With less than six months until the Games are due to start, the competition will top the agenda when the International Olympic Committee's (IOC) executive board meets this week.
The Olympic body, which will meet remotely, finds itself in a similar situation to March last year, when it postponed the Games by 12 months as the COVID-19 pandemic shut down sport worldwide.
Much of Japan is now under a state of emergency due to a third wave of COVID-19 infections.
The IOC and Japanese organisers have been adamant that another postponement isn't an option. So it appears more likely the Games would have to be cancelled, rather than postponed again, if they weren't able to go ahead in Tokyo this summer.
Event cancellation insurers have had a tough year as a result of the pandemic, with festivals, conferences and sporting events postponed or cancelled the world over. Broker Howden estimates COVID-19 event cancellation losses at $5-6 billion.
But cancellation of the Olympics "would be by far the largest. Mind-blowingly," said Simon Henderson, an executive director at broker Gallagher.
"The Olympics is a World Cup, it's a tennis tournament, it's an athletics tournament. It's swimming, everything all in one - definitely a huge headache."
Analysts at Jefferies have estimated the Tokyo Olympics is insured for around $2 billion, plus a further $600 million for hospitality.
The IOC takes out around $800 million of protection for each Summer Games, which covers most of the roughly $1 billion investment it makes in each host city.
In addition, the local organising committee in Tokyo will have taken out a further policy, estimated at around $650 million, while broadcasters are also insured for large sums.
"TV networks, sponsors, professional sports teams, entertainers and other organisations could all have event cancellation policies protecting their interests in the Olympics," said Leigh Ann Rossi, chief operating officer at broker NFP Sports and Entertainment Group.
Such policies will have been bought years in advance and so would likely cover cancellation due to infectious diseases. Event cancellation policies taken out in the last year exclude that cover https://www.reuters.com/article/china-health-insurance-cancellations/insurers-rush-to-strip-coronavirus-from-event-cancellation-cover-idUSL8N2AC5XP?edition-redirect=in.
Many of the organisations involved in the Olympics would have been able to claim some costs as a result of last year's postponement, for issues such as hiring venues or reprinting marketing brochures.
Tim Thornhill, a director at broker Tysers, said there was "no rule of thumb" as to how much of the total insured value of an event could be claimed under the postponement section of an event cancellation policy.
But brokers expect any payments made last year for postponement to be smaller than any cancellation pay-outs this year.
Lloyd's of London insurers are among those active in the event cancellation market, along with international insurers, and global reinsurers such as Munich Re and Swiss Re.
Munich Re has a $500 million exposure to the Tokyo Olympics, one source previously told Reuters. Munich Re declined to comment.
Swiss Re has a $250 million exposure, its chief financial officer John Dacey told analysts last year.
German insurer Allianz has signed an eight-year insurance agreement with the IOC which took effect earlier this month, covering Winter and Summer Games, including the Summer Games in Paris in 2024 and Los Angeles in 2028.
Given how far in advance Olympics policies are taken out, Paris will also likely be covered for postponement or cancellation due to infectious diseases, brokers said.
(Additional reporting by Tom Sims in Frankfurt and David Dolan and Jack Tarrant in Tokyo. Editing by Mark Potter)
By Carolyn Cohn and Noor Zainab Hussain