What Is Riot Insurance? A Primer On A Unique Financial Product

The city of Minneapolis, Minn. has been engulfed by two days of demonstrations, looting and rioting in the aftermath of the police killing of an unarmed man named George Floyd.

Preliminary reports suggest that scores of buildings and businesses in the city have suffered property damage and other losses. While most of these businesses likely have insurance to cover their losses, some insurance companies have been offering a relatively unique product called “riot insurance” to help businesses that have been damaged by unpredictable acts of civil disturbance and civil commotion.

For example, Allianz Insurance of London offers “riot insurance” -- which covers losses caused by strikes, riots and civil disturbances – as a separate policy.

TrustedChoice said stand-alone riot insurance policies are “reportedly cheap, and apparently premium costs have only been declining” over the years.

"There's an increase in activism from all sides," said Srjdan Todorovic, head of terrorism for Allianz Insurance, following the 2017 riots in Charlottesville, Va. "People aren't just satisfied with expressing themselves on social media anymore. The want to do their talking on the streets."

During the U.S. presidential conventions of 2016, the city of Cleveland reportedly spent $10 million to protect itself from damage caused by rioters.

Todorovic said that increased political violence may mean more businesses and municipalities should add “riot insurance” to their usual fire and flood insurance policies.

"Policies generally include coverage for losses caused by riot," said Loretta Worters, a spokesperson for the Insurance Information Institute, which represents the property-casualty industry.

But she specified that it must be a "direct physical loss caused by riot or civil commotion and looting at the time and place of the occurrence."

Worters added: "As for those businesses that must suspend operations due to rioting, coverage is only triggered if there is direct physical damage to the premises of such magnitude that the business must suspend its operations.”

Todorovic suggested such policies may have strict definitions of what precisely constitutes a “riot” or “civil commotion.”

"Some policies might say that 10 or more people have to be involved before it is a 'disturbance,'" he added.

During the anti-China riots that swept across Hong Kong for four months last year, very few local companies had riot insurance to protect against losses – meaning they had to pay damages out of their own pockets.

“I don’t know whether I’ll get insurance compensation,” said shop owner K.K. Man at the time. “There’s a chance that I won’t get compensation because the damage is due to social unrest… I don’t think riot damage is covered.”

Hong Kong insurance policies typically protects businesses for such events such as fire and natural disasters like typhoons – but it is rare from companies to have coverage for civil disturbances.

“Overall financial damage from these events will be quite significant and neither insurers nor most of the businesses would have prepared for something like this,” said an insurance sector lawyer with a global law firm in Hong Kong. “So you will see a sharp rise in litigation around what’s covered and what’s not, as well as pressure on earnings of insurance companies because of a surge in claim settlements and a drop in premium income.”

One insurance broker suggested that Hong Kong insurers were tapped out.

“Hong Kong property insurers have been making a profit for 20 years, but following two super typhoons in the past two years, they lost all 20 years’ worth of profit,” said a non-life insurance broker in Hong Kong. “That’s why in 2019 they have been extra prudent in covering property. Luckily there’s been no big typhoon this year, but the unlucky thing is there have been riots.”

“Riot insurance” may be considered a niche product within the broader “business interruption” insurance umbrella.

Raymond Hogendoorn, global head of property and engineering claims at Allianz Global Corporate & Specialty, or AGCS, a division of Allianz, said that “political [business interruption] risk is often underestimated. Ten years ago, protests in somewhere like Chile may have gone largely unnoticed by global businesses, but today the impact of such events is all too apparent.”

Indeed, riots and protests against the Chilean government in late 2019 led to several deaths, and looting-related damage to hundreds of businesses, including supermarkets. The total damage was estimated at $3 billion.

Walmart (WMT) incurred approximately $500 million in losses in Chile riot.

“Even if it was ‘just’ looting it will still take several months until the supermarkets can open again, so there are enormous [business interruption] losses,” said Bjoern Reusswig, head of global political violence and hostile environmental solutions at AGCS. “This event [in Chile] is predicted to be one of the biggest losses in the history of political violence insurance.”

Reusswig added: “Unfortunately, looting following a riot will never be limited to a small number of locations – once started it will spread rapidly,”

Risk Management noted that the physical property damage caused by rioting often subsequently lead to much larger losses in revenue for retailers, hotels, restaurants, convention centers and corporations in the affected city as tourists and travelers stay away.

“Policyholders facing losses due to civil unrest should work diligently to identify potentially responsive insurance coverage,” Risk Management advised. “Keep good records to support your claim and give prompt notice of all claims under all potentially applicable policies… The bottom line is that policyholders need to identify the coverage they already have that can be used, make a claim if the business is affected by a riot potentially covered by insurance, and then pursue that coverage aggressively.”