Contingency market: evolving in a complex landscape

Rokstone’s head of contingency David Boyle examines the changing risk landscape for large-scale events such as the Olympics.

The contingency market has undergone a seismic shift in recent years. The once-buoyant sector, characterised by its appetite for risk, was dealt a crippling blow by the Covid-19 pandemic. The unprecedented scale of claims forced insurers to reassess their underwriting practices and pricing models. As the market stabilises and new risks emerge, underwriters must maintain their discipline to ensure long-term sustainability.

The landscape is increasingly complex. Traditional risks like terrorism and civil unrest have been augmented by cyber threats and the growing impact of climate change. These interconnected risks create a challenging environment for underwriters, demanding a deep understanding of the evolving threat landscape.

Sporting events, in particular, present a unique and timely set of challenges. Large crowds and high-profile media coverage are highly attractive to terrorist and other political or religious factions seeking to send a message, and terrorists are increasingly sophisticated in their attacks. Recent sporting events, including the Euros and Paris Olympics, showcase the potential magnitude of losses from event cancellation or disruption. With the LA Olympics also on the horizon, insurers carefully assess the risks associated with mega-events from security to crowd control. Extreme heat, a growing concern for athletes and organisers, is a prime example of a new risk that needs to be factored into underwriting decisions. There are of course huge moral and safety implications to consider, but also great potential financial and reputational impact to organisations and brands involved; no organisation wants to be the headline sponsor for an event that is only remembered for a bomb or a mass shooting.

The contingency market has responded to these challenges with a new level of professionalism. Insurers want to see event organisers working closely with counter-terrorism and police teams on intelligence and surveillance. Underwriters are demanding more granular information from event organisers and implementing rigorous risk assessment procedures. This increased scrutiny is essential for pricing risk accurately and managing exposure effectively.

However, as the market softens and new capacity enters the market, there is a risk of reverting to pre-pandemic underwriting practices. It is imperative that underwriters resist the temptation to relax underwriting standards or offer lower rates. The lessons learned from the Covid-19 crisis must not be forgotten.

Insurers and reinsurers, such as Allianz, Swiss Re, and Munich Re in particular as lead markets, have a crucial role to play in shaping the future of the contingency market. Their financial strength and expertise enable them to take a long-term view and drive industry-wide change. By advocating for event scheduling adjustments to mitigate climate-related risks, these insurers can demonstrate leadership and contribute to the sustainability of the market.

Climate change is no longer a distant threat; it is a present-day reality. Extreme weather events, such as heatwaves, hurricanes, and floods, are becoming more frequent and severe, posing significant challenges to the market.

Sporting events are particularly vulnerable to climate-related disruptions. The Tokyo Olympics, for example, were held in the midst of a heatwave. As temperatures continue to rise, the likelihood of similar challenges increases, necessitating careful consideration of event scheduling and contingency planning.

Insurers incorporate climate-related risks into their underwriting models. This includes assessing the potential impact of extreme weather on event venues, infrastructure, and participants. By understanding the vulnerabilities of different regions and events, insurers can develop more accurate pricing and risk management strategies.

Technology is playing an increasingly important role in the contingency market. Advanced data analytics and modelling tools can be used to identify emerging risks, assess portfolio exposures, and optimise pricing. Additionally, technology can enhance risk management practices by enabling real-time monitoring of weather conditions and other relevant factors.

Insurers are investing in technology to improve their underwriting capabilities and risk management processes. By leveraging data and analytics, we can make more informed decisions and better protect portfolios.

The contingency market continues to face significant challenges, as it has in the past. By maintaining underwriting discipline, embracing technology, and collaborating with industry stakeholders, the contingency market can emerge stronger and more resilient. As the world continues to change, insurers will need to stay ahead of the curve. By proactively addressing emerging risks and developing innovative solutions, the contingency market plays a vital role in continuing to support the global events industry.

David Boyle is managing director, contingency at Rokstone.