At first glance, two of 2018’s most anticipated events – the recent Royal Wedding in England and the FIFA World Cup™ in Russia – may not appear to hold much in common.
Yet both events drove businesses around the world to have high hopes for the profits that could be generated by them. And some of those businesses chose to ‘expect the unexpected’, and protect their investments from loss with contingency insurance from Swiss Re Corporate Solutions.
Contingency insurance can cover expenses or lost revenue from an event that is interrupted, abandoned, postponed, relocated or cancelled. It can also cover related, additional expenses such as preventative adverse weather measures, or bringing in extra security, to help mitigate a loss. Public and private entities alike rely on it for more than just weddings and sporting matches.
“Music concerts, conferences, festivals, films, photo shoots – any type of event is insurable as long as there is insurable interest,” says Jonathan Cole, Head Special Risks.
Demand fuelled by disturbing trends
This year, Swiss Re Corporate Solutions has already underwritten over USD 100 million in contingency coverages, up 20% year-over-year. The increase mirrors booming global demand, as event-dependent businesses seek protection against losses wrought by anything from adverse weather to the illness of a superstar.
Smart business decisions, given the ballooning economic damages caused by natural disasters over the last few decades and warnings about the rising risk of pandemics, as the earth becomes increasingly populated and interconnected.
There are more sinister risks to consider, as well.
“Terrorism is always a hot topic, especially in Europe at the moment,” says Jonathan, explaining contingency coverage generally centres on an act of terrorism at a venue or within a specified radius.
Wounds from the lethal attacks at concerts in Paris, Manchester and Las Vegas are still raw. And while the 2017 Global Terrorism Index reported a decrease in terrorism intensity since 2014, it reported an increase in the number of countries under attack.
“Terrorism, war and communicable diseases are normally excluded, but all of these covers can be bought back,” says Jonathan. “Coverage gives peace of mind when you’re holding an event.”
Massive potential for gains – and losses
The Royal Wedding drew approximately 110,000 guests to Windsor – and thankfully passed without incident. Once the receipts are tallied, it will be interesting to see how close Brand Finance was in predicting the event would boost the British economy by over GBP 1 billion. The consultancy estimated tourism and public relations would net GBP 300 million each, with retail and restaurants close behind at GBP 250 million, and fashion and merchandise pulling in the rest.
Yet just imagine if the wedding had been scheduled to take place in say … Hawaii. The Kilauea volcano, spewing destruction since early May, was still active at the time of publication. Big Island events planned for both tourists and locals have been postponed indefinitely. A financial wallop like this can devastate event-dependent businesses, especially since many factor related revenues into their budgets years in advance.
Too big to postpone or relocate
The 2018 FIFA World Cup™ is the poster child for high-profile events planned years in advance. Little wonder the football association protect itself against additional costs with contingency insurance, should match be postponed or relocated. (Touch wood, football fans!)
The 2014 FIFA World Cup™ generated over USD 4.8 billion in revenue; in its 2017 financial outlook, FIFA projected nearly USD 5.7 billion in revenue from the 2018 games. With matches taking place over a month-long period, postponing or relocating a single day of play could have a significant impact on revenue.
Matches could be postponed or relocated for countless reasons: waterlogged pitches, air quality, denial of access, power failure, fire and threat of terrorism are all possibilities. Russia may be over 10,000 kilometres away from central Africa, yet the re-emergence of Ebola in the Democratic Republic of Congo in this age of easy travel has the world on high alert.
Nor is FIFA the only organisation with enormous risk exposure. As of April, 1.6 million tickets had been booked by fans. The businesses that will bed, feed, transport and entertain these fans have been counting on this revenue since FIFA announced the games’ location – way back in 2010.
Planning ahead can be risky … without contingency coverage
FOX Sports is a prime example. In 2011, the entertainment company bid approximately USD 425 million to secure TV broadcasting rights to the 2018 and 2022 games – six years before men’s team USA failed to qualify for 2018.
When the home team was eliminated, viewership expectations declined, taking advertiser enthusiasm and dollars with them. (Bloomberg reported FOX’s advertising losses could reach USD 50 million.) Furthermore, ratings could be dented, causing the network to default on rating guarantees to existing advertisers, thus resulting in extra expenses.
Swiss Re Corporate Solutions provides insurance for when teams achieve, or fail to achieve, certain goals. “Given the stakes, Fox Sports would be well placed to consider such contingency coverage for the 2022 games,” says Jonathan.
For now, let us hold our breath, and hope the 2018 FIFA World Cup™ runs as smoothly as the Royal Wedding – which went off with only the one hitch, as intended.
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