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Brokers warn of big coronavirus hit to event insurance market

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Brokers warn of big coronavirus hit to event insurance market

The outbreak of the new coronavirus could mean a heavy claims burden for the already stretched event cancellation insurance market, according to brokers.

Communicable disease is typically excluded from event cancellation policies but is often bought back for an additional premium. Tim Thornhill, director of sales, entertainment and sport at insurance broker Tysers, said in an interview that depending on whether the canceled events have cover, "the impact could potentially be enormous."

Large global insurers and reinsurers are so far expecting a limited coronavirus impact on their businesses overall. Those with life insurance exposure have said the outbreak is small compared to the 1-in-200-year pandemic scenarios they use for stress-testing. On the non-life side, many business insurance policies only pay out when property has been damaged, and take-up of non-damage business interruption coverage is low.

But for the small, specialist event cancellation market, "potentially it's huge," said Gary Flynn, divisional director for sport, media and entertainment at broker Howden UK Group. "Relatively speaking there isn't much capacity available in [event cancellation] compared with other classes of insurance."

The event cancellation and wider contingency insurance markets are already under pressure. Edel Ryan, head of entertainment, content production and corporate reputation in the special risk team at Marsh & McLennan Cos. Inc. unit Marsh JLT Specialty, said in an interview that before the outbreak, an accumulation of losses over the years had already prompted some insurers to "entirely withdraw from contingency risk."

Other insurers had continued to write it, she said, "but at increased rates." Ryan added that there had been withdrawal of coverage from outdoor events in particular, "and now there is [coronavirus] on top of it. So I think we can expect this to impact the industry quite hard."

Cancellations climb

Several events have already been canceled, with a threat of more to come. Events that have been pulled so far include February's Mobile World Congress in Barcelona, Spain; March's Cisco Live in Melbourne, Australia; and the annual South by Southwest festival in Austin, Texas. Others, such as the Grand Prix in Shanghai and the World Athletics Indoor Championships in Nanjing, China, have been postponed, and a number of sporting events have been ordered to be played without spectators, including matches in Italy's Serie A soccer league and the Formula 1 Grand Prix in Bahrain.

"Most of the very significant large events, I would suggest, probably had more of an appetite to take out the communicable disease buyback," Thornhill said.

Probably the biggest potential impact, Thornhill said, would be a cancellation of the 2020 summer Olympic Games, scheduled to take place in Tokyo between July 24 and Aug. 9. The International Olympic Committee takes out cancellation insurance for each iteration of the event, and the Insurance Insider reported that its policy for the Tokyo games has an $800 million limit.

The BBC reported that Japan's Olympic minister, Seiko Hashimoto, said March 3 that Tokyo's contract with the International Olympic Committee could allow for a postponement, as it only stipulates that the Games be held in 2020.

Munich Re reinsurance CEO Torsten Jeworrek told analysts Feb. 28 that if all the events it covers that have communicable disease cover are canceled, the reinsurer would face claims in the "medium triple-digit million" euro range. It is one of the participants in the Tokyo games policy.

A potential source of trouble for Lloyd's of London insurers in particular would be widespread cancellation of U.K. and U.S. events, which Flynn said in an interview make up the majority of Lloyd's insurers' exposure.

"As soon as you start seeing widespread cancellation of U.K. and U.S. events, then you would actually see insurers suffering financially quite significantly." If this happened, he added, "it might mean that the insurance syndicates will no longer be able to trade in that class."

Insurers react

Many event cancellation insurers have responded by specifically excluding the new coronavirus and any mutations from the communicable disease buybacks on any newly issued policies. Flynn wrote in an advice bulletin to event organizers that the new exclusions capture losses arising from actions taken to control the virus, restrictions in movements and travel advisories. He added that the exclusions extend to events scheduled for late 2020 and 2021, regardless of location, "as [insurers] are concerned with their aggregate exposure."

Flynn said in the interview that a lot of insurers, with the exception of more sophisticated firms, will not have tracked their aggregate exposures, so will not necessarily know how they would be affected in a worst-case scenario.

If coronavirus cover is available, it is likely to be at a prohibitive price. Before the outbreak, the communicable disease extension was available for 0.1% of insured budget, Ryan said, but following the outbreak, she had heard a rate of 15% of a specified insured limit being talked about for covering coronavirus, although no one had formally agreed to it.

"If deals are done, I imagine it will be difficult to fund them — who can pay 15%?" she said.

Complex picture

Although widespread event cancellations could hit insurers hard, brokers point out that the situation is not clear-cut because of the wide variation in coverage. Ryan noted that two policies are rarely alike, making it "very difficult to say how many of those who buy cancellation will have [coronavirus] cover."

Even where the coverage is in place, it may not be triggered — for example, if a company cancels an event even though there was no official advice or instruction to do so. Flynn said the communicable disease buyback covers a limited number of risks, "and there are certain aspects of what we're seeing with events being affected now that aren't necessarily covered by the perils which are bought back."

A spokesperson for the Mobile World Congress said the event had "full and comprehensive insurance coverage" but that the "exceptional circumstances" that forced the event's cancellation are not covered by insurance policies.