20 October 2023
Will Strikes Riot & Civil Commotion become a systemic risk?
Potential sources of civil unrest in 2024
According to the US Council on Foreign Relations Global Conflict Tracker, there are currently 27 going conflicts that are of concern.
Conflicts are rarely confined to the specific geographic country or region they inhabit. They often influence and ignite civil unrest elsewhere. A current example of this is the spate of Eritrean cultural festivals ending in violence, where opposing groups clashed as the African country marked 30 years of independence from Ethiopia. In July and August riots broke out in Germany and Sweden, leading the festival planned in Toronto, Canada to be cancelled. In September, Israeli President Benjamin Netanyahu announced plans to deport Eritrean asylum seekers involved in the riots in Tel Aviv, which followed a similar cultural festival.
Meanwhile labour welfare concerns have been a persistent issue in the Middle East for several years. Prior to and during the 2022 World Cup in Qatar, the treatment of migrant workers brought Qatar's human rights record into the spotlight, leading to global criticism.
The admission and employment system in most Middle Eastern countries is called the kafala (sponsorship) system and the International Labour Organization (ILO)’s Committee of Experts on the Application of Conventions and Recommendations has stated it “may be conducive to the exaction of forced labour”. The committee has requested that the governments concerned protect migrant workers from abusive practices.
In 2016 2,500 workers rioted over pay and conditions while working on the Burj Khalifa in Dubai, causing damage estimated at GBP500,000. With multiple extensive construction projects underway in the region, including those focused on renewable energy, insurers may be cautious of the SRCC risk posed by migrant worker exploitation.
Another source of future unrest stems from access to resources and water. Water scarcity is a pressing issue for many countries; the conservation actions of one country can threaten the security of others, increasing the consequent SRCC risk. An example of this is the Grand Ethiopian Renaissance Dam (GERD), Africa’s largest hydroelectric dam project. After 12 years of construction, it is nearing completion and it has been a constant source of disagreement.
Ethiopia intends for the dam to produce electricity for 60% of its population currently with no supply. While the dam has the potential to also supply electricity to neighbouring countries, downstream Egypt and Sudan are heavily dependent on the Nile and Egypt has been vociferous in its concern over what will happen during periods of drought.
International intervention in 2019 failed to resolve the issue and tensions are set to rise until an agreement over how Ethiopia uses the Nile to fill GERD is signed. While exposures relating to tensions between Ethiopia and Egypt would come under Political Risk, if a future water shortage along the Nile ruined crops, for example, then there is a risk that farmers and the wider public would appeal to the Egyptian government to intervene. There is even potential for the GERD to be targeted by vigilante groups.
In 2016 2,500 workers rioted over pay and conditions while working on the Burj Khalifa in Dubai, causing damage estimated at £500k.
Will SRCC become a systemic risk?
Since 2017, roughly 68% of the world has endured significant protests and civil unrest has caused more than USD10 billion global (re)insurance losses, compared to USD1 billion terrorism losses in the same period.
Over
400
significant antigovernment protests have erupted worldwide
More than
132
countries have experienced significant protests
23%
of significant protests have lasted more than three months
135
significant economic anitgovernemnt protests have occurred since 2017
The US riots in 2020 in response to the death of George Floyd caused USD 2.7 billion in insured losses. Like the 2011 London and 2023 Paris riots, the George Floyd riots also spread quickly across not only the US but the world. Minneapolis, New York, Los Angeles, Miami, Nashville, Salt Lake City, Cleveland, Raleigh, Louisville, Atlanta, Dallas and Washington DC all became hotspots for rioting, and the rapid escalation provided a stark lesson in how quickly social unrest can propagate.
Before 2015 only one strike, riots and civil commotion (SRCC) loss event breached the USD 1 billion threshold: the 1992 LA riots in response to the acquittal of four police officers who had been charged with excessive force when arresting Rodney King. Since 2019, along with the George Floyd riots, two events have generated losses exceeding USD 1 billion: the riots in Chile in 2019 and South Africa in 2021.
There is now reduced insurer appetite for political violence and many are weighing up the systemic nature of future events. SRCC cover is offered on a standalone basis but traditionally it has also been included in certain all-risks property programmes. Some reinsurers are restricting SRCC exposure within property treaties or are carving it out completely. In July DBRS Morningstar stated that the rise in frequency and severity of global SRCC events has prompted certain standard insurers to reduce policy limits or drop SRCC coverage from standard policies. This has led to an increased reliance on SRCC insurance in the London market.
In response to this environment, in July Lloyd’s announced a new risk code RS, to be implemented from January 2024, which will isolate SRCC from more traditional standalone terrorism exposures. Insurers are hoping that the new code will help them segregate losses, which will prove beneficial for reinsurance purposes. With terrorism being separated from SRCC, where the majority of market losses have occurred in recent years, it should be easier to manage risks. For the code to be effective, both the property and political violence markets need to adopt it. However, this is not guaranteed as it may highlight the large amount of aggregate the property market is running for SRCC without charging specifically for it.
Conclusion
Social media’s role in the increased frequency and severity of civil unrest cannot be underestimated. Where in the past riots may have been concentrated in one particular location, recent events have shown that, as messages and images are amplified on social media platforms, there is no way of predicting where consequent violence could erupt, and this poses particular difficulty for modelling SRCC risk.
On the flip side, as demonstrated in Paris this year, social media also offers anyone with a smartphone the opportunity to document their experiences in real-time. Accountability is inescapable, and it is no longer possible for anybody of power to control the narrative. How social media is regulated will continue to evolve but its role is unlikely to diminish.
The predicted increase in global SRCC risks suggests the already high demand for political violence insurance will rise even further. If civil unrest events become more frequent, political violence insurers will see increased exposure. As such, the impact of Lloyd's RS code will be closely watched across the market.
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