There is some confusion today about the nature of SRCC cover, and if unchecked, it will lead to market capacity challenges. On the one hand, Marsh recently noted that premiums have doubled in some parts of the world “if coverage is even available” – because the market has contracted in the face of socioeconomic unknowns. On the other, Reinsurance News reports that cover is most certainly available; but reinsurers are seeking to limit their exposure and direct insurers are sleepwalking into increased risk: “2023 saw reinsurers reposition themselves, creating a huge mismatch between the level of risk the direct market is exposed to and overall premiums… It doesn’t have enough premium to pay for attritional losses, let alone major cat events.”

Whichever is the case, the market is imbalanced. In an uncertain world, SRCC should be an opportunity to deliver new value to enterprise – but the market is instead retreating because scenarios are immature and changing.

It’s time to fill the gaps with better data and stronger analytics.

The reinsurance market approach to Strikes, Riots and Civil Commotion (SRCC) risks is rightly in the spotlight – for several reasons. First, 2024 is shaping up to be an extraordinary year. For the first time ever, half of the world will be entitled to cast a vote, in a sociopolitical environment which has become more polarised than ever before. From Just Stop Oil to #NiUnaMenos, protests are seemingly on every street. The West is closer to ‘hot’ war than it has ever been, and the economic effects of hotspots like Gaza and Ukraine affect local politics too, with challenging protests almost every weekend in London and New York, for example. Insurers have little to fear when trends are cyclical, but the politicisation of everyday life seems to be a more permanent tectonic shift (a good parallel is the effect of climate change on the economics of NatCat insurances); and that means the way we think about SRCC must change.

Second, SRCC has often been bolted on to other policies, either as part of an all-risks programme or as an afterthought to, for example, war and terrorism cover. As the potential effects of SRCC events become larger on the balance sheet, companies are seeking specific cover. And those losses are increasing. Gallagher Specialty notes, “Before 2015 only one SRCC loss event breached the USD 1bn threshold… Since 2019, along with the George Floyd riots, two events have generated losses exceeding USD 1bn: the riots in Chile in 2019 and South Africa in 2021”. UK Brokers, Howden, source: “The PV [political violence] loss profile has shifted significantly in recent years, with (re)insurers suffering more than USD 10bn of SRCC losses since 2015 vs less than USD 1bn for terrorism”. 

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At Allphins, we think that there is an opportunity to counter the structural challenges of SRCC with insight. That insight will come from three advances: effective data sharing between insurers and reinsurers; shared definitions and comprehensive analytics.

In terms of data sharing, the market has made progress, with most insurers sharing comprehensive risk exposures. SRCC was given its own risk code at Lloyd’s at the start of this year, and this should provide the impetus for further information sharing. Lloyd’s is also explicitly asking insurers to improve reporting on their SRCC portfolios. Lucy Brookes, Exposure Management Manager at Lloyd’s, says, “We’re currently undertaking a deep dive review of Political Violence exposure management practices and processes. One of the motivations of this review is to be able to provide guidance to our Lloyd’s market colleagues on the best practices for managing the exposure to multi-city, multinational rioting events, given the ongoing heightened risk we’re seeing around the world.”

However there is as yet no formalised structure or consistency to that data, so insurers are coming back with datasets which are hard for actuaries to interpret. This then means that there are no normative scenarios which reinsurers can rely on. As SRCC gets its own coding, we would like to see clarity as to SRCC losses (compared with broader PV or other subperils). And there are classes of information which are salient to understanding SRCC which were previously not considered important under all-risks, like the nature of a building’s occupancy: in civil unrest, large corporations and major retailers are at highest risk – while other businesses may be practically untouched. This type of data needs to be shared by default.

As regards definitions, we would like to see agreement on the components of a typical SRCC catastrophic event. As we noted above, certain properties are at higher risk. Protests also tend to take place in central districts of the largest cities in any one country – so rural areas or smaller towns may be largely immune (although France’s ‘Gilets Jaunes’ show that not to be completely the case). And unlike a terrorist bomb blast, SRCC events generally don’t lead to the complete destruction of a property and its ongoing business, but the losses incurred due to e.g. looting and ongoing business interruption may be high. An agreement on the reduced risks of SRCC when compared to all-risks PV would lead to significantly reduced cover costs compared to the burdensome 100% aggregate all-risks attributed to a city.

Finally, comprehensive analytics will give reinsurers the tools to derive insight from the raw data they obtain across multiple cedants. It will take time for the new coding to yield meaningful, granular data from which to make decisions, but now is the time to put the right systems in place. The same Reinsurance News article quoted above noted “The rating environment hasn’t changed sufficiently to account for the change” in socioeconomic risks; and every quarter will give reinsurers new data with which to improve their depth of understanding.

Lucy Brookes of Lloyds continues, “It's clear that complete and accurate SRCC exposure data, across all classes of business, is becoming increasingly valuable. Among other things, the capture of high-resolution risk information and SRCC specific policy conditions can help analyse extreme events, validate damage factors and PMLs, maximise appetite, and determine appropriate protection and retentions. As data volumes are often cited as the most challenging aspect of political violence management, having the right tools – as part of a robust exposure management framework – can help ease the operational burdens.”

We predict that, depending on the country and its legislative environment, major reinsurers and/or regulators will push for standardised reporting on SRCC events. It is a segment which can no longer be ignored. That reporting will feed industry-standard scenarios, too, which at last can then feed into more realistic cover descriptions and ultimately jumpstart the sector from its current illiquidity.

Laurent de la Porte, CEO of Allphins, says, “SRCC is a perfect example of a peril which represents a much greater risk than it was before; and the market demands a more effective and consistent approach. The winners will be the ecosystem of insurers and reinsurers who are ready to report on the subtleties of these events to a meaningful standard so that they can be assessed. And that helps the insurer too – reporting helps the industry, but each insurer will need a reliable opinion on their exposure. High-grade analytics will support both an insurer’s business and that of its reinsurance partners; it will also prevent the unnecessary withdrawal of cover from the market that we’ve seen in 2023-4.”

But the refinement of standards takes time. While the market establishes its approach, reinsurers need to be flexible, data-driven and able to test multiple assessment methodologies. You need the flexibility and tools to adapt rapidly until industry convergence is agreed. Otherwise, you will either “leave money on the table”, suffer catastrophic losses, or – as is the case today – walk away from a market full of opportunity.

And it’s making sense of your SRCC data that is exactly what Allphins is primed to help reinsurers to do – today. 

Get in touch to find out how: contact@allphins.com