Brokers must challenge the blanket application of riot exclusions
The imposition of Strike, Riot and Civil Commotion exclusions by carriers in the regional terror market is creating gaps in cover and leaving insureds without adequate protection
In working on some accounts from the Latin American region recently, we have noticed a fairly radical change to coverage for Strike, Riot and Civil Commotion (SRCC) being imposed by insurers both in London and in regional markets. We feel it is an area where it is important brokers work to help clients set themselves apart by providing information to underwriters to assist, where possible, in finding solutions to preserve this cover for clients.
Loss events that change the way the insurance market works have previously been few and far between; however, with the increase in emerging risks this is becoming more common.
Major events since 2000 have included the September 11, 2001 terror attacks, global warming events such as wildfires in California and elsewhere, cyber events, increasing political and socioeconomic disturbances and our ongoing Covid-19 losses.
Cover for all the aforementioned risks has previously been, or in some cases, still is, provided for in All-Risks wordings.
For example, before 9/11 terrorism was included in an All-Risk property cover except in a few territories, such as Sri Lanka, Colombia and the UK, which all had a known terrorist threat. But the attack from al-Qaeda changed the market for good. Immediately afterwards All-Risk re/insurers started to exclude sabotage and terrorism and it soon expanded the fledgling terrorism market that already existed before this.
As a result, effective terrorism solutions have been found and adequate capacity has become available for what proved to be an extraordinary, market-changing event that showed the need for specialist expertise in this area.
Terrorist events are one of the realistic disaster scenarios (RDS) for the Lloyd’s market. The analytics to model major blast events in city centres such as New York, San Francisco, Chicago, London, Munich and elsewhere have become increasingly sophisticated and allow insurers to calculate their aggregations in key areas.
The recent riots across Chile in 2019/20, which were demanding social and economic reform, caused significant financial losses to many industries in Chile, but in particular the retail industry. The overall losses were in the region of $3bn and this was an event that clearly had not been contemplated or even possibly modelled by many insurers and was not part of an RDS assessment.
Today across many accounts situated in Latin America, we are seeing insurers now routinely attempting to exclude SRCC or at best providing a small sub-limit for this coverage. This is necessitating the need to approach the terrorism market to seek quotes on standalone SRCC policies.
We are also finding the SRCC quotes in the terrorism market are creating gaps in cover and leaving the insured without the full protection they previously had.
However, the events in Chile need to be seen in perspective and not extrapolated across an entire region. The tendency is for underwriters to refer to Latin America as one country and adopt a catch-all approach, regardless of the individual countries, but each country in the Latin American continent has its own nuances and its own specific political situation. For example, Costa Rica is historically a very peaceful nation, with riots not being part of the culture, yet some markets are trying to exclude SRCC cover here.
This blanket approach is having a significant effect on insureds insofar as many renewals either no longer include SRCC coverage or have a much reduced limit, while the insured is still being asked to maintain or often increase their existing premium and also having to pay additional premium for a separate standalone policy that does not match their previous level of coverage.
This one-size-fits-all approach is where brokers that understand the region, the market and their individual client’s needs can really differentiate themselves.
Clients need to know each risk is assessed on its own individual merit and takes into consideration which industry and territory they operate in, including where their buildings are located. For example, is it a city centre? Are they close to governmental buildings or are they more rurally located?
The political situation of each country needs to be fully understood and the specifics of the client’s operations in the country put into context.
Armed with all this information, the broker needs to fight on behalf of clients to justify why SRCC can continue to be covered under existing All-Risks cover with the comprehensive wording and lack of gaps.
As a market, it is important we acknowledge changing situations, dramatic or otherwise, and consider what these events mean for the risk landscape. Sometimes this will lead to wording adaptions, changes to terms and conditions or, in some cases, an increase in premiums.
Professional brokers understand these situations do happen. Where it is justified and necessary that changes need to be made, it is up to us to manage clients’ expectations effectively and well ahead of time (unlike in some external cases we have heard of, where the insured is advised on the day of binding that a particular renewal premium was increasing by more than 300% without any earlier warning). Needless to say, this is not how Oneglobal does business, but it is concerning this is the experience of some insureds in Latin America.
In fact, there is no need for brokers to delay informing clients of changes – we find clients are generally responsive when the reasons for changes are properly explained. It is vital for brokers to work with the terrorism markets quickly to ensure any standalone cover for SRCC is fit for purpose as they may have to seek difference in conditions/difference in limits wrap around cover to fulfil limits and coverages they need.
Whatever changes need to be made to SRCC covers, one thing is certain: continent-wide exclusions, which leave clients exposed, need a determined challenge from brokers. Otherwise, the market might see blanket bans for SRCC implemented everywhere.
In fact, we have recently seen attempts to extend this approach to the far north of Quebec, for example, which is as geographically distant and politically different from Chile or any other country in Latin America as you can get.
We believe each risk must be judged on its own merit, and most important of all, a fundamental understanding of the risk must be achieved to ensure the right cover, with no gaps is delivered in a timely fashion to our clients.
Written by Oneglobal Executive Director Vanessa Macdonald-Smith and Senior Associate and Alexandra de Souza Mattos, this article first appeared in Insurance Day.