the Olympics in the past.

Both companies did not respond to questions about the payout in the event of a cancellation, but an infographic by Beazley showed event cancellation insurance for the 2014 and 2018 World Cups covered potential losses of US$1.25-1.5 billion.

REUTERS