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Published 20 November 2020
Since 2017 over 100 countries worldwide have seen significant civil unrest or mass protest. 2019 saw the Chilean riots, the “Gilets Jaunes” and Hong Kong’s Umbrella movement, while 2020 has witnessed the global expansion of Black Lives Matter and anti-police brutality protest worldwide.
Restless undercurrents were already circulating in the decade since the global financial crisis, with causes varying from climate change to gender politics, all set in a context of increasing political polarisation.
The coronavirus pandemic and resultant lockdowns may have put a lid on protests, but the pressure is building. Heading into 2021 more than 20 countries are considered to be experiencing “active” episodes of civil unrest.
This is a trend driven by complex factors specific to each country, including anger at income inequality, food insecurity, political corruption and the overreach of the state, as well as ideological battles.
Insurance is part of the solution, and whether insurers pick up the bill for the damage to businesses when protest turns violent will always be a question of policy terms and wordings. The estimated insured losses from the Chile protests are up to US$2 billion, and commercial insurance rates have doubled as a result. The civil unrest already seen in the United States this year also hit global insurers and there is nervousness around protests relating to the outcome of the election.
It is being increasingly reported that the property insurers are now excluding Strikes, Riots and Civil Commotion (SRCC) perils that historically have been included in general programmes, driving a demand for standalone coverage in the specialty market.
Analysis by Marsh of general coverage across the market has shown no uniform approach from major carriers; some policies have an absolute exclusion in respect of SRCC and others may not. Even in instances where there is an express SRCC extension of cover, it is important to include clear definitions of each peril that is consistent with the law applicable to the policy.
The spectrum of political violence
The recent increase in civil unrest across the world has brought into focus the problem of how different legal systems classify the spectrum of perils, from civil commotion to civil unrest and terrorism. This has led to different outcomes for physical damage insurance claims made under property all risks insurance policies, which typically exclude terrorism.
Violence against the government is classed as terrorism in English law, but it can be difficult to define when terrorism begins and ends. As an example, during the Hong Kong protests, within the same day simple peaceful protest by different groups of students could quickly amalgamate into larger marches and later morph into running battles with riot police.
A similar question of drawing the line between riot and terrorism arose in Chile. The announcement of increased public transport ticket prices in Santiago in October 2019 sparked student demonstrations that escalated into riots and a government-declared state of national emergency.
From an English or common law perspective, the Santiago violence could be defined as terrorism, and therefore excluded by SRCC policies. However, local laws take a different view, and the classification of the events by the Chilean Government is likely to be influential on how the issue is resolved.
Despite standard wordings, there are rules in many countries, particularly emerging markets, where local regulations mandate that the insurance and, importantly, reinsurance of risks must be subject to local law. Each risk merits a clear analysis that takes into account the risk profile and legal definitions of the events in each country, as well as the formulation of policy wordings.
Reinsurers are well-advised to pay particular attention to aggregation language used in wordings that respond to SRCC, as well as additional risks, such as rioting or terrorism. Some of the issues will centre around the definition of “event” or “occurrence” and whether there is any language linking such definitions with an “originating cause” or a set time period, commonly 72 hours.
In the leading English case on how aggregation principles will apply in the context of a property damage claim arising from civil unrest, the Court had to decide whether to aggregate widespread losses flowing from the destruction of 67 Indonesian supermarkets by rioting following the resignation of the Indonesian President. The party attempting to persuade the Court that the losses should be treated as one occurrence for the purpose of the deductible pointed to the “deliberate orchestration” of protests that sparked the rioting. This was because the timing and location of losses were disparate, but what unified them was a potential single cause.
At first instance, the judge concluded that rioting was, in principle, capable of constituting a single occurrence, and the “per occurrence” limit applied to aggregate all damage caused by rioting. There was no need for the occurrence to take place at a single location, and there was no need for the occurrence to take place at a particular point of time, as a riot could perfectly last for a period of days.
The Court of Appeal reversed the decision. It held that the damage caused to each individual supermarket was itself to be regarded as an ‘occurrence’. The losses were caused by individual acts of rioters over a wide area, at different locations, and over two days. The key phrase (applying to the deductible) was “each location any one occurrence”, which strongly implied that there could be only one occurrence per location. The Court also noted the absence of the commonly used ’72-hours’ clause in the relevant contract, which might have treated all losses from the occurrence of a specified peril happening within a given time period as a single loss.
Check your wordings – and your jurisdiction
It feels like the political violence insurance market is at a critical stage. It is a time when (re)insurers could justifiably ask for rate increases, yet also one when commercial clients are in need of effective and clear cover and may be under financial strain because of the Covid-19 pandemic.
The solution to the conflicting pressures between insureds and insurers is to audit existing programmes, undertake scenario planning to test wordings and tighten language as needed. Through this process, (re)insurers can drive the sale of new and bespoke products to help plug the protection gap.
The surge in protests around the world is predicted to continue, but it is impossible to pinpoint where the next event will be triggered. Careful thought about how policies can respond to risks in different jurisdictions around the world will help to prevent nasty surprises for (re)insurers as well as providing insureds with the cover they expect and need.
This article was first published in Insurance Day.
Duncan Strachan is a partner and Ben Partridge is a solicitor in the Global Insurance team at international law firm DAC Beachcroft.
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