French riots spark fresh concerns of systemic risk
Claims are expected to sit at below the €1bn mark following violent protests that began in Paris and spread to other French cities
Insurers and reinsurers are being forced to look again at the potential for civil unrest to become catastrophic and systemic events, according to DBRS Morningstar, following protests and riots that began in Paris and spread to other French cities. The analyst warned buyers that many insurers will now only insure strike, riot and civil commotion (SRCC) exposures as a primary risk and not as an add-on to standard policies.
DBRS Morningstar said insured losses from the French riots are expected to be manageable for the industry, at ‘well below’ €1bn, but it warned buyers of SRCC insurance globally of continued rate increases and more restrictions on cover, with the speed that unrest can spread to multiple jurisdictions a particular concern for risk carriers.
Marcos Alvarez, global head of insurance at DBRS Morningstar, said the losses incurred by French insurers would be limited by reinsurance and the partial liability of the French state, but buyers would still see the impact on their renewals. Alvarez added that business interruption losses from vandalism and curfews are unlikely to be covered by the French state, with large companies and retail chains likely to rely on their own BI coverage.
“Given the rising materiality of recent SRCC losses, we expect that insurance and reinsurance companies will continue to apply stricter underwriting guidelines in the most conflictive jurisdictions, including reducing the availability of these coverages,” he said.
DBRS said buyers have been limited to specialist providers, largely in the London insurance market.
“The latest episodes of civil violence that have propagated through France will add to the concerns of specialised providers of SRCC insurance around the world, as well as of the more traditional insurance companies that still offer these coverages as part of their standard policies,” DBRS Morningstar said.
“We anticipate that insurance companies will no longer consider SRCC an accessory coverage but a primary risk subject to stringent limits and pricing.”
SRCC insurers have already reduced policy limits or dropped coverage from standard insurance policies over the past few years in response to the rise in frequency and severity of civil unrest. Record insured losses of more than $2.7bn from the US Black Lives Matter events in the US in 2020 saw insurers exclude social unrest from all-risk commercial policies or charge additional premiums.
“The 2020 riots in the US demonstrated that social unrest could also propagate swiftly across multiple jurisdictions, creating a considerable accumulation of insured losses and forcing insurers and reinsurers to consider the systemic nature of future civil commotion events.
“SRCC insurance will be increasingly more challenging to bundle with all-risk commercial policies, requiring the negotiation and underwriting of separate policies,” it said.
