Trouble on the Streets: Is the Tide Rising?
We believe there is a need for underwriters worldwide to have a greater awareness of the potential losses that might occur when offering coverage for Strike, Riot and Civil Commotion (SRCC).
One of the typical underwriting pitfalls is to focus on the most likely scenarios and forget about the tail - even when it could have a large monetary impact. Undoubtedly, SRCC losses have been relatively small and infrequent over the last few years. However, there’s every reason to believe that change could be just around the corner.
Specifically, we see two key drivers for a potential increase in losses. Social discontent to do with the overall economic situation is a breeding ground for social unrest around the world. Continuing slow growth and mandated austerity are an issue in Europe and the U.S. Meanwhile, the slowing pace of economic growth in major emerging markets, such as Russia, Turkey and Brazil, is also sparking unrest.
The rising tide of discontent has been most evident in the headline-grabbing street demonstrations across Brazil in the run-up to the World Cup.
In Europe dissatisfaction with the status quo was expressed mainly at the polls. Voters in the recent European Parliament elections made their feelings clear, evidenced by the widespread rise of parties such as UKIP in the UK, Front National in France, and the left wing party Syriza in Greece, to name just a few.
But this dissatisfaction could plausibly make itself known outside the polling stations if the economic situation does not improve; a repeat of something like the London Riots in 2011 cannot be discounted.
Our second concern is the growing geo-political tensions in different parts of the world. For example, violent anti-Chinese protests in Vietnam have followed the anti-Japanese protests in China of last year. In Thailand violent clashes led to a military coup. In Central Europe tension between Ukraine and Russia is at boiling point as separatists keep up their fight with the government.
Meanwhile political instability in North Africa and the Middle East continues four years on from the start of the "Arab Spring."
While the gap between overall economic and insured losses remains relatively large in emerging economies, individual insureds can still represent a significant exposure. A large-scale event in the centre of a major city in Europe or North America could have a huge impact on the insurance and reinsurance industry as a whole.
Insurance exposure is driven by the extent of the coverage given, and legislative changes can increase insurers' exposures significantly. The proposed changes to the UK’s Riot Act legislation, which would shift the current responsibility for riot damages away from police authorities, for example, would certainly lead to substantially higher losses for insurers in a repeat of the London Riots.
Managing SRCC risks isn’t easy. At Gen Re we are available to you to have an underwriter-to-underwriter discussion about how to manage them.