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U.K. riot losses may top $325M

Government faces claims from insurers

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U.K. riot losses may top $325M

LONDON—Insurance claims from rioting and looting that engulfed areas of London and other major British cities last week are expected to run into hundreds of millions pounds.

While the property damage and business interruption claims stemming from the riots likely will be covered under most commercial insurance policies, the government ultimately may pick up the tab for much of the damage.

Sources said it is too early to estimate what the final cost of the riots and looting will be to insurers, but the Assn. of British Insurers last week said the insured loss likely will be well over £200 million ($327.8 million). While few insurers last week had estimates for losses from the riots, Allianz Insurance P.L.C., the U.K. unit of German insurer Allianz S.E., said it expects to pay out £25 million ($41 million) in riot-related claims.

Nick Starling, director of general insurance and health at the London-based ABI, said business interruption losses in particular were difficult to calculate at this early stage.

Most commercial insurance claims likely will be covered under standard policies, according to the ABI, the British Insurance Brokers Assn., and other experts. And insurers likely will be able to subrogate some claims to the police under the terms of U.K.'s 1886 Riot (Damages) Act.

The rioting and looting began in the Tottenham area of north London on Aug. 6 after a peaceful protest against the previous week's fatal police shooting of a local man.

Riots spread to other parts of north London on Aug. 7 as hundreds of people took to the streets fire-bombing buildings, smashing into stores and businesses, and looting their contents.

On the two succeeding days, violence and looting spread to other areas of London, and to at least 10 other English towns including Birmingham, Bristol, Liverpool and Nottingham.

Five people were killed as a result of the violence.

Among high-profile targets were a Sony Corp. film distribution center in north London, which was set on fire, and a 140-year-old furniture store in south London that burned down. Coverage for a Carpetright Group P.L.C. store in Tottenham, which was in the first building to be destroyed in the melee, was underwritten by Zurich Financial Services Group. That building also contained residential apartments.

Many businesses in London and the surrounding areas sent staff home early on Tuesday amid fears of further violence and disruption.

Most property insurance policies will cover owners and occupiers of commercial premises on an all-risk basis, according to Bill Gloyn, a partner in the European real estate division of London-based brokerage Jardine Lloyd Thompson Group P.L.C.

Various insurance policies may respond to the events of last week, said Caroline Woolley, head of the property practice of Marsh Inc. for Europe, the Middle East and Asia.

Ms. Woolley, who is based in London, said losses could be interpreted as resulting from property damage, vandalism, denial of access, riot and—potentially—political violence, among other things.

Insureds should check the wording of their policies, Ms. Woolley said, and notify their insurers—and, where applicable, the police—of any potential claims as quickly as possible. Policyholders also should gather as much information as possible about their loss and, for example, take photographs where possible, in order to ensure that underwriters are fully apprised of claims, she said.

Most property policies likely will cover damage caused by the recent rioting, according to a spokesman for Zurich in the U.K.

Policies underwritten by Zurich typically include losses from criminal damage and riot, he said.

The issue of whether the events are deemed to be civil unrest or riot or simply damage to property and theft is really a “back-office” issue for insurers, he said.

Insurers will need to examine claims and then decide if they can subrogate those claims to the police under the Riot (Damages) Act (see related story).

The extent to which business interruption losses will be covered depends on the type of policy buyers have, experts said.

“Most traditional business interruption policies are concerned with property damage,” said Ms. Woolley, so buyers should check their policy wordings to assess whether business interruption caused by denial of access, for example, would be covered.

It does not appear the violence was politically motivated and, therefore, any terrorism exclusions likely will not apply, loss adjuster London-based Crawford & Co. said in an advisory note.

Owners of vacant properties that have been damaged must check their policies carefully, according to JLT's Mr. Gloyn. In recent years, an increase in claims for damage to vacant properties has led some insurers to restrict coverage for such buildings, he said. For example, insurers may require policyholders to have extra security on such properties. If policyholders have not followed such requirements, they could find themselves uninsured, he said.

According to London-based law firm Reynolds Porter Chamberlain L.L.P., most insurers require notification of riot claims within a short period—typically seven days—of an event, in order for insurers to file claims with police within 14 days.

Brit Insurance Holdings N.V., which operates a U.K. insurance company and a Lloyd's of London syndicate, among other things, said in a statement: “We need policyholders to notify us in seven days, as we are keen to provide them with the assistance they require.”

The London-based Federation of Small Businesses advised policyholders to “ensure that there is a very prompt notification of the incident to the police followed by an immediate notification to your insurer or insurance broker.”

“In any event, this must be done within seven days of the incident,” the FSB added.

While the riots are not expected to have a market-turning effect on rates, they may lead to underwriters becoming more selective, sources said.

Fitch Ratings Ltd. said it did not expect losses from the riots to have a negative impact on the financial strength ratings of U.K. insurers.

“At current loss estimates, Fitch believes the industry as a whole will be able to absorb these losses into earnings,” Chris Waterman, managing director in Fitch's insurance group in London, said in a statement.

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