Cancellation of the Olympics in Tokyo could end up costing insurers as much as US$3bn, according to a Bloomberg Intelligence report.
With only six weeks to go before the event opens in the Japanese capital, experts also say the event has now gone beyond the point of no return in terms of less costly cancellation and a recent report in the Japan Times suggests the real cost of cancellation (not just to insurers) would be a conservative $17bn.
The International Olympic Committee (IOC) has pledged its determination to go ahead with the games on July 25th despite heavy opposition from pressure groups who fear the global sporting event will trigger another wave of COVID-19 within the country.
Although recent reports suggest opposition may be easing following the number of Covid-19 cases falling, medical opinion remains strongly opposed to the event taking place.
News that Japanese corporate sponsors have also favoured a second postponement after international spectators were excluded has not helped the cause.
Meanwhile, the IOC has said it is focused on making the Games safe for both participants and spectators, and organisers released plans for the vaccination of participating athletes as well as daily testing.
A decision is yet to be made on the status of spectators on whether they will be allowed to physically enter the venues to see the events live.
Olympic cover for the International Olympic Committee
The IOC has already taken out $800mn worth of cover to protect against any event cancelling which may occur, for the 2020 Olympic event.
According to reports, an additional cover of $650mn has also been purchased by the local organising committee. This includes coverage for broadcasters, professional sports teams, hospitality and sponsors and the report has estimated the insured cost of cancellation would run to $2-3bn.
However, such a large scale event is not a simple one to halt and because of that, the IOC has had Clause 66 written into its contract with the Japanese Government. The juncture means that if the Japanese authorities pass any regulations that damage the possibility of hosting the games, this would be considered a breach of the agreement and the IOC can terminate their contract and walk away at their sole discretion.
In the event of such an occurrence, Tokyo would be liable the costs for the preparations to date and would also be obliged to indemnify the IOC from any third-party claims, actions or judgements, a report from the Irish Times stated
Even if the organisers were to invoke the clause in the contract that may allow for cancellation for unforeseen events or undue hardship – a force majeure-type clause – the IOC is not obliged to consider such a request.
Significantly, the powers granted to the IOC apply not only to cancellation before the games but also at any time during the games.
COVID-19 cancellation of events
The estimated losses would exceed those of the UK’s festival season, which saw dozens of large-scale events cancelled for the second year in a row due to COVID-19 - and a lack of Government support in insuring against cancellations.
While Japan would need to re-introduce emergency measures in the event of another wave of COVID-19 infections, the losses would still be severe. London- based Howden Brokers estimates a second cancellation of the Olympics would be one of the largest event cancellation costs globally, with Simon Henderson, an executive director at broker Gallagher, describing it as 'mind-blowing'.
“The Olympics is a World Cup, it’s a tennis tournament, it’s an athletics tournament. It’s swimming, everything all in one – definitely a huge headache," he said.
Insurers of the Olympics
Meanwhile, Swiss Re revealed that insurance losses could huge if the Games are cancelled, and in 2020, its direct Olympic exposure was $250mn - an estimated 1% of net earned premiums.
Speaking about the possibility of cancellation losses, Charles Graham, Senior Industry Analyst at Bloomberg Intelligence said, “Insurers and reinsurers will be on tenterhooks over the next six weeks as the Tokyo Olympics' opening nears, with any cancellation of the already postponed 2020 event potentially costing the sector $2-$3 billion in aggregate, based on our calculations."
Graham added, “That would hit an event-cancellation industry already battered by record 2020 claims.”
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