Risk management concerns leave Brazil off the pace in run-up to Rio 2016

Market sources estimate that the exposure of the insurance industry to an event such as the summer Olympics can reach more than $1bn in cancellation and abandonment policies alone. Organising entities, such as the International Olympic Committee (IOC), are among the main buyers of this type of policy. But other parties also purchase such protection. “Event cancellation cover protects the insured against the financial consequences arising out of the cancellation, abandonment, interruption, postponement or relocation of the insured event due to any cause beyond the control of the involved parties,” explained Sonja Kaufmann, a senior underwriter of special risks at Swiss Re. “There are several event cancellation covers in place [for Rio 2016] for various stakeholders. On these large events the typical buyers are the international sports federations, the local organisers, TV companies, merchandisers and any other party that has a financial interest in the event,” she added. According to Ms Kaufmann, Swiss Re has a “three-digit million” exposure to one such major placement for Rio 2016. One of its main rivals, Munich Re, said its total exposure to cancellation reaches $200m.hideEvents that could trigger these policies include natural catastrophes, team non-appearance, unavailability of the venues or infrastructure, adverse weather, pandemics, terrorism, civil commotion and war, Ms Kaufmann pointed out. Among the biggest cancellation and abandonment policies placed for 2016 is that purchased by the IOC. The Committee first transferred cancellation risks to the reinsurance market for the 1996 Olympic Games in Athens. Since then, it has had cover in place for every summer and winter Olympics. An IOC spokesperson confirmed to Commercial Risk Europe that the policy has been renewed for Rio 2016, although no further details have been made public. Other interested parties have placed large coverages in the reinsurance market. For example, CRE has learned that one of Europe’s largest reinsurers has written the cancellation and abandonment policy for NBC, the TV network that owns the rights to broadcast the games in the US. According to sources, the policy covers potential losses if audience ratings are lower than expected because the games are cancelled or suspended. It also protects NBC if ratings drop because the US Olympic team, or key individuals, decide not to attend the games. NBC has insisted that the coverage can be triggered even if only star athletes decide to skip the games, sources said. Fears over non-attendance have risen as result of the Zika virus epidemic in Brazil. Although no nation has so far vetoed travel to Rio de Janeiro in light of Zika, some national sports federations, such as the US, have said it is down to individual athletes to decide. There are also concerns that risk management standards for Rio 2016 have fallen below the standards set by previous hosts. Experts say that risk management practices have improved at each summer Olympic Games for the past couple of decades. However, there are fears that Rio 2016 has bucked this trend. This conclusion has been fuelled by a lack of transparency over risk management practices by the Rio 2016 Organizing Committee. There are suggestions that the Committee does not have a structured risk management department. Concerns were stoked when a well-know Brazilian risk manager hired by the Committee in 2013 left a year later due to disagreements with his bosses. No replacement has been announced. Despite many attempts by Commercial Risk Europe, the Committee’s press office was unable to confirm how risk management for the games has been dealt with, or who is in charge of managing the process. This lack of transparency contrasts with a pledge made by the IOC to put risk management at the top of its list of priorities for Rio 2016. “The IOC uses the international enterprise risk management standards ISO 31000 for the identification, assessment and management of risks,” a spokesman for the Committee said in a statement. “Risk management is an essential part of the IOC’s work because it decreases the likelihood that unexpected events will adversely affect the organisation’s ability to achieve its objectives.” The organising committee for the 2012 summer Olympic Games in London showed a significant and transparent commitment to risk management best practice. “In London, basically all aspects of the governance of the games had integrated in them some kind of notion related to risk management,” said Will Jennings, a professor at the University of Southampton who studies risk management at the Olympics. However, little information has been made public on risk management and mitigation by the Rio 2016 Organizing Committee. The IOC itself has expressed concerns about the construction of some venues and infrastructure for Rio 2016. An extension of Rio de Janeiro’s metro system, seen as a vital transport link for spectators, will not be completed in time for the Olympics. Polluted waters in the Guanabara Bay where sailing competitions will take place have not been cleaned. The Organizing Committee’s financial statements have provided some data on its insurance arrangements. Operational risk cover has been purchased with limits of around $28m. Civil liability protection is in place, with limits below $1m. Directors’ and officers’ (D&O) insurance has been taken out to cover up to $7.4m of losses. Market sources noted that the D&O cover looks particularly insufficient given the context of the Brazilian D&O market, where losses are mounting and risks are high. The Brazilian authorities seem to have made physical security of the Olympic venues a top priority. A presentation on risk management made by the organisers to the Brazilian Congress in December 2015 focused mostly on arrangements made with security forces to guarantee that athletes and spectators will be safe during the games. However, in documents supporting Rio’s Olympic bid the organisers claimed that terrorism is not a significant risk for the event because Brazil is not traditionally targeted by terrorists. Some experts do not agree with this assessment. “The security of athletes and spectators is the main risk at the Olympics,” said Chris Nash, executive director at speciality insurer Sportscover. “Unfortunately with events like the Olympic Games, the fact that Brazil is not a terror hotspot is not really relevant. Terrorists want the biggest exposure possible, so wherever the Olympic Games take place, there is an opportunity for them.”

Risk management concerns leave Brazil off the pace in run-up to Rio 2016

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