Terror, riots, weather add up to big risks
If the London Olympic Games were cancelled at the last minute, it wouldn't just be the spectators who'd be disappointed - insurers covering the international event would face huge compensation bills.
And, unlike the Beijing Olympic Games where insurers mainly worried about the risk of earthquakes, the London Olympics' biggest insurance risks are terrorist attacks and riots - not to mention the weather, according to an expert in Olympic insurance coverage.
'Hosting the Olympics in London will bring different challenges to those posed in China four years ago,' Munich Re underwriting manager Andrew Duxbury said.
'In Beijing, natural catastrophe risks such as earthquakes were on insurers' minds, whereas in London, flash flooding from summer storms could cause temporary disruption.
'However, issues such as terrorism are potentially much more serious.
'I can spend more sleepless nights worrying about London because the terror risk is undoubtedly there.'
He said that given London had been the target of terrorist attacks in the past, many underwriters would probably consider 'London a higher terror risk [than Beijing] and charge risk-adequate premiums'.
But Beijing faced more challenging natural perils, 'like earthquakes, for example'. 'Security threats cannot be ignored,' Duxbury said.
He said London might be an attractive target for activists because in the large multicultural city they could blend in, 'but security will be at the forefront of the authorities' minds'.
Duxbury estimated that overall revenue exposure from cancelling the London Olympics would reach around US$5 billion. 'If the Olympics were cancelled today you have the contractual liabilities and exposures, and parts of these are insured, whether it's TV rights, advertising or the mug seller,' he said.
For example, if someone spent GBP500 (HK$6,022) on a ticket to the final of the 100 metres, they could claim that from the organiser if the event was cancelled, and the organiser could then claim that back from the insurer - if the organiser had bought cover.
Since the Munich Olympics in 1972, organisers have increasingly invested in insurance cover against everything from cancellation of the opening ceremony to scratching of individual events as a result of anything from bad weather, natural disasters, terrorism, riots, strikes and national mourning.
The insurers would also pay compensation for event cancellation caused by an outbreak of disease, venue damage, or for broadcast interruptions caused by power failure, or satellite or transmission breakdowns.
Duxbury said that so far no event cancellation compensation had been triggered for the Olympics, but the organisers still preferred to be covered. He said Munich Re had issued Euro350 million (HK$3.33 billion) in total coverage to various purchasers against full cancellation of the London Games this summer.
The amount, in US dollars, that Munich Re estimates would be lost in revenue if the London Games were cancelled