French riot losses should be 'manageable' for insurance industry
DBRS Morningstar predicts total insured losses for the French insurance industry from the current unrest should remain below 1 billion euros.
On the morning of June 27, French police fatally shot an unarmed 17-year-old – identified by his family only as Nahel M. – at close range during a traffic stop in the Paris suburb of Nanterre. Initial reports claimed the teenager plowed into police officers with the yellow Mercedes he was driving, but footage emerged online soon after that seemed to contradict the official story. This led many to take to the streets in protest of police violence.
NPR reports the officer who shot Nahel was taken into custody after the shooting with a preliminary charge of voluntary homicide.
The first protests began the night of the shooting, and unrest spread to surrounding areas in the following days. Protesters and police have violently clashed at many of these events. According to CNN, as of July 5, protestors had attacked nearly 400 bank branches and 500 corner shops, and looted over 1,000 stores.
Property damage caused by strikes, riots or civil commotion (SRCC) falls under the specialized war, terrorism and political violence insurance market that provides coverage complementary to standard policies. According to a recent commentary from DBRS Morningstar, an increase in both frequency and severity of SRCC events has led many insurers to reduce coverage limits for these risks, or drop them altogether.
In France, the DBRS Morningstar commentary explains, there is typically coverage for premises under a standard business policy for losses related to riots, but looting losses are rarely insured.
The French State can be held partially liable for damages caused by the current riots under Article L.211-10 of the French Internal Security Code, which says the “State bears civil liability for the damage resulting from the crimes and offenses committed, by open force or by violence, by rallies or gatherings, armed or unarmed, either against persons or property. Affected parties can exercise a recourse action against the municipality where the violence has occurred.”
Because of this rule and the existence of reinsurance, DBRS Morningstar predicts French insurers will only be saddled with a relatively small, manageable portion of the total loss. However, business interruption losses caused by vandalism and looting likely do not fall under the responsibility of the State.
“We believe total insured losses for the French insurance industry should remain well below the EUR 1 billion mark,” Marcos Alvarez, global head of insurance at DBRS Morningstar, said in a release. ”Additionally, we anticipate that direct insured losses due to the riots will remain manageable for most French insurers with limited impact on their credit profiles due to reinsurance protections in place and the partial liability of the French state for some of the losses.”
The commentary cites a recent report from Howden that states civil unrest has caused over $10 billion (USD) in global insurance and reinsurance losses since 2017. In some jurisdictions like Latin America and South Africa, insured SRCC losses have become comparable – or even surpassed – insured natural catastrophe losses.
Alvarez continued, “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.”