By Tariq Al-Salihi, Head of Crisis Management, London Market & Europe Insurance at Sompo International.
Climate change protests in the UK took an ugly turn in mid-October when activists from the Insulate Britain group blocked a roundabout close to the M25 motorway in Dartford. In an echo of the Extinction Rebellion protests at Underground stations in 2019, in which activists were dragged from the roof of a Tube train by angry early-morning commuters, the Dartford incident resulted in some motorists dragging protesters out of the way of stalled traffic and dumping them unceremoniously by the side of the road. While Insulate Britain has announced a pause in its activities ahead of the COP26 climate change conference in Glasgow, this and other environmental protests are set to continue for the foreseeable future.
Violent clashes during climate change protests are typically rare, but that doesn’t preclude the possibility that they could become more combative, ultimately giving rise to the sort of property damage that has accompanied other protests in recent years. The implications for the crisis management sector could be significant, with the standalone political violence market potentially facing a wave of notifications on a par with the flood of pandemic-related business interruption claims in the SME property market. It is time to recognise, therefore, that climate change protest is a systemic risk, and it is only a matter of time before it generates a series of loss events that could be as catastrophic and paradigm-changing in terms of property damage and ensuing business interruption as 9/11 was for the terrorism market.
Property exposures
While there haven’t been notable property losses as a consequence of environmental protests to date, the potential exposures are significant if you consider both the distribution of recent protest movements and the nature of some of the losses sustained. A proposed tax reform in Colombia, following a lengthy Covid lockdown, sparked days of protests in late April and early May this year. Riots followed in a number of key cities, which caused insured losses in the hundreds of millions of dollars, potentially in excess of a billion dollars.
In Hong Kong, the pro-democracy demonstrations in 2019 and 2020 resulted in multiple clashes between protestors and police, paralysing parts of the city caught up in the protests, and leading to widespread damage – albeit, much of which was thought to be uninsured. And in France, the ‘gilets jaunes’ movement, which originated as a protest against increased fuel duty, pitted the French government against a largely working-class protest movement, and resulted in disruption that the French Finance Minister described as a “catastrophe for business [and the] economy”.
Contagion events
For a model of how a political violence ‘contagion effect’ develops, look no further than the events which became known as the ‘Arab Spring’. Few could have predicted that the shocking act of self-immolation by a street vendor in Tunisia in 2010 could have resulted in the toppling of four national leaders, brutal and enduring civil wars in Syria and Yemen, and major uprisings or sustained protests in a number of other countries. In insurance terms the Arab Spring was not a major loss event, simply because the global political violence market lacked the appetite for writing cover in those territories.
A significant concern for the crisis management market, however, is that political violence exposures in territories where the market does provide significant coverage are currently flying under the radar. While climate change protests in developed countries are likely to remain peaceful, the potential for serious disturbances becomes more likely when protests are hijacked by other groups.
In the UK, the protests which began in Tottenham, North London, following the shooting of Mark Duggan by police in 2011, quickly escalated into looting and rioting overnight that spread to other areas of London, and then to other UK cities in the following days, resulting in an estimated £200 million of insured property losses. Similarly, with the more recent Black Lives Matter protests, what started out as peaceful, if extremely angry, demonstrations against police brutality and institutional racism that quickly spread across the globe, were then hijacked by individuals intent on vandalism and looting. In the US, drug stores, department stores and other retail outlets took the brunt of the unrest.
Underwriting for climate protest
The political violence market is currently unprepared for a climate protest-related catastrophe event. Not only does it lack the experience to price these risks and manage an onslaught of claims, it also doesn’t have the capacity to cover losses of that magnitude.
Prior to 9/11, the terrorism market was limited to exposures where there was a recognised terrorist problem – Sri Lanka, Colombia, Iraq and others. After the terrible events of 2001, there was an understanding that a terrorist event of this scale could happen in any country and any major city, and the market subsequently built scale and developed products to meet this evolving peril. By the same token, the political violence insurance product will have to develop to cater for global climate change protests.
As part of this evolution, it will also need to tackle the issue of non-damage business interruption (NDBI) which, like pandemic-related NDBI in the SME property market, could come back to bite the political violence market. A significant amount of NDBI cover is currently provided by political violence carriers – typically in developed markets like the UK, the US and Canada – largely due to soft market giveaways following several years of successive annual rate reductions.
But assertively underwriting for political violence-related NDBI is a difficult, almost impossible, pricing challenge, because of the multitude of events that could trigger the coverage. Who would have predicted, for example, that traffic on the M25 would have been brought to a standstill by people protesting about the lack of domestic insulation? What this and other recent protest events tell us is that together as an industry we may now need to consider whether our products are still relevant in the face of this new type of risk.