Violence has followed a pattern by swiftly propagating across the country and causing headaches for specialist insurers

By acting editor Yiannis Kotoulas

The recent riots that have plunged French cities into chaos have added fuel to the fire for those in the insurance industry warning of the growing threat of civil unrest.

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Yiannis Kotoulas

On 27 June 2023, as pictures began to be released of running battles and wanton property damage across major French cities following the police shooting of 17-year-old Nahel Merzouk, underwriters working in the terrorism and political violence insurance market will have braced themselves for major claims.

Property damage and other insured losses caused by strikes, riots and civil commotions (SRCC) are primarily covered by the specialised war, terrorism and political violence insurance market, but with the global rise in SRCC events the market is being called into action more frequently.

In a report released this week (4 July 2023), credit ratings agency DBRS Morningstar explained that the rise in frequency and severity of SRCC events around the world has led many standard insurers to reduce policy limits or drop coverage altogether from standard insurance policies.

The obvious impact of this is to increase society’s reliance on specialised SRCC insurers – such as those within the London market – but even these players have now begun to limit the risks they cover, especially in particularly vulnerable parts of the world.

A spiralling situation

So what is driving the increased incidence of SRCC events?

Back in April this year, Howden attempted to explain the rise of civil unrest with the release of its A World of Trouble report.

In it, the insurer explained: “Intensifying SRCC risks are a reflection of [megatrends including geopolitics, macroeconomics, climate change and technology], as well as long-standing and intensifying grievances such as the rising cost of living, food and energy insecurity, falling real incomes, political populism and polarisation, perceived poor governance and corruption.”

Much has been made in the insurance press of the cost of living crisis, but the very real threat of political violence as one of its second-order impacts has been somewhat less considered.

This is especially strange, considering that civil unrest is now so prominent that it caused more than $10bn of global insurance and reinsurance losses since 2017, compared to approximately $1bn of terrorism losses in the same period.

And in some jurisdictions, such as Latin America or South Africa, insured SRCC losses are now either exceeding or becoming comparable to natural catastrophe losses.

The French riots are just one of the widespread disorder events seen recently, but it is an example that strikes close to home for those working in the UK – political violence and civil unrest does seem that much more real to those of us living in the developed Western world when we see it played out in familiar environs.

A systemic risk?

The concurrent riots in 140 US cities that took place following the killing of George Floyd by police in 2020 caused $2.7bn in insured losses – but the lesson for the SRCC insurance sector was that social unrest could propagate swiftly across different states, perhaps fuelled by social media, to create snowballing insured losses.

This pattern has played out again in France in past weeks, with riots spreading from an initial hotspot in the western suburbs of Paris to consume other French cities such as Lyon, Marseille and Lille. Social media was again blamed, with French president Emmanuel Macron threatening to cut of access during riots to quell the riots’ momentum. 

DBRS Morningstar said that these examples have forced insurers and reinsurers to consider the potentially systemic nature of future civil commotion events.

The credit ratings agency said that it expects insurers operating in the political violence space to factor this development into its thinking – which will continue the upward pricing pressure on the market and potentially contribute to actors exiting the market.

What is most dangerous, however, is the threat of civil unrest crossing the threshold to become a truly systemic risk – insurers currently play a considerable role in mitigating the social dangers resulting from riots as business owners and individuals can rely on their policies to protect their livelihoods.

The chilling thought is, what happens when citizens unprotected by insurance made too expensive by the growing costs of civil unrest are forced to make the decision between watching their homes burn or turning to vigilante justice to protect them?

DBRS Morningstar’s report states that it expects insured losses to be “ultimate manageable” for the French insurance industry, but the latest episodes of civil violence seen in our European neighbour will surely add to the concerns of SRCC insurance providers.