Insurers are by no means guaranteed compensation for the recent damage
In theory, insurers should be able to recover at least some of the money they pay out for riot damage from the government. In practice, however, this could be difficult or even impossible.
Much depends on how the government defines a particular disturbance. Under the Public Order Act 1986, insurers can obtain a full or partial recovery for riot claims from the Compensation Authority – effectively, local police authorities.
When is a riot a riot?
But this recourse is only available to insurers if the Home Office declares an event a riot. The official definition of a riot, under the Public Order Act, is where 12 or more people use or threaten violence for the same purpose.
While the disturbances in the UK over the past three days could easily fit that description, the Home Office has a choice of three milder definitions under the act that could apply to public disorder: threatening behaviour (the least serious), affray and violent disorder.
According to loss adjuster Cunningham Lindsey, the 2001 race riots were only officially designated riot status in Bradford and Oldham, but not in Burnley and Leeds.
Cutbacks to claims
A further consideration is that government spending has been slashed in an effort to reduce the UK’s budget deficit. Against this background, the Home Office may feel it is more prudent to categorise many of the events as weaker than a riot to avoid paying large sums to the insurance industry.
The government may also find it difficult to justify reimbursing an industry that is widely perceived to have deep pockets.
To make matters worse, insurers have to submit their claims within just 14 days of the riot taking place – no mean feat given that the situation is still in flux.
Perhaps unsurprisingly, Cunningham Lindsey says the insurance industry has not managed to recover a great deal from the Compensation Authority in the past. The loss adjuster said it was aware of just 24 claims in 1995 and 76 in 2001-02.
Judging from the language used by home secretary Theresa May yesterday, the Home Office is likely to classify the events in Tottenham as a riot and the rest as lesser disorders.
Insurers counting on a big pay-back from the government for the UK riots should think again.