Subrogation & Recovery Law Blog
Risk Management of Olympic Proportions: Crunching the Numbers and Insuring the London 2012 Games
In anticipation of the London 2012 Olympic Games starting today, the International Olympic Committee (IOC) has faced a myriad of issues, not least the risks, relating to insuring an event that the UK Defence Secretary, Philip Hammond, described as “the biggest security challenge this country has faced for decades”. A quick glance at the sheer extent and magnitude of the Games readily reveals some of these challenges:
2012 in Numbers
London will be the first city in history to hold three Olympic Games.
Construction of the London Olympic Park required over 200 buildings to be demolished, 1.4 million square metres of site to be cleared, 200 kilometres of electrical cables (installed in two 6km tunnels dug under the Park) and 30 new bridges. In addition 4,000 trees, 74,000 plants, 60,000 bulbs and 350,000 wetland plants have been planted (and 2,000 newts relocated to a nature reserve).
There are no fewer than 50 sites (in England, Scotland & Wales) involved in the Games, which will host 14,700 athletes from 205 countries competing across 26 sports in 34 venues located in London and around the UK. Spectators to the Games will number around 500,000 visitors each day to the competition venues, 20,000 media and broadcasters, and a worldwide television audience of about five billion (with £5 billion being the estimated advertising revenue).
Equipment required for the Games includes about 600 basketballs, 541 life jackets, 2,700 footballs, 53 swimming lane ropes, 6,000 archery target faces, 165,000 towels, 510 hurdles, 356 pairs of boxing gloves and 99 training dolls for Wrestling and Judo.
The precautions being taken to safeguard the Games are even more impressive. In terms of personnel there are 12,000 police officers, 15,000 security staff, and 17,000 military personnel (including 11,800 soldiers). The equipment deployed is also incredible: the Royal Navy’s biggest ship, HMS Ocean, will be stationed in the Thames, while Typhoon jets, E-3D Sentry and VC-10 aircraft, Sea King, Puma and Lynx helicopters and Rapier and Starstreak missile sites are all ready to respond.
All of this adds up to the largest peacetime security operation the UK has ever seen and highlights the ongoing threat of terrorism and the need to appropriately insure the Games.
2012 in Insurance
Earlier this year, following approximately twelve months of intense negotiations between the IOC and 26 international insurance entities, the IOC announced that it had officially insured the London 2012 Olympic Games for a sum of £62,000,100. The insurance policy is intended to cover any terrorist attack or outbreaks of hostility which might impact the progression of the Games. The £62million sum represents the maximum amount insurers are prepared to take on as financial risk with the amount divided among the 26 sporting federations competing in the Games (which would pay about a fifth of their losses). In addition to this large figure shouldered by global insurance companies there are two other reserves in place: the IOC pool of about £310million; and Pool Re, a UK-backed reinsurer “of last resort” which retains £4.5 billion in assets.
The IOC Pool
The IOC, under the leadership of Jacques Rogge, oversees a pool of £310,000,500 (in comparison, the Athens Olympics was only £105 million) maintained in reserve to cover losses. Insurance coverage for the Games primarily falls into three main categories: liability, event cancellation, and property damage insurance (albeit with some overlap between categories).
The IOC must consider and prepare for most eventualities, including the possibility that the Games will be severely disrupted or cancelled in their entirety. Such a situation is not without precedent: the Olympic Games have been cancelled three times in the last century as a result of the World Wars. Games organizers will also be mindful of the bomb attacks London suffered just days after the city was awarded the Olympic Games in 2007 or, more recently, last summer’s instances of rioting and looting (Torch bearing of a wholly different kind!). Such developments, though beyond the organisers and IOC’s control, represent significant and unpredictable threats. In addition, natural disasters, outbreaks of viruses, accidents related to massive public transportation disruptions, and even the possibility of cyber terrorism must also be considered. The high profile nature of the Olympics, combined with the presence of the worldwide media spotlight, means that countries, entities and groups might attempt to use the Games as a platform for propagating political or ideological messages. The Atlanta 1996 Games marked terrorist attacks and boycotts while the 1980 USSR Games saw countries band together to boycott the USSR’s invasion of Afghanistan. 39 countries also announced their withdrawal from the 1968 Games following the IOC’s decision to readmit apartheid South Africa as a Game’s participant. The Games’ event cancellation insurance will cover such costs related to rescheduling affected portions of the games including program printing costs, ticket costs, and crowd control considerations.
In addition to the formal Olympic Insurance Policy, Pool Re, a UK-backed reinsurer “of last resort” retains a pool of £4.5 billion in assets specifically earmarked to cover the Olympic Games should the need arise. Pool Re was created in 1993 in cooperation with the UK government as a response to the withdrawal of reinsurance cover of the UK market for terrorist attacks, following the IRA bombing of the Baltic Exchange in 1992. Insurers in the UK can reinsure with Pool Re. their commercial property liabilities for terrorism claims in excess of their self-insured retention.
The terms of the official insurance contracts signed between the IOC and its international insurers - overseen by broker Marsh - remain strictly confidential and largely shielded from the public eye. Such confidentiality stems from a desire to retain sponsors and to block opportunistic third party claims. Thus, many questions, including whether or not the terms of the signed policy would truly limit all losses and whether or not some facets of the Games will remain outside of coverage, will remain largely unanswered, though widely speculated in the public domain. In turn, the IOC has moved progressively to retain control over insurance risks by requiring athletes, participants and vendors to sign Waivers of Subrogation before interacting with the Olympic Delivery Authority (ODA), which constructs the venues and provides the Games’ infrastructure. In addition to the employee liability insurance and the professional liability insurance maintained by consultants, suppliers and third parties, the Olympic Delivery Committee will also manage risk by offering coverage at all of its sites and facilities. The ODA has, in turn, placed much emphasis on the layout of venues, security provisioning and facility management to keep related law suits remains at a minimum and to serve as a first-line of defence against potential risks.
Staggering numbers are involved in the preparation and composition of the Games, which require significant insurance issues to be addressed. Taken together, London is (hopefully) ready for what the Culture, Media and Sports spokesman Baroness Garden of Frognal called the “greatest show on Earth.”
As we begin the London 2012 Olympic Games let us all hope that dramatic events are strictly left in the realms of Sport and that the Games pass without incident.
**Robert would like to thank Delia Solomon for her assistance in preparing this blog post.