I predict a riot

In our fast-changing world powered by social media, where a call to action around a common cause can be sent from one or a few smart devices to all corners of the earth in a matter of seconds, businesses are increasingly exposed to political risks of all types – from riots and civil unrest to strikes, and not forgetting, terrorism attacks – which can all cause severe disruption.

The past year alone has seen civil unrest in several global hotspots in South America, Hong Kong and France which highlight how easily protests can occur and prolong – resulting in property damage, business interruption (BI) and a loss of income for many businesses.

Some of the most violent unrest broke out in Chile, where prolonged protests flared up initially in response to a four-cent fare increase by the Santiago Metro subway. Many subway stations were destroyed by protestors – causing $370mn in damages. The protests paralyzed the city’s economy, infrastructure and commerce, and soon overtook the country. All told, the extended strikes, marches and protests could cause up to $4bn in property damage claims with (re)insurers bearing the brunt of that [1]. The most striking example of commercial disruption, however, was to the retailer, Walmart, whose Chilean subsidiaries suffered significant losses – more than 128 of its 400 supermarkets looted, with 34 set on fire and 17 destroyed [2].

“Unfortunately, looting following a riot will never be limited to a small number of locations – once started it will spread rapidly,” says Bjoern Reusswig, Head of Global Political Violence and Hostile Environment Solutions at AGCS.

Protests also began in October 2019 and continued into November in Bolivia in response to alleged electoral fraud and caused an estimated $167mn in losses, around $16mn of which was attributed to shipping difficulties and production halts in Cochabamba, the country’s agricultural and industrial hub[1]. The protests successfully ousted dictator, Evo Morales, who promptly fled to Mexico and encouraged a civil war be waged by his remaining supporters against the new regime.

In Colombia, anti-government protests attracted as many as 250,000 during a national strike against corruption and austerity measures during November and December 2019, causing the death of at least three people in violent clashes, while in Ecuador, 11 days of protest in early October 2019 in response to austerity measures, including the cancellation of fuel subsidies, left at least seven dead and over a thousand injured, resulting in over $1.3bn in economic losses to the country [4].

Meanwhile, ongoing protests over proposed extradition legislation and loss of autonomy in Hong Kong have so far resulted in over four thousand arrests, a 24% year-on-year plummet in retail sales in October 2019 and a 40% fall in tourist activity during the same period [5].

“Today’s highly connected supply chain is dependent on available transport infrastructure,” says Reusswig. “If roads, bridges, ports or airports are closed or blocked by protesters, or need to be repaired, this will delay or even interrupt the production process – especially if the company operates with ‘just-in-time’ supplies.” 

In France, a tax increase on all fossil fuels, but particularly on diesel, resulted in extended “Yellow Vest” protests, rioting and looting, first by farmers in rural areas and then in city centers throughout the country. Government estimates suggest that total economic losses across France could surpass €4bn ($4.43bn) [6] due to a drop in foot traffic, since all protests have targeted Saturday afternoons, as well as shops being unable to reopen quickly enough after incidents (see below).

Globally, insurers are seeing an increase in political violence losses, in part because customers are buying more insurance but also because companies and supply chains are increasingly multinational, which makes them more exposed, given civil unrest events are increasing around the globe. The fallout from the Chilean, Hong Kong and French protests, in particular, illustrate how insurance responded to the unrest.

In Chile, Walmart’s approximate $500mn in losses from the riots is a significant contributing factor to what could become the largest political violence insurance event ever, according to Reusswig. In Hong Kong, all-sized businesses suffered smashed windows, graffiti and even fire for their perceived support of mainland China by activists. “Sadly, most impacted businesses were small and, although they have flooded insurers with claims for damage, few are likely to be fully compensated as most would not have coverage for political violence,” says Reusswig.

In France, protracted political unrest resulted in extensive property damage, BI and a general loss of income for many businesses, with an estimated €200mn in insurance claims reported as of May 2019. Traditional property insurance typically responds to physical losses from fire, flood, wind or other natural occurrences, and may have an element of BI attached. It might also include an element of terrorism insurance, but property terrorism insurance does not cover all forms of political violence. That’s where political violence insurance “minds the gap.”

Political violence insurance provides coverage for terrorist acts, acts of sabotage, riots, strikes, civil commotion, malicious damage, insurrection, revolution, rebellion, coup d’état, war, civil war or counter-insurgency. Additionally, common extensions include denial of access (businesses shuttered because authorities have closed the area, whether damaged or not), loss of attraction (being closed, businesses cannot attract customers), and other civil disturbances.

“The full political violence product has existed for some time, but was never a widely bought cover,” explains Reusswig. “That changed dramatically during and after the ‘Arab Spring’ in 2010 and 2011 when companies – especially in the Middle East and Africa – realized that the full product provided a gapless cover along the entire escalation process which could run the gamut from violent demonstrations to a rebellion and, in a worst case scenario, to a full-fledged civil war.”