Hiscox’s Lizzie Seeger, Michael Jordan and Charlie Hanbury explain why contingency, terrorism and K&R insurance covers are in demand as Brazil gets ready to host the 2014 World Cup and the 2016 Olympics.
The warm Brazilian welcome received in October by FIFA Secretary General Jerome Valcke was probably not of the kind he had been expecting. Dozens of protesters invaded the half-finished Arena Pantanal stadium in Cuiaba to complain at the huge amounts of public money being spent to host the 2014 World Cup.
The demonstration may have been tiny in comparison to the estimated 1m people who took to the streets last June to vent their anger at the estimated £18bn cost of hosting the next World Cup and summer Olympics, but it underlined the risk of disruption that exist to both events.
There are hazards to running any big showpiece event, but with so much at stake, any organisation or business with a significant investment in these two events will be looking to protect their commercial interests.
One option is to turn to the contingency insurance markets, particularly in London, which offer cover against the risk of suffering a loss from an event being disrupted, cancelled or postponed. So if a power failure shuts down the floodlights, a general strike brings the country to a grinding halt or a SARS outbreak shuts all airports and ports, those companies will be able to recoup some, or all, of their losses, such as ticket refunds, lost TV advertising revenue, or cancelled hotel bookings.
Terror and kidnap threats
With the eyes of the world set to turn to Brazil, we have seen increasing interest for terrorism liability cover. There is little history of domestic or international terrorist groups mounting attacks in the country, but the recent Al-Shabab mall attack in Kenya shows how groups with relatively unsophisticated tactics can mount major terror attacks, and big sporting events are particularly vulnerable to such threats.
The civil disorder in Brazil over recent months – which marred last year’s football Confederations Cup – is also driving up demand for cover against strikes, riots, civil commotions, and malicious damage. Local insurers will not always want to retain the risk of these perils, so look to the London market for reinsurance.
Brazil has long had a problem with kidnapping, and express kidnapping – the brief abduction of a wealthy individual for a relatively small ransom – is a severe problem in Sao Paulo and Rio. Wealthy foreigners travelling to Brazil to watch the tournaments will be at risk. We’ve also seen footballers’ families in Brazil, who represent a softer target than the actual footballers themselves, successfully targeted by kidnappers.
For now, Brazil is focused on staging successful events in 2014 and 2016. Insurance will play a key role, though organisers should take note – contingency insurance will not pay out if a problem results from the venues not being ready in time.
Image credit SportingTonic (external link)