Liz Booth explains how growing civil unrest across the world could impact the insurance profession
The UK police have already warned of their growing concerns about a winter of discontent ahead, with large-scale protests across a range of issues likely to bring disruption to the UK.
After a summer of Extinction Rebellion action, Black Lives Matter protests and demonstrations from far-right extremists, further lockdown restrictions and Brexit could well be enough to force people onto the streets in their thousands.
And it is not limited to the UK. As the recent protests in Nigeria, Colombia, Bolivia and Brazil showed, the boiling dissatisfaction is a global issue.
Verisk Maplecroft recently put out a report that warns: “As the economic fallout from Covid-19 mounts, protests in emerging and frontier markets are set to swell, with millions of newly unemployed, underpaid and underfed citizens posing a risk to domestic stability with few parallels in recent decades.”
In its Civil Unrest Index projections, the analysts identified 37 countries that would potentially face major spikes in unrest by the end of 2020, driven by a painful post-pandemic economic recovery inflaming already existing public anger with governments.
Economies facing a ‘perfect storm’ of risks are mostly concentrated in Africa and Latin America, including Nigeria, DR Congo, Ethiopia, Venezuela and Peru, it warns. But adds that investors, companies and insurers in key emerging markets, such as Bangladesh, Turkey and Egypt, also need to brace unrest.
Verisk Maplecroft also warns that, thanks to Covid-19, Latin America is on course for a third ‘lost decade’, and 2021 is set to inject a dangerous dose of political instability into the economically fragile region. It points to Peru, Chile and Ecuador, which are all heading into crucial election cycles with decimated economies and discontented voters.
Meanwhile, in Africa, its “hotbeds of protest are set for a torrid year”, according to the report.
It continues: “A perfect storm of economic issues and discontent with government are gathering on the near horizon in countries across the region, but the catalyst is going to be food,” warns the company.
Nigeria, DR Congo and Ethiopia are already rated extreme risk in its Civil Unrest Index for Q2 2020, but their scores are forecast to deteriorate during the coming weeks and months.
So, what does this mean for the type of claims insurers could face?
Balancing the risk
Lawyers at DAC Beachcroft are warning that UK insurers should be prepared to refine their wordings to better balance their risk with the needs of insureds.
Duncan Strachan, global insurance partner at DAC Beachcroft, says: “Since 2017, more than 100 countries worldwide have seen significant civil unrest or mass protest. In 2019, there were the Chilean riots, the Gilets Jaunes protests and Hong Kong’s umbrella movement, while 2020 witnessed the global expansion of Black Lives Matter and anti-police brutality protests worldwide. The coronavirus pandemic and resultant lockdowns may have put a lid on protests but the pressure is building.
100 Since 2017, more than 100 countries worldwide have seen significant civil unrest or mass protest- Source: DAC Beechcroft
“Insurance is part of the solution, and whether insurers pick up the bill for the damage to businesses when protest turns violent will be a question of policy terms and wordings. For the (re)insurance markets, heavy losses from the Chile protests and elsewhere may have already caused underwriters to think twice about the place of strikes, riots and civil commotion cover within their global property programmes.”
He suggests: “We may be at a critical stage for the insurance market, where insurers can audit existing programmes, tighten wordings and drive the sale of new products to help plug the protection gap. It is time for the market to take a close look at the spectrum of political violence and definitions and think carefully about how their policies can respond to risks adaptively in different jurisdictions around the world.”
As it stands, the Association of British Insurers (ABI) explains: “Typically, commercial property (including business interruption) policies in the UK have an exclusion clause for damage caused by riot or civil commotion, just as they do for terrorism or war damage. Household policies normally cover riot and civil commotion damage, to date relying on subrogation under the Riot (Damages) Act to reimburse insurers for loss.”
The ABI adds that when certain tests fail, the insurance market cannot operate. In the case of riots and civil commotion, this is that the likelihood of each policyholder making a claim should be independent of all other policyholders, unless reinsurance or other risk transfer mechanisms are available to insurers to manage
It explains: “In contrast to other types of criminal damage, riot and civil commotion fail the test, that is, the likelihood of any one policyholder making a claim is not truly independent of other policyholders so doing and there is no market for commercial reinsurance available for these perils.
“At present, the Riot (Damages) Act operates in lieu of reinsurance since it offers insurers the opportunity to subrogate claims and it is on this basis that insurers offer such riot cover as is available in the market.”
Added to that, says the ABI: “While the victims may not have any influence or control over events, it is notable that the police and public authorities do have such influence or control through the policing, social and economic policies in place. To transfer such risks from the taxpayer to individuals and businesses via insurance costs would therefore introduce moral hazard, with the public authorities having a reduced financial incentive to avoid such events.”
Liz Booth is contributing editor of the CII