The total insured losses resulting from the riots in France are expected to remain manageable for the country’s insurance industry, according to DBRS Morningstar.
This assessment is based on two factors: the existence of reinsurance coverage and the partial liability of the French state for some of the losses.
The report suggests that total insured losses for the French insurance industry should stay below the EUR 1 billion mark. This outcome is reassuring for most French insurers, as their credit profiles are expected to have limited impact due to the reinsurance protections in place.
However, the rising frequency and materiality of strike, riot, and civil commotion (SRCC) losses worldwide are projected to have broader implications. The report states that these losses will continue to exert upward pricing pressures and restrict the availability of SRCC coverages globally.
Insurers and reinsurers are now compelled to consider the potentially catastrophic nature of civil commotion events as unrest spreads swiftly across multiple jurisdictions.
Marcos Alvarez, Global Head of Insurance at DBRS Morningstar, emphasised the importance of stricter underwriting guidelines for conflict-prone areas.
He stated, “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.”
A recent report by insurance broker Howden highlights the significant impact of civil unrest on the global insurance and reinsurance industry. Since 2017, civil unrest has caused over USD 10 billion in insured losses, surpassing the approximately USD 1 billion incurred from terrorist attacks during the same period.
Notably, in certain regions like Latin America and South Africa, insured SRCC losses are now comparable to or even exceed insured losses from natural catastrophes.
While insured natural catastrophe losses globally remain higher at over USD 100 billion per year, the increasing frequency and severity of SRCC claims have led to rising prices and reduced availability of SRCC coverage in many jurisdictions.
The insurance industry has faced catastrophe-level losses from riots in Chile (2019), the United States (2020), and South Africa (2021), with payouts exceeding USD 2 billion for each event.
In the case of the United States, insurance companies traditionally offered SRCC protection as part of all-risk commercial policies at no extra cost.
However, the widespread Black Lives Matter demonstrations in 2020 following the murder of George Floyd resulted in insured losses of USD 2.7 billion. These record losses prompted insurers to exclude coverage for social unrest events from standard policies or charge additional premiums.
This event not only set a record for SRCC claims in the United States but also highlighted the simultaneous occurrence of riots across different states.
Similar to the 2005 riots in France, the 2020 riots in the United States demonstrated the swift propagation of social unrest across multiple jurisdictions, leading insurers and reinsurers to consider the systemic nature of future civil commotion events.
As SRCC losses continue to grow in materiality, insurance and reinsurance companies are expected to implement stricter underwriting guidelines, particularly in conflict-prone jurisdictions.
This could result in reduced availability of SRCC coverage. Moreover, bundling SRCC insurance with all-risk commercial policies will become more challenging, requiring separate negotiations and underwriting processes.
The increasing reliance on separate SRCC coverage by insurers and commercial clients will further drive up prices in the market, which has already experienced a hardening trend since late 2018.
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