Friday, January 3, 2014

Qatar World Cup Debate heats up BUT INSURERS KEEP THEIR COOL

The 2022 World Cup's decision in Qatar has provoked a heated debate about when the competition should be played. But Lloyd’s underwriters are confident that they will be able to come up with an insurance solution whatever the outcome.

Heated debate

The World Cup is the world’s most viewed single sporting competition, and many were surprised with the decision to hold the 2022 tournament in Qatar, a country where temperatures can easily top 40 degrees Celsius in the summer when the event is traditionally held.

Critics argue that it is too hot to hold the event in the summer, but moving it to the winter months would disrupt the European domestic football season and clash with major US sports that would compete for television viewers. Football’s governing body FIFA says the event will definitely be held in the Arab state, being either played in June and July with a system of air conditioning in the stadium or rescheduled to the cooler winter months.

The on-going debate over when the World Cup will be staged is being closely watched by Lloyd’s underwriters, who have insured past World Cup risks ranging from cancelation through to the players on the pitch.

In perspective

For all the public debate about the climatic conditions, the perceived risks of holding a World Cup in Qatar are really no higher than many other major events that have been successfully staged in the past, explains Richard Tolley, Senior Vice President in Marsh’s Global Sports & Events Practice.

For example, many events have been held in regions with significant natural catastrophe risk – the Olympics are due to be hosted in an earthquake prone Tokyo in 2020 while next year’s Winter Olympics in Sochi, Russia, could be exposed to high winds and the risk of avalanche.

“Whatever the sport and wherever an event is held, there will always be some degree of risk,” explains Tolley. “Many of the risks can be mitigated and insured against and the London market should be able to respond to most of the kinds of challenges presented by the World Cup in Qatar. Whether the event is held in the summer or the winter, the insurance world can be expected to find the covers required,” he says.

Emerging sports markets

As large events like the World Cup look to locations in emerging markets, it poses different challenges for underwriters, including natural perils, political risks and infrastructure.

“Whether it’s the Winter Olympics in Russia, the Olympic Games in Brazil or the World Cup in Qatar, they all present different challenges to insurers,” says Chris Rackliffe, underwriter at Beazley.

Natural catastrophes and severe weather events are typically the big risks for large events; however, Qatar is not associated with large natural catastrophe exposures. But there is the potential for extreme summer temperatures.

“The heat is something that underwriters will look at closely. If the World Cup is played in June or July, matches would need to be played in air-conditioned stadiums, so we would have to consider the implications for power failures and infrastructure when underwriting the risk,” says Rackliffe.

Regional risks

The risk of terrorism and civil unrest are also important risks for large events, few more-so than the 2022 World Cup. Qatar is currently relatively stable compared with other countries in the region affected by the Arab Spring. The gas-rich Persian Gulf state has not seen unrest, however it has played a role in regional politics, supporting uprisings in Libya, Egypt and Syria.

Another risk that underwriters would consider for Qatar would be the implications of a period of national mourning. The country is ruled over by the Al Thani family, although the reigning Emir of Qatar was just 33 years old when he succeeded his father who abdicated in June 2013 at the age of 61.

All these risks are insurable and within the scope and expertise of insurers in London, explains Rackliffe. “Most major events are covered in the Lloyd’s market where there is a real skill at assessing and pricing complex risk, like political exposures and natural perils,” he says.

Under scrutiny

The heat factor is a concern for insurers as it could add to the risk for both players and spectators, according to David Bruce, a sports underwriter at Pembroke Underwriting. Insurers will be keen to see what steps would be taken to mitigate the risks, he said.

When previous World Cup’s were played in Brazil, games were scheduled for cooler evenings and players were given time to acclimatise, according to Bruce, who underwrites personal accident insurance for footballers and other sports players.

Clubs typically buy personal accident insurance to cover costs should a player become temporarily injured, permanently disabled or die in an accident, explains Bruce. Players also can buy personal accident to cover their loss of income if they were to suffer a career ending injury.

But should players be injured whist on international duty, clubs would expect to be compensated or reimbursed for the cost of paying wages. As a result most national football associations buy personal accident insurance to cover this liability, often at Lloyd’s, according to Bruce.

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