The show must go on

The warm welcome received by Jerome Valcke, Secretary General of football’s world governing body FIFA, on an official visit to one of the venues for next year’s World Cup in early October, was probably not of the kind he had been expecting. Dozens of protesters, armed with banners and slogans, invaded the half-finished Arena Pantanal stadium in Brazil’s western city of Cuiaba to complain at the huge amounts of public money being spent to host the tournament.

The demonstration may have been tiny in comparison to the estimated one million people who took to the streets last June to vent their anger at the government’s perceived profligacy and skewed priorities in hosting the 2014 World Cup and the 2016 Olympics, but it underlined the risks that civil commotion, strikes and riots pose to the smooth staging of both events. Add in the attendant risks of running any big showpiece event, such as terrorism or the spread of a communicable disease, as well as fears over the host nation’s ability to complete the building work in time, and Brazil has it all to do before the first ball is kicked at the Arena de Sao Paulo on the 12 June 2014.

Multi-billion investment

Some estimates put Brazil’s cost of staging the World Cup at £9bn (double the original estimate), while the original budget of £9bn for the Olympics is also set to rise. With so much at stake, any organisation or business with a significant investment in the events, whether it’s the organising committees themselves, broadcasters or sponsors – Centauro, Latin America’s largest sporting goods retailer, said it will be spending more than $50m on marketing for the World Cup – will be looking to protect their commercial interests.

One option is to turn to the insurance markets, particularly London, which offer cover against the risk of suffering a loss from an event being disrupted, cancelled or postponed. The cover can provide compensation for a wide range of businesses – not just the organisers and sponsors – that are left out of pocket because an event does not go ahead. So if a power failure shuts down the floodlights, or a general strike brings the country to a grinding halt, 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.

A good risk?

But how big a risk is there that something could go wrong, particularly given the repeated delays in the massive infrastructure building necessary for both the events to go smoothly? “Contingency insurance will not pay out if the problem results from the venues not being ready in time,” says Hiscox Contingency Underwriter, Elizabeth Seeger. “It covers events that are cancelled or postponed for reasons that are beyond the control of the insured, for example acts of terrorism, an outbreak of disease, bad weather, or government actions.”

Despite the long list of potential hazards that could derail such set-piece tournaments, and the billions of dollars which are riding on them, there’s a strong appetite to underwrite the contingency risks of these big events. “Underwriters see these as good risks because of how well run they are,” says Seeger. “An event like the World Cup or Olympics is well spread over several venues, so, even if there was a problem at one venue, other locations could step in. Take the 2011 Rugby World Cup in New Zealand. Despite the disruption caused by the earthquake in Christchurch, matches were rescheduled at other venues. Given this flexibility, contingency insurers are unlikely to see a 100% loss apart, perhaps, from an outbreak of a communicable disease such as SARS or avian flu which can’t be easily contained.”

The other major factor in insurers’ favour is the determination of the host nation’s government to make sure that an event like the World Cup takes place. “The government will ensure that there is little possibility for civil disruption to take place near venues during the actual event itself given the unfavourable international publicity it would generate,” says Seeger. “During London 2012, the UK government intervened very quickly to avert the possibility of a strike by transport workers. And look at the 2014 Winter Olympics in Sochi, where the security-conscious Russian government has been tightening access to the venues up to five years before the actual games begin.”

That doesn’t mean though that problems won’t happen. The Soccerex Global Convention – an event bringing together a wide range of businesses working in football due to be held in Rio this December -- has been cancelled. The reasons for calling it off have been disputed, but the organisers, as well as sponsors and suppliers, could be left significantly out of pocket. Depending on the circumstances, insurance could help with these losses.

Terror threat

With the eyes of the world on Brazil, there is also the possibility of the country attracting the unwanted attention of terrorist groups intent on staging some sort of spectacular attack. As a result, many businesses are already taking cover.

“We have seen an increase in interest for terrorism liability cover in Brazil,” says Michael Jordan, War Terrorism and Political Violence Underwriter at Hiscox. “There is little history of domestic or international terrorist groups mounting attacks in the country, but the staging of an international event certainly raises the possibility of some type of terrorist incident. The recent Al-Shabab attacks in Kenya, the Algerian gas plant siege and the 2008 Mumbai hotel attacks all demonstrated how groups with relatively unsophisticated tactics can mount major terror attacks and big sporting events are vulnerable to such threats.”

As well as terrorism liability, the civil disorder in Brazil over recent months is also driving up demand for strikes, riots, civil commotions, and malicious damage cover, adds Jordan. “Given the unprecedented protests highlighted during the football 2013 Confederations Cup, we have also received more enquiries for cover related to this type of disorder. Local insurers will not always want to retain the risk of these perils, so look to the London market for reinsurance.”

Hostage to fortune

Kidnap and ransom is an additional risk that will also be occupying the minds of corporates and the management teams supporting the wealthy sports stars who ?will be appearing. Brazil has long had a problem with kidnapping and continues to rank among the world’s top 15 countries for kidnap risk. “Express kidnapping – the short term abduction of a wealthy individual for a relatively small ransom – is a severe problem in Sao Paulo and Rio, and wealthy foreigners travelling to Brazil will be at risk,” says Charlie Hanbury, Special Risks Underwriter at Hiscox. “We’ve also seen footballers’ families in Brazil, who represent a softer target than the actual footballers themselves, successfully targeted for ransom payments.”

With the growing divide between rich and poor in Brazil, kidnap and ransom is likely to be a risk that will continue to grow, as will other perils such as threats and extortion. The presence of the World Cup and Olympics is likely to exacerbate those dangers.

The Olympic effect

Despite the inherent risks of these global sporting spectaculars, Brazil will be hoping that the economic effect of infrastructure investment, coupled with the boost from the huge influx of foreign visitors, will not only serve notice of Brazil’s arrival at the world’s top table, but will have a sustainable impact on the country’s economy for years to come. For now though, the country is focused on delivering successful events in 2014 and 2016. Insurance will play a key role, though organisers should take note that aside from stadiums not being ready there is one other risk that contingency insurers won’t cover says Seeger: “If the Rio 2016 Olympic Organising Committee were wondering about dropping the country’s president from a helicopter to open the Games – 2012 style – contingency cover wouldn’t pay out for her refusal to play the part.”