Event Cancellation Risk

Doubts Buzz Around Rio Olympics

The threat of Zika continues to prompt calls for the cancellation of the 2016 Olympic Games.
By: | July 5, 2016

As the threat of the Zika virus remains an urgent one in Brazil, calls have been made for the cancellation or relocation of the 2016 Olympic Games – an extreme decision that would cause enormous losses to the global insurance market.

Some of the world’s largest insurers and reinsurers, including Swiss Re and Munich Re, have exposures to the tune of hundreds of millions of dollars each for cancellation insurance policies that would likely be triggered if the games were not to take place.

Such policies cover financial losses caused by the cancellation of events and are purchased by the International Olympic Committee (IOC), which organizes the games, and by companies and organizations with significant interests in the games. They include sponsors, TV networks, tourism operators, airlines, brands with Olympic-focused marketing campaigns and others.

Underwriters must have sighed with relief when the World Health Organization said “there is no public health justification for postponing or cancelling the games.”

The risk of cancellation gained steam in recent weeks after a group of more than 150 high-profile scientists released an open letter urging the games to be suspended in order to prevent Zika from spreading around the world.

“An Unnecessary Risk”

“The Brazilian strain of Zika virus harms health in ways that science has not observed before,” the scientists said in the letter. “An unnecessary risk is posed when 500,000 foreign tourists from all countries attend the Games, potentially acquire that strain, and return home to places where it can become endemic.”

They pointed out in the document that the 2003 Women’s World Cup was moved from China to the U.S. due to the risk of SARS, which should be a precedent for the cancellation of Rio 2016.

Royal Oakes, insurance partner, Hinshaw & Culbertson

Royal Oakes, insurance partner, Hinshaw & Culbertson

Underwriters around the world must have sighed with relief when the World Health Organization released an answer to the scientists, stating that “there is no public health justification for postponing or cancelling the games.”

“It is very likely that current policies have no exclusions for public health events such as epidemics,” said Royal Oakes, an insurance partner at Hinshaw & Culbertson in Los Angeles.

The market may have dodged a bullet, but insurers and reinsurers may still face a bill due to the pesky Aedes mosquitoes, which transmit not only Zika, but also other viruses such as chikungunya, dengue and yellow fever; all common diseases in Brazil.

“Cancellation policies are such long shots that usually nobody gives them any attention,” Oakes said. “But now everybody is talking about cancelling Rio 2016 due to Zika.”

According to sources, at least one of Europe’s largest reinsurers signed a large cancellation contract with NBC, which owns TV rights to the Olympics in the U.S. It has been pressured to consider the possibility of triggering the coverage even if the games go ahead, but key American athletes decide not to compete, affecting ratings and, consequently, publicity revenues.

Although this kind of clause may not be usual in policies, Oakes said, it may have been arranged between the parties, as wordings are non-standard and are subject to agreements between buyers and underwriters. That said, he would be surprised if a policy was triggered by the fact that athletes do not show up.

Top golfers Rory McIlroy of Ireland and Jason Day of Australia, and Tejay van Garderen, one of America’s top cyclists, have already announced they are not going to Rio in August because of Zika.

Others include NBA star Pau Gasol, the most famous member of Spain’s Olympic team, U.S. soccer player Hope Solo and tennis star Serena Williams. All have expressed doubts about participating in the games due to the risk of contamination. Some NBC staffers are also passing on the opportunity.

Companies that send staff to Brazil during the games have been advised to provide information to their employees on Zika prevention.

The Brazilian government said that measures have been taken to stop the propagation of Zika during the Olympics. Furthermore, it argued that the games will take place during the Brazilian winter, when the activities of the mosquitoes diminish considerably.

“There is no risk for the spreading of Zika to gain pace during the Olympics,” Health minister Ricardo Barros said in early June.

But the failure of the Brazilian authorities to stop the virus so far raises doubts about the minister’s claim.

Since the autochthonous version of the outbreak was first spotted in April last year, almost 92,000 cases of Zika contamination were reported in the country, according to the government.

Since October, there have been nearly 1,500 known cases of babies born with microcephaly, which has been linked to the virus. A total of 223 have already been associated to Zika via lab tests. The actual number could be much higher, as the tests to identify both Zika and microcephaly cases are not available to all Brazilians.

Companies that send staff to Brazil during the games have been advised to provide information to their employees on Zika prevention.

They range from simple measures such as applying repellent and wearing long-sleeved clothes that reduce the skin area that can be targeted by mosquitoes, to avoiding poorer regions of Rio de Janeiro, where sanitation infrastructure is precarious, and practicing safe sex, as the virus can also be transmitted during sexual intercourse.

Security Risks

But Zika is not the only risk that worries participants in the event.

Debora Rocha, regional security manager, International SOS

Debora Rocha, regional security manager, International SOS

Security is a big issue in Brazil, and 90,000 security agents will be deployed by the authorities to guarantee safety. Although terrorism is not a common threat in the country, the security forces said that they have been collecting information about potential attacks during the games and are working with other countries to neutralize the risk.

“Brazil has hosted the Pan American games, the Confederations Cup and more recently the FIFA World Cup, so there is considerable experience in dealing with large events and collaborating with security forces from other countries,” said Debora Rocha, the regional security manager at International SOS in Brazil.

But crime is a major concern in Rio de Janeiro, and it is on the rise as a consequence of Brazil’s economic crisis.

Rocha said visitors should avoid walking around beautiful Rio de Janeiro while carrying valuable items — such as iPads, smartphones or expensive watches — and they should not wander around impoverished parts of the city.

“We do not recommend that people go to ‘favela’ tours that have been fashionable in recent years,” she said, referring to Rio’s famous, and very dangerous, shantytowns.

Another important precaution is to only take taxis that are called by hotels, restaurants or telephone services. Picking a taxi on the road is a particularly bad idea as some cab drivers can be criminals in disguise.

In general, information on risk management systems and structures have not been made public, which has raised questions about the robustness of ERM at the Rio games.

“Crime is among the top two or three concerns, along with Zika and the general preparedness of infrastructure and venues in Rio,” said Abbott Matthews, an analyst at IJET International.

In the latter case, the Olympics organization has been dogged by work delays, bribery suspicions and faulty execution, as illustrated by the crumbling in April of a scenic, seaside waterway that was built as a legacy of the games to the city of Rio de Janeiro.

Preparedness has in fact been a concern throughout all of the construction of Rio’s Olympic structures, and a lack of focus on risk management may have played a role.

The local organizers hired an experienced Brazilian risk manager to focus on enterprise risk management in 2013, but he left the next year after disagreements with his bosses. Since then, the position has not been filled.

Public speeches on risk management at the games have been delivered by a military police colonel who is in charge of security and who focuses mostly on policing issues.

In general, information on risk management systems and structures have not been made public, which has raised questions about the robustness of ERM at the Rio games.

“In large scale events, especially when there is taxpayers’ money involved, there is a deep obligation to have the most transparent processes in place,” said Joanna Makomaski, president of Baldwin Global Solutions, who was the vice president of ERM with the Toronto 2015 Organizing Committee of the Pan American Games.

Rodrigo Amaral is a freelance writer specializing in Latin American and European risk management and insurance markets. He can be reached at [email protected].

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