Insurers continue to take a cautious approach to strike, riot and civil commotion risks after a wave of historic riot and civil disorder events hit multiple cities and states in late May and June, experts say.
Retailers, real estate firms and municipalities, especially those that experienced losses, are seeing insurers restrict coverage and even exclude some of these risks.
While the push by some insurers to restrict coverage is part of the overall tightening of terms and conditions in the market, recurring pockets of civil unrest in Portland, Oregon, and Chicago are keeping the perils at the forefront.
“We keep pushing back and largely succeed in keeping exclusions off policies,” said Gary Marchitello, chairperson of Willis Towers Watson PLC’s North American property team in New York. But the issue is “still percolating out there,” he said.
“As we get closer to the election, and post-election, that will be a real test period. At least informally, underwriters are concerned,” Mr. Marchitello said.
While insurers may still write coverage, the price has gone up following events in the U.S., “certainly for retailers since there are quite a few losses out there,” said Sarah McGowan, a senior vice president in Marsh LLC’s U.S. property practice in New York.
“There are coverage implications to that. The retentions might be different, the limits are often aggregated, so it’s restrictive compared to what they had been buying before,” she said.
At a recent renewal, many insurers were pushing a $5 million sublimit on one retailer that had experienced U.S. riots losses in multiple cities, and had a store burn to the ground in one of those cities, she said.
That retailer will have to go to the terrorism market if it wants more than $5 million in coverage, at an additional cost, Ms. McGowan said.
Terrorism insurers will include strike, riot and civil commotion coverage under a political violence sublimit “at a price,” she said.
Rate increases depend on the exposure. One client that had riot losses in other countries just prior to the U.S. riot losses saw its terrorism premium increase by 40%, Ms. McGowan said.
Municipalities may face additional substantial insurance costs to protect the assets and financial integrity of their organizations, said Twane Duckworth, chief of risk management for the city of Jacksonville, Florida, and a Risk & Insurance Management Society Inc. board director.
Citing the Republican Convention, scheduled to take place in Jacksonville in August but then canceled, the magnitude of the event was so large that the city had looked into buying a separate insurance policy that would have cost in the range of $7 million to $10 million, he said.
The program included up to $50 million in limits for law enforcement liability, substantial workers compensation limits, accidental death and dismemberment, and cyber liability coverage, Mr. Duckworth said.
Jacksonville has sovereign immunity under Florida law and under its current program is self-insured up to an excess liability policy that kicks in at $1.5 million, he said.
Given the scale of the potential demonstrations and potential claims that could arise, “that’s a risk we couldn’t take,” Mr. Duckworth said.
The push to restrict coverage started among some international insurers, following civil unrest last year in Hong Kong and Chile and is now spreading to the U.S. market, brokers say.
While some domestic insurers have not made any changes, some have developed exclusionary language that they plan on using “selectively,” said Reiner P. Braun, Woodland Hills, California-based senior managing director, national property practice at Beecher Carlson Insurance Services LLC.
“These are standard perils that have always been part of property insurance, so it’s much harder to pull them away. You manage the risk, you put a sublimit on it, you put a higher deductible on it,” Mr. Braun said.
Protests and riots broke out on May 26 after the death of George Floyd in police custody in Minneapolis and spread to more than 20 other states.
Property Claim Services Inc., a unit of data analytics firm Verisk Analytics Inc., based in Jersey City, New Jersey, designated the civil disorder from May 26 to June 8 as a multi-state catastrophe event.
Several large retailers, quick-serve restaurants and other businesses sustained physical damage, according to PCS.
“PCS has identified several large retailers that have already notified an aggregate $200 million to their insurers on limits believed to be approximately $1 billion in aggregate,” said Tom Johansmeyer, head of PCS.
Given the losses thus far, this event is likely to surpass the Los Angeles riots of 1992, which caused $775 million in insured losses, according to the New York-based Insurance Information Institute.
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Cities can take steps to manage risks before demonstrations start ?
Municipalities need to consider a range of steps to mitigate the risks of civil unrest, including advanced planning, training and possibly procuring separate insurance coverage, risk management experts say.
A challenge for all municipalities is that as a government actor they have to recognize and balance the freedoms and constitutional rights of the public with public safety and the law, said Twane Duckworth, chief of risk management for the city of Jacksonville, Florida, and a Risk & Insurance Management Society Inc. board director.
In the case of the Republican Convention, scheduled to take place in Jacksonville in August but then canceled, the city had meetings in advance with activist groups and organizations, Mr. Duckworth said.
“If you meet with them in advance, that can reduce a lot of risk commonly associated with these demonstrations,” he said.
For spontaneous demonstrations, risk managers need to ensure they have a good partnership with their representative law enforcement. Advance training is critical for handling mobile force and major demonstrations, he said.
Public entities and municipalities need to assess potential exposures, such as street and work construction sites, said Jim Smith, Perry, Florida-based national risk control leader at Arthur J. Gallagher & Co.
One area to consider is whether sites are accessible and whether there are materials that could be used in riots such as fire sources, wood, trash, pallets or other products, Mr. Smith said.
