Does your business need riot insurance?

Board­ed-up stores and angry crowds in Philadel­phia, Paris, Hong Kong and San­ti­a­go mean one thing: the threat of civ­il unrest. Inci­dents such as riots and protests are now chal­leng­ing ter­ror­ism as the main polit­i­cal risk glob­al­ly. It’s lead­ing to more insur­ance claims and busi­ness­es gob­bling up poli­cies for so-called strikes, riots and civ­il com­mo­tion (SRCC) insur­ance. 

As the eco­nom­ic fall­out from coro­n­avirus mounts, protests look set to mul­ti­ply. There are mil­lions of new­ly unem­ployed, unpaid and unsat­is­fied peo­ple around the world pos­ing new threats. Some 37 coun­tries now face major spikes in unrest, accord­ing to glob­al risk ana­lysts Verisk Maple­croft. The out­look is par­tic­u­lar­ly con­cern­ing for emerg­ing mar­kets.

The Black Lives Mat­ter protests have also sparked a glob­al chain reac­tion in civ­il unrest, as well as issues for the insur­ance indus­try. Loss­es to busi­ness­es due to prop­er­ty dam­age, dis­rup­tion and slashed rev­enues in at least 40 urban areas in 20 US states alone may amount to the costli­est civ­il unrest in Amer­i­can his­to­ry.

“Dis­or­der after the death of George Floyd is expect­ed to have caused loss­es of more than $1 bil­lion in US cities,” says Björn Reuss­wig, head of glob­al polit­i­cal vio­lence at Allianz. “SRCC is now the num­ber-one con­tender for being the pri­ma­ry per­il to be insured and under­writ­ten.”

Civ­il unrest and its cov­er­age in poli­cies is rapid­ly top­ping many a com­pa­ny agen­da, with busi­ness­es look­ing close­ly at the cov­er­age they have. The main chal­lenge lies with­in pol­i­cy word­ing and def­i­n­i­tions.

“With­in an all-risk prop­er­ty pol­i­cy, SRCC is not always defined as a named per­il, which can result in dif­fi­cul­ty in adjust­ing and even pay­ing claims,” says Sandy Warne, inter­na­tion­al head of polit­i­cal risk at The Hart­ford. 

Insur­ance firms have offered SRCC cov­er, either as part of an all-risk prop­er­ty insur­ance pol­i­cy or as stand-alone cov­er for some time, yet because of recent events, sales of poli­cies in the Unit­ed States cov­er­ing busi­ness­es specif­i­cal­ly for civ­il unrest dou­bled in Octo­ber from Sep­tem­ber lev­els.

“It’s viewed as nice to have for clients and noth­ing to be over­ly con­cerned about by the insur­ance indus­try. How­ev­er, this has changed sig­nif­i­cant­ly since 2018 as both the fre­quen­cy and sever­i­ty of events has increased,” says Reuss­wig.

Time for separate SRCC insurance cover

Some insur­ers, notably at Lloyd’s of Lon­don, have stopped includ­ing SRCC cov­er with­in gen­er­al prop­er­ty poli­cies for busi­ness­es that have been hit hard by civ­il unrest. This has forced them to buy sep­a­rate SRCC insur­ance.

“A recent exam­ple of this is Chile where up until the autumn last year SRCC was a stan­dard cov­er­age with­in all-risk poli­cies. After the nation­wide unrest and sub­se­quent large loss­es with­in the prop­er­ty insur­ance mar­ket, SRCC per­ils were exclud­ed from all-risk poli­cies at renew­al,” explains Marie Big­gas, vice pres­i­dent, ter­ror­ism at Arch Insur­ance.

Since civ­il unrest in Chile came with a $2‑billion price tag, it’s no won­der there was con­cern with­in the sec­tor. This type of risk cat­e­go­ry is now under a lot more scruti­ny. How­ev­er, cal­cu­lat­ing risks asso­ci­at­ed with civ­il unrest isn’t easy. SRCC inci­dents result­ing in indus­try-wide insured loss­es are infre­quent.

“We’ve report­ed on few­er than 15 inci­dents in the past 70 years, with more than half com­ing before 1980. Large riots with sig­nif­i­cant indus­try impact can be dif­fi­cult to under­stand, because his­tor­i­cal­ly there haven’t been many. The last riot, before Mex­i­co in 2017, of any insur­ance indus­try sig­nif­i­cance was like­ly to be the Tot­ten­ham riot in the UK in 2011,” says Tom Johans­mey­er, head of prop­er­ty claim ser­vices at Verisk.

SRCC insur­ance has become an essen­tial prod­uct for many busi­ness­es due to the rapid­ly chang­ing polit­i­cal land­scape

How­ev­er, thanks to social media and the speed of the inter­net, news that sparks events can now trav­el across con­ti­nents in sec­onds. This can accel­er­ate civ­il com­mo­tion in ways that didn’t exist a decade ago. Look at how Black Lives Mat­ter protests went glob­al. The socio-eco­nom­ic fac­tors that have led to sev­er­al instances of unrest through­out 2020 may be around for a while, includ­ing the COVID-induced eco­nom­ic reces­sion.

“There’s no doubt SRCC insur­ance has now become an essen­tial prod­uct for many busi­ness­es due to the rapid­ly chang­ing polit­i­cal land­scape,” says Andrew Bauck­ham, deputy prac­tice head for prop­er­ty and polit­i­cal vio­lence at Chaucer and chair­man of the Lloyd’s Ter­ror­ism and Polit­i­cal Vio­lence Pan­el.

The evolving market is less predictable

While the tim­ing, loca­tion and fall­out from civ­il unrest is very unpre­dictable, SRCC cov­er itself is fair­ly straight­for­ward. Impor­tant addi­tion­al cov­er­age that’s also com­ing to the fore is that of busi­ness inter­rup­tion insur­ance, which can help in the wake of civ­il unrest.

“There are also steps a busi­ness can take to mit­i­gate risk, which may then reduce the pre­mi­um for SRCC insur­ance. For instance, installing pro­tec­tion for store­fronts and busi­ness win­dows and doors, and hav­ing con­tin­gency plans in place. This may reduce pre­mi­ums for SRCC cov­er,” explains Rich Dodge, part­ner for com­mer­cial lit­i­ga­tion at Den­tons.

There is no doubt the mar­ket for SRCC insur­ance poli­cies is evolv­ing. The insur­ance indus­try is also get­ting bet­ter at gaug­ing this risk cat­e­go­ry. It cer­tain­ly will not be a free-of-charge add-on like it was some years ago. Those who insure prop­er­ty are now look­ing to sep­a­rate­ly define and lim­it SRCC cov­er. This could leave busi­ness­es with lim­it­ed pro­tec­tion.

“The capac­i­ty and appetite may now be lim­it­ed with­in the ter­ror­ism and polit­i­cal vio­lence mar­ket, where this insur­ance sits, and it may prove dif­fi­cult for clients to be able to afford or even be able to pur­chase cov­er at pre­vi­ous lev­els,” Warne at The Hart­ford con­cludes.

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