The confirmed one-year delay to the Tokyo Olympics is expected to have broad implications for the re/insurance industry beyond basic cancellation coverage issues, with some commentators suggesting that the decision could result in a $12 billion hit to the Japanese economy.
Japan’s Prime Minister Shinzo Abe, along with the International Olympic Committee (IOC), announced today that the Tokyo Games would be postponed until 2021 due to the global coronavirus pandemic.
Notably for the re/insurance industry, the IOC is thought to have an event cancellation coverage in place worth roughly $800 million.
Swiss Re revealed last week that it faces a $250 million exposure to the cancellation of Tokyo Olympics, while Munich Re’s exposure is also said to be in the region of $300 million.
But the wider economic impacts of the postponement could also lead to more insurance claims than expected.
For example, Japan has spent more than $12 billion preparing for the event, and sponsors and broadcasters have already invested huge amounts of money.
And analysts at Goldman Sachs similarly estimated that Japan would lose $4.5 billion in inbound and domestic consumption in 2020 if the Olympics did not take place as planned.
Katsuhiro Miyamoto, a professor emeritus at Kansai University, told NHK that the cost of maintaining and repairing facilities like stadiums and preparing for the Games all over again will require $3.8 billion.
He added that the Olympics also promised secondary benefits such as the formation of international business hubs, the promotion of small and medium-sized businesses, and the expansion of the robotics industry.
Without this economic boost, Miyamoto says that the country should be prepared for an additional economic loss of $2 billion.
Further considerations include the prospect of reduced tourism and lower consumer spending, which will likely result in an even bigger hit than he projects.
Considering these points, the postponement is likely to constitute a very significant loss event for the global re/insurance industry, and it comes at a time when the market is already dealing with immense pressures from the coronavirus outbreak.
With mounting claims coming from multiple areas, such as travel insurance, business interruption, and life and health, many sectors and individual companies are already bracing for large losses, as well as significant disruption to their business operations.
This has also led to a series of downgrades from ratings agencies in recent weeks, who see many sectors as vulnerable to the pandemic.
Until recently, the Japanese Government had maintained that the Tokyo Olympics were expected to go ahead as planned on July 24, 2020.
But with countries such as Canada, Brazil, Slovenia, and Norway saying that they will not send athletes to the games if they are held this year, pressure mounted quickly for Japan to consider a delay.
Just two days ago, the IOC said it had given itself a deadline of four weeks to consider a postponement or scaled-down version of the Games, while ruling out a cancellation.
But with the global coronavirus situation deteriorating by the day and looking set to continue much further into the year, it appears that the organisers were forced into a decision much sooner.
The Olympics have never before been delayed, but were cancelled in 1916, 1940 and 1944 during the two world wars.
Currently, it remains unclear as to whether the cancellation coverage would payout in full for the postponement of the games. Typically, cancellation coverages provide protection against delays as well as the total cancellation of an event. However, at this time the terms of these Olympic insurance contracts are unknown.
Industry sources have suggested that for those companies whose policies do protect against the cost of postponement, a claim would likely be less than full cancellation. Industry sources have also said that it’s challenging for insurers to know the full extent of any payout until after a postponed event actually takes place.