The Business of National Heritage: Assessing the Cost of Closure

Article, World Insurance ReportJuly 2007

Insurance / Property

The historic Cutty Sark, located in the London Borough of Greenwich, was ravaged by fire in May. James Stanbury considers the insurance implications of the ship’s renovation project. He also explains how the potential loss of revenue from tourism is quantified in such cases.

The Cutty Sark stands in Greenwich to commemorate an era – that of the Golden Age of Sail, before such ships were eclipsed by powered vessels in the late 19th century. She was said to be one of the best extant examples of a ‘Clipper’. Of course, the fire on 21 May changed that evaluation and insurers have been addressing how to restore it to its former glory. But let us not forget that the Cutty Sark was not only a deserved national treasure but also a business. So what are the implications for such an ‘attraction’ when disaster happens? Indeed, what issues do they attract?

In evaluating any business interruption, it is usually the factors that determine a business’ revenue stream that generate the most discussion. These can be internal to the business or dependent on external factors related to the national or local economy. When a business is a tourist attraction – and especially one in a capital city such as London – it is these external factors that may count for more in the race for visitors and therefore its ability to generate that revenue.

There is no substitute for analysing the historical income levels of the business but these need to be set in the context of specific events – both local, national and international – and in this a site like the Cutty Sark is no exception.

For London, factors to consider in relation to tourists are likely to include:

  • Global political events. It is no surprise that September 11 and the invasion of Iraq saw visitor numbers fall. For London, such events are exacerbated by the high dependency on tourist flows from the US (for both visitor numbers and spend); however, the number of visitors from EU accession states which joined the Union in 2004 has offset the general fall in US visitors; 
  • The strength of sterling. This clearly impacts on spending power and visiting likelihood for foreign visitors as the current strength of sterling demonstrates; 
  • General domestic trends. Overnight visit and spend level data, show that domestic visits to London have fallen sharply since the Millennium (from an annual peak of 18 million to under 11 million). In the short term, general seasonal patterns – for example, 
  • holidays and weather conditions.

Of course, we in the UK never underestimate the weather and no tourist attraction does either. Before the London Eye appeared on our skyline, Big Bob, a tethered balloon rose over Vauxhall for city viewing. Incidents happened and the projection of lost revenue was measured against a detailed analysis of weather (wind speed, rainfall, and temperature) to determine whether the public were likely to visit.


But let’s look at Greenwich and see what local factors may impact on any income streams for the Cutty Sark. Much has been written already about the impact of the fire on the restoration program and its long term viability as a commercial venture. With the benefit of personal local knowledge, I think the Cutty Sark will survive and prosper for three simple reasons, aside from its historical draw – location, location, location!

Any attraction is dependent on numbers of visitors and its ability to benefit from the local footfall. Let’s consider where it is: next to both the Greenwich Pier (a stop off point for local river cruises and domestic ferry traffic to and from central London) and the greenwich foot tunnel which connects the south and north shores of the Thames. In effect, people – tourists or not – will pass the Cutty Sark whether under restoration or in its prime.

The lure of Greenwich is not just centered on the Cutty Sark, and so visitors will flock to the area whatever the ship’s status. Its World Heritage Site status is centered in the Royal Observatory (and the home of GMT), the Royal Park, the Queen’s House and the Royal Naval College (designed by Wren, Hawksmoor and Vanbrugh) with the National Maritime Museum. Add in St. Alphege’s Church (another Hawksmoor creation on which site Henry VIII was baptised), Greenwich has a lot going for it! Although, I cannot disguise my paean to Greenwich, it serves to illustrate how important analysis of local factors is.

Business losses

The damage to the Cutty Sark also highlights the possibility of losses from local businesses under any loss of attraction policy.

Such losses are not generally covered under a denial of access extension in the UK as the damage does not prevent or hinder the use of the insured’s premises or access to them. However, such cover maybe held as an extension to the policy although it may be restricted to losses arising from damage by fire or other peril to a named ‘attraction’ or ‘area of attraction’ – think of IRA bombs in Manchester and the ‘Arndale Centre’ effect. It is unclear whether local businesses close to the Cutty Sark have such coverage or indeed whether any losses would flow therefrom if they did.

Many local shopkeepers have been vocal about the effect of the fire on their trade but such complaints may prove unfounded for the reasons described above – the regular and uninterrupted footfall past the site. Indeed, one should also consider the attraction of looking at the Cutty Sark in its present state – there is sometimes as much ghoulish attraction in viewing a ‘disaster’ site as its predecessor.

Coverage issues

While debate continues in the public domain as to the coverage issues provided by the lack of a sprinkler system and the basis of costing the restoration (market value, agreed value or reinstatement), any loss of profit must be referenced to the period of loss. Pre-fire the Cutty Sark was to be under restoration (and not generating any substantial income) until 2009. With any extension in the restoration programme (and one cannot underestimate the time and effort that will be required) losses may follow from a variety of sources, including revenue from ticket sales, souvenirs and corporate events planned for the run-up to the Olympics.

Much will depend on the period of any coverage, especially important when any damage to the Cutty Sark brand would be addressed through an appropriately long indemnity period. But such is the attraction of the ship and its international imprint that there may well be a surge of visitors on its re-opening – greater than would have been the case without the fire.

Commentators have stated that the Cutty Sark Trust only stands to get around £13mn from insurers but that it needs £23mn to restore it to its former glory. But the visitor centre opened over the May bank holiday and partnerships such as the recent one with the National Boat Shows partnership designed to raise awareness and funds may mean more funds coming in than would otherwise have been the case without the fire. Expediting action is the key to progress.

On his commemoration tablet for the ship, John Masefield says:

They mark our passage as a race of men Earth will not see such ships as these again.

Our seas may not see them again but the shores of Greenwich will surely see the Cutty Sark rise again, courtesy of the paying public and insurers.


As appeared in World Insurance Report, July 2007.

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