The attack on the Sri Lanka cricket team in Lahore shocked sporting authorities around the world. But it could also have repercussions in the London market, where many event organisers look for terrorism and cancellation cover. Danny Walkinshaw reports

When a cricket match is cancelled, rain or bad light is usually to blame. But on a recent Tuesday morning in Lahore, with the Pakistani city eagerly awaiting its nation’s test against Sri Lanka, a far more sinister event caused the stadium to remain empty.

On the way to the ground, the Sri Lanka team bus was ambushed by terrorists. Six people were killed – five police officers who were protecting the team and a driver. Seven members of the Sri Lanka squad – six players and a British assistant coach – were injured.

It was the worst attack on a sporting event since the Munich Olympics of 1972, when Palestinian militants kidnapped and murdered 11 Israeli athletes and coaches.

The outrage in Lahore – which caused the cancellation not just of that test match but of the rest of the series – has sparked fears of a new wave of atrocities at sporting events. And the massive claims generated by the match’s cancellation could jeopardise the insurance of other major tournaments.

“What was remarkable about the Lahore attack was that it was not inside the stadium, but en route to it,” says Gordon Woo, terrorism risk expert at Risk Management Solutions. “Events which involve activities outside of stadiums are vulnerable. With regards to the Olympics, you have street events like the marathon which are impossible to protect.

“In a stadium you can control access, but for street events it is impossible. The only way to protect these is if you have intelligence before about the planning of such events.”

He adds that the targeting of the cricket team will make it more difficult and expensive for sport governing bodies to insure such risks.

“The amount of insurance coverage available is very much market-driven,” he says. “Just after 9/11 there were many concerns about being able to protect sporting events and that was why coverage was so expensive and not easy to get.

“The prices for insurance cover for terrorism have come down in recent years as the market has been quite soft. But this ... shows that in terms of cancellation of events, that such an eventuality can happen with an attack outside the stadium.”

The last major international tournament to be cancelled because of security fears was the 2001 Ryder Cup, which was postponed for a year. But Chris Rackliffe, head of contingency underwriting at Beazley and chairman of the Lloyd’s Market Association contingency panel, says Lahore stands apart in terms of how cancellation could lead to huge claims costs. Some of the policies that could be triggered in such an incident include personal accident and terrorism, as well as event cancellation. In some circumstances, it could also be covered by a war policy.

“The attempted killing of the Sri Lanka team has sent shockwaves through the cricket community worldwide,” he says. “Everyone is looking at their policy and thinking terrorism cover is an absolute must. It has shown people that the face of terrorism is changing – sporting events are targets and we are seeing a lot more interest in cover.”

He adds: “Values in cricket, especially in India, have increased substantially over the past two years. This has been driven by the increased value of TV rights and sale of advertising revenue. Other revenue that would be at risk includes ticket sales, sponsorship, merchandising and so on.”

It is not known which company insured the Sri Lanka team. The risk may have been placed in Lloyd’s but a spokesman was unable to comment as Insurance Times went to press.

Even before the Lahore attack, the ICC Champions Trophy, which was due to take place this September in Pakistan, had been put on hold.

The tournament will now take place in South Africa.

Also moving to South Africa is the Indian Premier League, which begins this month. The league was forced to relocate after the Indian government said it could not guarantee players’ security because the event coincided with national elections.

Doubt has also been cast over the 2011 Cricket World Cup, due to be held in India, Pakistan, Sri Lanka and Bangladesh.

The attacks in the Indian city of Mumbai last November have added to the fears about the region. The England cricket squad had stayed at the Taj Mahal Palace, one of the hotels stormed by gunmen, two weeks earlier and were due to return there, but called off the rest of the tour. England fans in India to watch the cricket were also caught up in the violence.

Rackliffe says: “For the ICC Champions trophy, the fact that it was in Pakistan, I don’t think they would have been able to place enough terrorism cover … that was a factor in moving it.

“At the moment capacity is going to be tight, particularly for the India matches, because people are not going to want to commit huge capacity and the rates are going to be a lot higher than they were.

“But there is a market here for that and that is what we are here to do. It is a question of what the London market does and is good at.”

He says rates are higher than they were 12 months ago and the insurance market and underwriters will demand reassurances about security arrangements.

“We may require more information in terms of security and this is going to play a major part in the assessment of the risk,” says Rackliffe.

There’s no doubt major sporting events will continue. But with terrorism a growing threat, the insurance market will be thinking carefully about whether to carry risks where claims could have crippling consequences. And watching a game won’t be nearly as much fun.

World Cup woes

After the attacks in Lahore, Jerome Valcke, general secretary of Fifa, football's world governing body, called a "crisis evaluation committee" with the organisers of the 2010 World Cup in South Africa to discuss taking security "to a maximum level".
Fifa generates about $3.2bn (£2.2bn) from a World Cup – close to 95% of its revenue – so its financial life depends on the successful staging of the tournament. But it has struggled to obtain insurance for previous cups. According to Gordon Woo, terrorism risk expert at Risk Management Solutions, AXA pulled out of covering cancellation of the 2002 tournament in Japan and South Korea because of 9/11. Ultimately, Fifa had to get coverage through Warren Buffett's National Indemnity Company, a division of Berkshire Hathaway.
Then, for the 2006 World Cup, because rates were so high, Fifa was forced to obtain cover through a special terrorism cancellation bond called Golden Goal Finance, which was the first of its kind. It transferred part of the risk to the capital market.
"The insurance market in general became much tougher following September 11, particularly in relation to policies protecting against the threat of terrorism. Fifa, the local organising committee and all stakeholders have ensured that all key areas around the staging of the World Cup have adequate cover,” said Fifa in a statement to Insurance Times.
The governing body now has an insurance policy to provide cover of $650m in the event of the postponement and/or relocation of the 2010 and 2014 World Cups. But its policy covers terrorism, natural disasters, epidemics, war, accidents or turmoil only. It was not able to obtain cover for cancellation.