The long awaited Tokyo Olympics were held from 23 July to 8 August 2021 after a year’s delay due to the Covid-19 pandemic. This was a lucky break for athletes as well as Insurance companies!
Around 70 % of Japanese were against the Olympics being held, since most of them had still not been vaccinated! Nevertheless, the games were not cancelled. The International Olympic Committee (IOC) and the Tokyo 2020 organizers had made sure of that.
But what did this mean for insurers?
The IOC, local organizing committee, hospitality, various broadcasters, sponsors, and teams had taken up many insurance policies including Event Cancellation insurance. This insurance was designed to reimburse them for things like sold tickets, catering, photography, entertainment, in the event of the Olympics getting cancelled.
If the Tokyo Olympics had been cancelled, these insurers would have had to pay between $2-3 billion - that would have been the largest ever claim in the global event cancellation market! The blow would have been felt largely by re-insurers, since they bear the bulk of the risk.
Well, luckily that didn’t happen. However, Japan had issued a new state of emergency in Tokyo shortly before the games - calling for them to be held without any audience or fans.
The problem here was, tickets had already been sold all over the globe before the event was postponed. And so, insurers had to pay-out $400 million for ticket and hospitality refunds. Notably, this accounted for only around 10-15 % of the total losses they would have faced had the event been entirely cancelled.
Event cancellation insurers had been getting multiple hits during the pandemic because they hadn’t previously considered such losses. They are likely to re-evaluate their strategy (and premiums) moving forward.
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