Civil unrest incidents such as protests and riots are challenging terrorism as the main political risk exposure for companies. Recently, events such as the French “yellow vest” protests (insured losses around $90 million), as well as unrest in Chile (around $2 billion), Hong Kong ($77 million), Bolivia ($170 million) and Ecuador ($821 million) have highlighted the volatility of businesses to the impact of political risks and violence, causing both physical damage but also preventing many businesses from opening their doors.
Almost 50 countries witnessed a surge in civil unrest in 2019, according to the Verisk Maplecroft Political Risk Outlook 2020. Notably, in 2020, racially-charged riots in the wake of the death of George Floyd have challenged authorities to control crowds and protect property. Losses to businesses in at least 40 cities in 20 US states may come close to the most costly civil disorder in U.S. history. (The Los Angeles 1994 Rodney King riots caused $1.42 billion in damages – in 2020 dollars, according to the Insurance Information Institute.)
There will be numerous insurance claims from the recent protests – the vast majority of them property exposures with strikes, riots and civil commotion (SRCC) and looting insurance coverages. If one store is looted, there’s not a problem to get new windows, shelves and stock – but if many places are involved, it can take months for impacted businesses to resume trading.
An individual business doesn’t have to be a direct victim of civil unrest or terrorism to suffer a loss. Businesses near such incidents can suffer lost revenues whether or not they incur physical damage, during the time the area is cordoned off or until the infrastructure can be repaired to allow entry of customers, vendors and suppliers. At the same time, companies can also be disrupted by a physical loss of attraction to a property in the vicinity of their premises. If there is a closure of an important landmark, hub or particular place where large numbers of people come together, a reduced number of visitors will result.
While triggers locally vary, there is one common global trigger: there must be a ‘spark’ in order to mobilize crowds. In Hong Kong, it was the extradition bill; in France, the tax increase on fossil fuels; in Chile, a 4% increase in subway tickets; and in the U.S., it was the death of Floyd. Brazil and Ecuador both could see violence triggered by coronavirus mismanagement by governments.
Exposures differ locally, also. Hong Kong protesters impacted properties connected to the local government or China, at the beginning, but later high-end shopping malls and luxury brands, etc. (looting was never a problem). In Chile, protesters targeted public transportation as a starting point, but, as underlying issues involved poverty and price increases of basic goods, looting of drug stores, pharmacies, small retailers and retail giant, Walmart followed. Insured losses totaled as much as $2 billion, according to one estimate from Hiscox.
How are political violence risks impacting insurance and claims?
Political violence insurance provides coverage for terrorist acts, acts of sabotage, SRCC, malicious damage (MD), insurrection, revolution, rebellion, coup d’état, war, civil war or counter-insurgency.
Additionally, common extensions include denial of access (businesses shuttered because authorities have closed the area, whether damaged or not), loss of attraction (if an important landmark near to the business is closed fewer visitors will result), and other civil disturbances.
Standalone SRCC and malicious damage (MD) insurance typically will cover property loss and damage and potential business interruption (BI) due to the actions of the protestors. In comparison, standard property all-risk policies (PAR) typically exclude loss or damage directly or indirectly, as well as directly caused by the actions of the government of a state or its military authority in suppressing, controlling or minimizing the consequences of SRCC or MD events.
SRCC coverage has become more prominent in the insurance market since the “yellow vest” protests began in Paris in late 2018 and particularly following the riots in Chile given the magnitude of the losses.
In the wake of the U.S. riots, the trend of the PAR market taking a tougher stance on SRCC exposure will likely accelerate and capacities will likely move from PAR to the specialist political violence insurance markets.
For more information: AGCS Liability Loss Trends 2020.
Top Photo: Protesters demonstrate at the airport in Hong Kong, Monday, Aug. 12, 2019. (AP Photo/Vincent Thian)
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