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U.S. rights protests could leave property and casualty insurers with a big bill

Antonita Madonna  Thomson Reuters Accelus Regulatory Intelligence

Antonita Madonna  Thomson Reuters Accelus Regulatory Intelligence

Human costs aside, the protests over racial inequality in the United States may present property and casualty insurers with some of the biggest losses from a civil disorder event in the country’s history.

Claims from the first few days of sometimes violent unrest across nearly two dozen states in the country is expected to run into hundreds of millions of dollars, if not more.

Protests demanding policing reform and better treatment of U.S. racial minorities spread after the video footage on May 25 showed the arrest and death of George Floyd, an unarmed black man being taken into custody by a white police officer in Minneapolis. These demonstrations have largely turned peaceful over the past few weeks.

Insurers, however, are likely to receive a large bill from businesses suffering damage and lost income after some of these demonstrations were accompanied by outbreaks of arson, vandalism, looting and damage to public property, leading to curfew being imposed in about 40 U.S. cities. Projections for total insured losses are not yet available but preliminary estimates and historical data, however, show the extent of the damage from the current civil unrest in the country could eclipse other similar events in the past.

Data from the Insurance Information Institute (III) shows riots in Los Angeles in 1992 proved to be the costliest in U.S. history, with about $775 million insured losses at the time, equivalent to about $1.4 billion in 2020 dollars. “The losses could be as high as the $1.4 billion figure from the LA riots in today’s dollars, given it is more than 20 states that were impacted,” said Loretta Worters, spokesperson for III.

The industry, however, has the necessary reserves to pay these claims and has already begun deploying claims adjusters into affected areas to start the claims process, she added.

Insured losses in Minnesota alone may have surpassed $25 million, according to Property Claim Services (PCS), a unit of Verisk Analytics, that provides loss estimates data for the insurance industry. PCS has designated 12 other “riot and civil disorders events” in the country since 1965 but the current agitation is its first instance involving more than one state.

Tom Johansmeyer, head of PCS, compared the risk in the ongoing protests to unrest in Chile over social inequality in 2019 that caused widespread infrastructure damage and insurance losses of more than $2 billion industry wide. About 20% of that loss to insurers came from a single retailer and at least one-third of the total loss came from a handful of large retailers’ property programs, PCS said. “When you look at the U.S., riot and civil disorder may generally appear as a sub-$100 million risk, with the potential for much greater losses. But, when you add a handful of large national or international companies with losses of more than $100 million each, you could see a much larger industry loss begin to materialize,” Johansmeyer added.

Claims payout complications

Most commercial and personal insurance plans typically cover property and vehicle damage from riots, fire, theft, or vandalism but the extent to which the claims would be paid out would be subject to individual policy terms and conditions. Policy terms could be rife with exclusions, waiting periods or deductibles, and other conditions that might limit the actual claims paid out to the consumer.

Washington Insurance Commissioner Mike Kreidler recently advised state business owners who have experienced damage during protests to contact their insurance companies as soon as possible. The American Property Casualty Insurance Association also asked consumers to check their policy terms at the earliest.

State regulators in Minnesota said they were setting up a response to the disaster recovery efforts in Minneapolis and St. Paul, the two cities most ravaged by the riots, but did not provide more information. California, also impacted by widespread protests, did not respond to a request for comment.

Claim reimbursements to impacted businesses will also be paid out on the basis of “replacement value coverage” or “actual cash value” coverage based on the type of insurance purchased. Consumers may not typically hold replacement-value coverage as these are more expensive than coverage options for actual cash value.

The timing of the unrest, following restrictions on normal business operations as a result of the Covid-19 pandemic, could further complicate lost business income claims. Many establishments had been shut for months prior to the unrest and determining the actual extent of the lost “income” may be subject to dispute.

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