The New, New Black Swan

Chris Westfall
Chris Westfall

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Insurers and reinsurers, already facing an existential crisis from the COVID-19 pandemic, must now confront massive losses from a previously underwood risk: riots.

sage ; BLM @sahjaymatthewPHILADELPHIA, PA. CENTER CITY. MAY 30th, 2020

May 31st 2020281 Retweets589 Likes

Over the past few days civil unrest has broken out in major U.S. metropolitan cities in dozens of states following the death of Minneapolis resident George Floyd at the hands of local police. Beyond the Twin Cities, unrest and significant destruction has taken place in major urban centers such as New York, Los Angeles and Chicago.

Although economic and insured loss estimates are not available as the unrest continues and new protests develop, comparisons are already being made to the 1992 Los Angeles Riots. The only difference being is that today’s riots are taking place in multiple U.S. urban centers.

Given the breadth and severity of the unrest and property damage this far, it’s not inconceivable that the private insurance market could face another multi billion-dollar loss in 2020 tied to the riots. This is especially true since insurers and reinsurers will not have a government blacktop to curtail losses, such as TRIA (terrorism) or the proposed PRIA (pandemic).

This was not always true, as a recent Congressional Budget Office explained in report details:

Following large-scale riots in American cities in the late 1960s, insurers generally pulled back from insuring in those markets, either adding policy exclusions to limit their exposure to damage from riots or ceasing to sell property damage insurance altogether. The federal riot reinsurance program offered reinsurance contracts similar to commercial excess reinsurance. The government agreed to cover some percentage of an insurance company’s losses above a certain deductible in exchange for a premium paid by that insurance company. Private reinsurers eventually returned to the market, and the federal riot reinsurance program was terminated in 1985.

It’s not inconceivable that private players may once again pull back from the civil unrest risks if losses are severe enough and they decided that civil unrest has become “unquantifiable.” That would open the door for another government insurance backstop program.

And this is all happening before the beginning the hurricane season starts… tomorrow.

Risk Reads

Throwing Some Reinsurance Shade

Paschal Donohoe has taken aim at a Lloyd’s of London insurer for failing to sign up to a government-brokered deal to support businesses hit by the Covid-19 lockdown.
While the finance minister did not identify the recalcitrant insurer, it is understood he was referring to Hiscox when he replied to a Dail question about the refusal of some British insurers to participate in the agreement. The UK insurers are members of Insurance Ireland, the industry trade body.

Paschal Donohoe takes aim at UK insurer as he tries to help Covid-hit businesses, The Sunday Times

Getting the Hurricane Joke

There's no indication that climate change was included in the briefing by acting NOAA Administrator Neil Jacobs. That went against the advice of former Vice President Al Gore, who said climate risks should be part of the technical presentation on hurricanes.
"Today's briefing is a chance for the President to listen & protect us," Gore wrote on Twitter before Trump's briefing. "Will the president ask why the oceans are the warmest ever measured? And why that makes hurricanes stronger? And why the strongest are more numerous?"
Instead, Trump joked that the country did not need a difficult hurricane season on top of the coronavirus pandemic.
"So you think we can have a slightly enhanced hurricane season? That's just what we want, that's just what we want," Trump said jokingly to FEMA Administrator Peter Gaynor. "Are we ready?"

Experts brief Trump on hurricanes but not climate, EE News

Reopening Lloyd’s

Lloyd’s shut its “underwriting room” in its London tower on March 19 in response to the coronavirus pandemic and has said it will not reopen before August, marking the first closure of physical trading in the commercial insurance market’s 330-year history.
The closure of the underwriting floor, usually packed with brokers and underwriters, meant the market went fully online for the first time, potentially opening the way for its operations to go digital on a more permanent basis.

Lloyd's of London considers part-virtual underwriting room, Reuters

RMN Weekly