The International Olympic Committee expects the Olympic Games in Tokyo to proceed even as Japan deals with another wave of coronavirus infections.
But with a growing chorus of voices in Japan calling for another postponement or even a cancellation, the specter of long-lasting impact from the Games on the insurance industry still looms.
The IOC in an email said it was entering "operational delivery" for the Olympics and Paralympics and that it was "clearer than ever" that the games would be "safe for everyone participating and the Japanese people." The events have become a source of controversy in Japan with citizens signing petitions calling for their cancellation, and a number of municipalities pulling the plug on their plans to host athletes and provide training camps.
Simon Henderson, an executive director at Arthur J. Gallagher & Co. in the U.K., said if the Olympics do not go ahead as scheduled, the cost of the claims will be "felt for some time," as the potential impact on the contingency insurance market is significant.
"Clearly time is of the essence if it is going to be cancelled, as we are getting closer to the start of the event and the vast majority of costs will now have been incurred," he told S&P Global Market Intelligence.
Duncan Fraser, managing director for sport and entertainment at Howden Broking Group Ltd., noted that insurers have already paid out between $500 million and $1 billion for Olympic-related losses. The Games being canceled entirely would add more than $1 billion to the claims total, he said.
Fraser said a policy taken out by the Japanese local organizing committee has paid out in full, with the extra costs of moving the event to 2021 being covered; other policies held by other stakeholders could see "substantial claims" being triggered.
The impact from a cancellation will be significant and would be felt for the next couple of years at least, but rates could settle down after a while, according to Leigh Ann Rossi, senior vice president at NFP Corp.'s sports and entertainment group.
Current challenges
All event cancellation coverage now excludes COVID-19 and communicable disease because of the pandemic, which has caused billions of dollars in losses, Rossi said.
Insurers are still absorbing the losses from prior cancellations of events, large and small, worldwide as the pandemic began and government restrictions were put in place, said Peter Shellard, an account executive in the sports and entertainment team at Miller Insurance Services LLP. Some carriers have left the space entirely, he said, and those that continue to insure events have increased their rates and reviewed the terms and conditions of their policies and coverage extensions.
There are new insurers and capacity coming into the space, though further withdrawals and rate increases could occur if an event like the Olympics were to be canceled, according to Shellard.
Howden's Fraser said rate increases have ranged from 20% to 30%, and even more in some cases. Despite these challenges, the market has drawn new entrants such as Convex Group Ltd., Cincinnati Financial Corp. and Arch Capital Group Ltd.
"The challenge at the moment is finding enough capacity in the marketplace for the mega events like the Olympic Games as the lines sizes for most insurers has reduced," Fraser said.
Gallagher's Henderson named Chubb Ltd., Talbot Syndicate, W. R. Berkley Corp. and Markel Corp. as notable departures; the new entrants have been attracted to event insurance because of the competitive rating environment.