Experts' spotlight: Tom Phillipson

On 11 June, South Africa will be hosting 31 other nations and millions of fans for the 2010 FIFA World Cup™. Providing (re)insurance coverage for such a big event requires skilled underwriting experts to assess a variety of risks ranging from event cancellation to terrorism. Tom Phillipson, the recently appointed Head of Swiss Re's Special Risks unit, talks to "Experts' spotlight" to explain the type of covers available for such large sporting events and shares some wisdom on the market trends for his niche lines of business.

Experts' spotlight: What types of special risk covers are available for large sporting events such as the FIFA World Cup™, the Olympic games or Grand Slam tennis tournaments?

Tom Phillipson: Subject to some limitations, we insure organisers and televisors of these huge events against the financial consequences of cancellation, abandonment, interruption, curtailment or relocation due to all risks beyond the control of the involved parties. Clearly, a major terrorist incident at an opening ceremony would count as a worst case scenario. A political situation leading to a boycott could be very damaging as well. A natural catastrophe such as an earthquake or hurricane could also have a significant impact. Finally, of course, anything preventing the teams/competitors from reaching the venues (ash clouds for instance) would be bad news.

ES: How did your team go about assessing the exposures for the upcoming Football (Soccer) World Cup?

TP: In practice, the insurance broker (in co-operation with lead markets including Swiss Re) commissions experts' reports covering much of the risk assessment. The reports will cover topics such as Natural catastrophe exposure (South Africa is low exposed), details of the venues under construction, budgets (is there enough money to complete the necessary work?), and/or infrastructure (in particular, press centres and television broadcasting facilities). Transport is a vital part of risk assessment as well. It is vital that the teams and television crews can reach the venues on time. Traffic flow studies are therefore undertaken. We also consider the experience of the organising committees (FIFA themselves and the local South African body). We look at safety aspects and the political situation in the territory. For South Africa, we concluded that the risks were insurable and we committed a significant amount of capacity to the programme (in excess of USD 150 million).

ES: Has the financial crisis put pressure on (re)insurance pricing for large sporting events? Describe some major trends.

TP: Very large sporting events such as the 2010 FIFA World Cup™ and the Olympic games tend to require most of the available contingency capacity in the market at any given time (currently estimated at USD 600-800 million). Pricing for these events has therefore remained fairly stable. There has been an influx of new carriers into the contingency market in recent years, however, and this is to be expected when overall insurance market capacity is high and players are looking outside of core P&C areas for expansion. This has produced a softening effect on smaller, lower capacity risks. If market capacity contracts due to major losses or further market turmoil affecting assets, I would expect some of the current capacity in the contingency market to disappear "back to core" and for rates to return to their previous levels. In terms of other trends, I see bookmakers becoming more involved in contingency risk for individuals (hedging the risk of holiday cancellation or postponement in case of volcanic ash, for example).

ES: Can the possible claims emanating from cancellation of a major sporting event disrupt or destabilise the contingency market and/or the (re)insurance industry as a whole?