State should be liable for payouts to businesses with under £2m turnover, Kingham says

A review into the Riot Damages Act has recommended insurers should only be able to claim back payouts to businesses with a turnover of under £2m.

Neil Kingham, whose report was commissioned by home secretary Theresa May, said the cap would make sure small businesses could buy cover in potential riot areas while limiting the cost to the taxpayer.

“There should be no adverse impact on the insurability of a small business in vulnerable areas or on the economic viability of the areas,” Kingham said.

“A cap of this kind would be to remove the entitlement of insurers to compensation in respect of payments made to clients above the threshold. This might lead to higher charges for those clients, but is unlikely that it would do so for multiple stores whose premiums are set by reference to their portfolio of shops or businesses, not for individual businesses.”

Kingham said insurers’ reaction to the proposed cap was encouraging. “They would prefer no cap at all, but they recognise the need for government to constrain the possible cost of riot compensation and that this cap is much better targeted to protect the insurability of small businesses in vulnerable areas.”

Total premiums would be unlikely to rise significantly as a result of the cap given the relative low risk of riots set against insurers’ total business portfolios, he added.

The report also recommended a “riot claims bureau” should be set up by the Home Office and insurance industry. It would be staffed by claims handlers and loss adjustors from a range of companies and be ready to start work immediately after a riot.

ABI director general Otto Thoresen welcomed the finding that the police should remain accountable for riot damages.

“The recommendation that insurers should continue to be able to recover from the state certain riot payments made to customers is vital if riot cover is to be affordable and available,” he said.

But he warned the recommended cap could be a “disincentive for some large firms to locate in some areas”.

Insurers have so far paid out £167.3m to policyholders following the riots in 2011. The state has paid £35.2m and the figure could rise to more than £100m.

The Home Office will launch a public consultation on changes to the act by the end of the year.