Strikes, Riots and Civil Commotion Risks (SRCC) raise growing concerns over accumulation potential and wording ambiguity

14 September 2023 — Daniela GHETU
Strikes and riots and civil commotions (SRCC) have escalated rapidly in recent years. In Monte Carlo, the big European reinsurers have reiterated their concern with regard to the increasing political volatility that is leading to an increasing incidence of SRCC events, with a serious potential of accumulation.

Following the Covid 19 crises, the socio-political environment has further deteriorated, impacting populations across the world. “Incidents appear to no longer be in isolation, instead occurring on a coordinated global scale. Driven by evolving ideologies and changing sociocultural values, localized events are now increasingly gaining momentum across multiple regions,” read a study released by Aon already in 2021, based on data on the precedent years.

“Riots triggered business losses in at least 40 cities across 20 US states in 2020, and financial losses are thought to rival the costliest civil disorder in US history – the Los Angeles 1994 Rodney King riots which caused USD 1.42 billion in damages. In Hong Kong, ongoing unrest led insurance claims to reach around USD 77 million – the third-highest amount in the city’s history by incident,” Aon said.

In the beginning of 2023, a report released by Allianz Global Corporate & Specialty (AGCS), showed that the “incidences of strikes, riots and civil commotion have not only increased in recent years, they are also becoming more intense and catastrophic. These types of events are making our era one of uncertainty.” According to Srdjan Todorovic, Head of Political Violence and Hostile Environment Solutions at AGCS, “we have seen multibillion-dollar loss events in the US, Chile, and Colombia. The threat is changing, and although many of the reasons for it are universal – whether economic, political, or environmental – it can play out differently in different regions, with various levels of violence and disruption. Operational and security management within organizations should view the current climate as a catalyst for evaluating best practices and policies around preparing locations and employees for potential civil unrest and building resilience.” In fact, ‘political risks and violence’ ranks as a top 10 peril in the Allianz Risk Barometer in 2023. While the Ukraine war is a major factor in this ranking, the results also show that the impact of SRCC activity ranks as a political violence risk of top concern with a combined score of almost 70%. Unrest is now spreading more quickly and widely thanks in part to the galvanizing effect of social media. This means multiple locations can be impacted, potentially resulting in multiple losses for companies. Such events are also lasting for longer - almost a quarter of the 400 significant anti-governments protests since 2017 were in excess of three months – helping to ensure financial costs are mounting. Reported damages from just six civil unrest events around the world between 2018 and 2023 resulted in at least USD 12 billion in economic/insured losses, the AGCS report found out.

Also, according to AGCS’s report, the ongoing cost-of-living crisis, distrust of governments and institutions, the increasing polarization of the society, the rising activism, as well as the climate and environmental concerns are the main drivers of SRCC phenomenon growth.

At the Rendez-Vous de Septembre in Monte Carlo, this week, Munich Re stressed out that “the re/insurance industry should analyze if these types of exposures are adequately priced, especially considering the increasing trend. Moreover, the industry should consider the development trends for these types of events in terms of frequency, duration, spreading geographically etc. “We need to pay better attention to whether we may see surprise losses or some ambiguity with event wording – not only in the original policy wordings, but also how reinsurance structures would respond and how the aggregation would be allowed on the reinsurance structures,” Stefan GOLLING, Member of Munich Re’s management board stressed out.

Swiss Re's vision on this topic is similar. “What is important for us is to be able to properly estimate and assess the aggregation issue around SRCC. Under the property cat policies or under the property policies, this is covered. But for reinsurance there is aggregation potential across a lot of policies that would aggregate into the cat treaties,” explained Gianfranco LOT, CUO P&C Reinsurance, Swiss Re.

Completing the European reinsurance ace deck, SCOR and Hannover Re also addressed the subject, sharing Swiss Re’s and Munich Re’s concerns. While for Hannover Re the French riots led to the “most prominent loss” the German reinsurer had recorded this year, for SCOR the same events were a reminder of the globally increasing frequency of civil unrest events and their stronger impact.

As such, the “big four” are currently looking at SRCC risks as a priority, considering that the re/insurance industry should be prepared to respond when clients have coverage issues.

As for the distribution side, Aon said brokers can help businesses fully understand the scope of current coverage and explore mechanisms to minimize any changes in the market. They should also help businesses understand their exposures and the coverage provided by each policy, where/if coverage intersects, and if there are any gaps in coverage which could leave the business exposed. The distinctions of what constitutes SRCC, terrorism or war are often difficult to make, and to avoid any disputes arising from ambiguity across varying definitions of the SRCC perils businesses should use the expertise of a specialist broker.