Insured losses from UK riots under £250m
A UK law allows insurers to recover individual riot damage claims of under £1m from local police authorities, says Morningstar DBRS
Insured losses from recent rioting and civil unrest in parts of the UK are expected to be below £250m, according to Morningstar DBRS, which it said would be a relatively small portion of the total economic loss from the event.
Morningstar DBRS said the UK Riot Compensation Act 2016 will “materially” mitigate wider losses for UK insurers, with carriers expected to seek recovery for losses from local police authorities. Under the legislation, single claims under £1m will be taken on by local police authorities.
Most of the estimated insured loss will come from large and medium-sized business owners seeking claims in excess of £1m for damage caused by vandalism and looting as well as business interruption losses, which are not covered by the RCA.
“We expect total insured losses from the recent UK riots to be ultimately manageable for British insurance companies, given that claims under £1m per property can be recovered from local police authorities under the UK Riot Compensation Act,” said Marcos Alvarez, managing director of Global Financial Institution Ratings at Morningstar DBRS.
The analyst said while the insured loss from the UK will be manageable, the event could put further pressure on the strike, riot and civil commotion (SRCC) market, which has recorded an increasing number and severity of such events. As many insurers have reduced policy limits or dropped coverage altogether from standard insurance policies, the market has become more concentrated among standalone SRCC specialists in the London market and global reinsurers.
“Even these providers have recently been limiting the risks they cover, particularly in traditionally volatile parts of the world,” Morningstar DBRS said. “The unrest in the UK will add to the concerns of specialised providers of SRCC insurance and reinsurance globally, which have dealt with an increasing number of unfavourable events in the past decade,” it explained.
The event earlier this month, which was triggered by the murder of three young girls in Southport as rumours spread on social media about the attacker, will also be a test for the RCA. The legislation was introduced after summer riots in London in 2011 left the insurance industry with a £200m bill, the analyst said.
