HOST CITY: Marsh is more than an insurer – the aim of your work is also to analyse risk and to evaluate risk. What sort of risks are you looking for?
Patrick Vajda: We are an insurance broker but we are also a risk manager, and for big sports events our speciality is in fact to analyse risk and propose solutions – not only to place insurance.
As an insurance broker we place insurance. We cannot avoid this, particularly because a lot of event “owners” such as the IOC, FIFA, UEFA and the majority of the international federations are obliged to ask for high levels of insurance included in the host city contract.
But we prefer for example to find solutions to prevent the risk happening, than to settle a claim and to cancel the event. This is the real philosophy we have in sports: to avoid risk and to decrease the global cost of the risk.
We have developed a unique risk management especially for mega events which we have implemented for several Olympic Games and World Cups. We also have expertise on the ground on more than 300 events.
HOST CITY: What is your view of the current level of instability in world cities today?
Patrick Vajda: The risks are always moving – it’s not a new story. Now they are moving faster because of the internet and the quality and speed of information. Some risks are totally new. When you spoke about the cyber risk five years ago it was more or less a joke; now it’s not a joke, it’s a serious matter. If you take drones for example: five years ago nobody knew anything about drones, now it’s a risk and a real one.
Therefore, on the one side we have some new risks and on the other side, old risks but with a higher level than 20 years ago. If you take the example of terrorism, the security budget of Salt Lake City has increased by almost 10 times as a result of September 11.
In the past you allocated U$30m or US$35m for security; now you need several hundred USD. This is completely crazy, but we need to expend those amounts – we have no other solution to be able to protect the public, the athletes and to protect the event.
HOST CITY: What is the aim of risk management in major events?
Patrick Vajda: When managing risk for sport events, you have three targets. We try to protect the life of human beings; to protect the finances of the organising committee, and to protect the time schedule. Terrorism is a risk that can impact on all three.
With regard to security, there is not only a question of security in the field. With modern means, one can easily detect upstream specific movements of someone who you would perhaps prefer not to see at the event. Security is not only a question of “heavy muscle” on site, but also carrying out studies long before the event and cooperating closely with the world’s different police forces.
We have fewer problems with counterfeit tickets or credentials and increasingly more problems with fan zones, because they are free. I heard recently that if you want to go to a fan zone, you go on the internet and get a free ticket by filling in your name, credit card number and so on. It is a very good protection and prevention system since you need to complete a form giving your personal information.
You register your data and it is therefore possible to know who is at the venue which is very important for security reasons. We can also check to see if somebody has a false or stolen credit card – it’s an interesting system. Though it does not provide 100 per cent protection, all the same it is a good system.
HOST CITY: Have you been working with fan zones for the 2016 European Football Championships?
Patrick Vajda: Yes, we have done several risk analyses for this particular area. It was clear that this is particularly dangerous and to protect it correctly, it will require heavy expenditure and a large security team.
HOST CITY: What if the worst case scenario happens and an event has to be moved or cancelled?
In terms of cancellation, it’s becoming an incredible problem for several reasons. The first is the pricing of the cancellation policy, which before September 11 was around 1.5 per cent of the sum insured. Just after September 11 it was 3 per cent without terrorism, and now is between 2.8 and 3.8 per cent with terrorism.
Imagine, if you have an event which costs 600 million, the price of the cancellation policy is the price of a small stadium. So perhaps you will hesitate to buy this policy; it’s very costly and does not cover 100 per cent of the risk. Nevertheless it is useful. Insurance is always expensive…..before the claim.
HOST CITY: So there is no legal obligation for organisers to buy a policy?
Patrick Vajda: In substance, no, except for FIFA and UEFA who ask for a compulsory cancellation policy.
Take the example of the Olympics. The price of the Olympics – what we call the internal budget, of US$2.6 billion – it’s impossible to find this on the insurance market. The total capacity worldwide is perhaps US$1.5bn– if you took all the insurance companies in the world, you couldn’t find more than this.
Even if you could find it, the price of the policy would be a little less than $100 million just to insure cancellation. So you wouldn’t spend US$100m to insure cancellation, it is incredibly costly. The fact that the capacity is extremely rare has a very high impact on the pricing of this policy.
Capacity is very low and is often taken by the owners of the event. Therefore the organiser is often faced with a predicament: buying insufficient cover at a very high cost. In other words cover that will not protect you 100 percent.
Knowing this, the question is whether to insure cancellation? The answer is not simple. And a risk analysis is compulsory before making any decision. For example do we need to insure the total cancellation of the event? Or do we need to insure just ticketing? Or just TV rights? As you can see the answer is not automatic and the risk analysis will give us the answer.
I personally feel it is much more useful to spend money on risk management, to find the best possible solution, to eliminate the risk and to decrease the global cost of the risk.
This article first appeared in the Summer 2016 issue of Host City. Patrick Vajda is speaking at Host City 2016 conference and exhibition in Glasgow on 21st November on the panel "How Cities Can Be Secure Hosts"