General Insurance Article - Riots in France: implications for insurers and London market

“Some policies exclude riot outright, often as part of a wider political risks exclusion that also covers events such as war, invasion, revolution and rebellion. A policyholder with that wording is unlikely to recover under its property cover at all. Other policies include riot as an insured event, but with carve-outs. Typical exclusions are damage resulting from cessation of work, damage caused by confiscation, destruction or requisition by order of the government or a public authority, and damage to unoccupied buildings. That last point may be significant for vacant or closed premises.

 

“Even where riot is covered, claims conditions should be met. Policies commonly require the insured to tell the police immediately, or as soon as reasonably possible, where damage is caused by riot or civil commotion. Some wordings also shorten the period for providing information to the insurer, for example 7 days for riot damage compared with 30 days for other losses. Missing these shorter deadlines could put coverage at risk, depending on how the condition is framed.

 

“For insurers, the gap means they will be left with the bill for this month's losses. They cannot rely on the Caisse Centrale de Réassurance (“CRR”) fund, which, once in force, will indemnify insurers for at least 90% of the riot losses ceded to it. The gap also brings a short-term risk of disputes and insurers should expect policyholders to argue, even if weakly, that the direction of the new law should shape how ambiguous current wordings are read.

 

“Many multinational property programmes placed in London use local admitted policies in France, sitting under a master policy with difference-in-conditions and difference-in-limits cover. Once riot cover becomes compulsory in French property policies, the local policies will have to include it. Brokers will need to look at how the master policy responds because a mismatch between a compulsory local wording and the London master policy is exactly where coverage disputes will arise.

 

“France has a long history of recurring civil unrest and that frequency is why riot has become harder and more expensive to insure in the French market, and why the state has stepped in. The state-backed fund is unlikely to remove the need for London cover, but it will change what is bought there, and by whom.

 

“At a primary level, we can expect a substantial drop in demand. Once every French property policy must include basic riot cover, businesses will no longer need to look to London to buy that basic layer of strikes, riots and civil commotion (SRCC) or political violence cover, as local policies absorb the risk. What will likely remain is demand for the gaps a domestic scheme leaves, such as higher limits. In any event, the risk taken out of the primary market does not disappear; it moves up the chain. The riot exposure that local policies will absorb automatically will be ceded largely to the CCR-managed fund, while French insurers keep up to 10% themselves. We will likely see London demand shift from buyers to carriers: the French insurers are likely to look to London for retrocession and high-layer treaty protection, and with the cover that sits outside the scheme altogether. In other words, London's role narrows from insuring the property owner to filling the gaps around a state-backed system.”