SRCC exposure in focus as presidential election nears

(Re)insurers have been sounding the alarm about escalating losses from strikes, riots and civil commotion (SRCC), and the US presidential election could provide another source of tension.

Losses related to SRCC have spiked globally in recent years, with events including French riots in 2023, the Black Lives Matter movement in 2020 and the Chilean riots in 2019.

Swiss Re in a blog post in March this year said that the number of claims related to SRCC has soared by more than 3,000 percent over the past two decades – and shows little sign of slowing down – while severity has also increased.

In an interview with this publication, Swiss Re’s chief underwriting officer for property Mohit Pande said many social, economic and geopolitical factors have contributed to the growing frequency and severity of SRCC claims.

“For example, the populist and anti-establishment movements have clearly triggered a rise in polarization among populations and a greater willingness to protest,” Pande said.

He continued: “We have also experienced a resurgence of activism around global key issues like the ongoing conflicts in Israel and Ukraine, and also environmental as well as DE&I topics, and these have sparked riots and unrest across the globe.

“As a consequence of that, it is still an issue that remains top of mind for the industry.”

In the US, Pande noted that the campus protests of the past year are another example of the resurgence of activism in response to global issues.

Capacity providers “keeping a close eye” on elections

SRCC exposures were a particular concern for (re)insurers heading into this year, with an unusually high number of public elections taking place.

“We have more than 50 percent of the world population going through elections this year, and in such an environment the risk of strikes, riots and civil commotion is expected to remain elevated,” Pande said. “I can tell you, we are considering this in our underwriting analysis and decision making.”

In a Q2 US property market update in September, Aon said that the number of elections this year “brings greater risk” for potential SRCC loss “and has been a concern for many carriers”.

“Capacity providers will be keeping a close eye on these events and we continue to advise clients to renew and bind as early as possible,” it said.

Despite this, the broking giant noted that regarding SRCC “we continue to see the steady decline of the hard market as new capacity continues to drive competition”.

Guy Carpenter in a global specialties update in September noted that many cedants have been de-risking their SRCC and war portfolios, and instead growing the terrorism portion of their book, which is seen as less volatile.

“The current mismatch between direct and reinsurance markets’ event definitions is creating some tension, especially around the hours clauses for SRCC cover,” the Marsh McLennan reinsurance broking subsidiary noted.

Swiss Re’s Pande suggested that the industry is now more aware of SRCC risk, and also more proactive in terms of considering this risk in underwriting analysis and decision making.

Pande said that companies are also looking at their accumulation exposure to this risk.

“This risk can have certain hotspots, and those can be particularly in areas where you have more population concentration and you have more retail stores,” he said.

Pande continued: “The underwriters in the industry are trying to capture the data, capture the exposure, and they are also looking at it from the perspective of accumulation control to make sure that they don't find themselves in a situation where there is a hotspot,” he said.

The executive added that underwriters are looking to make sure that there is clarity around the coverage itself, whether it's addressed in the primary policy forms or in the reinsurance contracts.

SRCC a big theme in Monte Carlo

SRCC was a hot topic of discussion in the lead up to and during the Rendez-Vous de Septembre in Monte Carlo.

During a panel discussion at The Insurer’s Pre-Monte Carlo Forum, Aspen executive chairman and group CEO Mark Cloutier noted that the plethora of elections taking place over 2024 has exacerbated SRCC risk.

“We have evidence of what can happen now in the US – some people still try to deny that 6 January happened, but it happened and we are now in an even more divided and angrier state of mind,” he said. “So I think that that risk is very much going to play on people's minds as we go forward.”

As well as populist and anti-establishment movements, Cloutier also noted increasing unrest – particularly in the UK and Europe – related to greater economic inequality.

“Directionally, where that risk is going more broadly, globally, I think there's going to be an ever increasing element of risk around civil unrest. So I think it will play big,” Cloutier added.

Scor global P&C CEO Jean-Paul Conoscente said during a media briefing in Monte Carlo that his company is reducing its SRCC exposure. He noted that “there’s a number of markets where this was addressed through change of wordings and change of limits”.

He added: “We see there is still work to do. France was an example this year, and the US remains a concern for us. There’s many countries where we see this risk on the rise, and therefore having a blanket coverage that’s not adequately priced for will not be acceptable.”

Speaking to The Insurer on the eve of this year’s Rendez-Vous in Monte Carlo, Hannover Re CEO Jean-Jacques Henchoz said greater understanding is needed around SRCC, adding that there is “still some room for improvement in understanding accumulation scenarios”.

“We have unfortunately seen a number of incidents in recent years across different geographies where riots and violent events have resulted in material losses,” he said.

“This year we saw a significant loss event in New Caledonia. This is a good example of an exposure which is becoming increasingly frequent and severe, impacting both primary and reinsurance markets.”

Market estimates suggest the New Caledonia riots will be a $1bn industry event.

One cat away from dislocation

Howden Re in a September report said that, having previously been considered secondary to traditional terror risks, SRCC events are now a primary driver of losses within the terrorism and political violence market.

The broker said treaty reinsurance contract limits at present standardly cover “any one city” or a defined radius – maximum 20 miles, for example. However, it said these have become less fit for purpose as locations thousands of miles apart can be affected by the same event.

“This presents a significant concern when insurers can only recover or reinstate on one location (i.e. their largest loss), resulting in significant horizontal net exposure. If these restrictions persist, the market may be ‘only one catastrophe away from complete dislocation’, heightening the need for multi-city clauses,” said the report.

Howden Re said that the reinsurance sector must adapt and innovate in response to the unpredictable world.

“The rising frequency and severity of SRCC events demand a nuanced approach, integrating advanced modeling, detailed data analysis and collaborative industry efforts. This will ensure resilience and better management of the emerging challenges in an increasingly interconnected global risk landscape,” the report said.

US election could inflame tensions

(Re)insurers are keeping a watch on the US presidential elections for potential SRCC exposures.

In its political violence and civil unrest report released in April this year, Allianz Commercial said that the elections this year were a concern in many territories, “not only from the threat of localized unrest but because of the wider-reaching consequences of electoral outcomes on foreign policy, trade relations, and supply chains”.

“The headline election will be in the US in November, when a narrow result could inflame existing tensions, particularly in the battleground states that could dictate the election’s outcome,” Allianz Commercial said.

The carrier said that a close result, combined with election laws that can lead to protracted counting processes, “could inflame tensions”.

“Any unrest around the November election is likely to be focused on the battleground states as well as the capital Washington DC,” said Srdjan Todorovic, head of political violence and hostile environment solutions at Allianz Commercial, in the report.