Scenes that played out over the past few days in several East region states are serving as a stark reminder for the insurance industry of civil unrest that took place in New York and other U.S. states more than 50 years ago.
Beginning April 4, 1968, riots that broke out in New York and other states throughout the U.S. following the assassination of Martin Luther King Jr., an event typically referred to as The Holy Week Uprisings, resulted in 43 deaths, thousands of arrests and millions of dollars in property damage, Smithsonian Magazine reported.
The Insurance Information Institute (I.I.I.) estimates the King assassination riots in New York caused $4 million in losses for the state’s insurance industry, equating to $30 million today. I.I.I. ranks it among the top 10 costliest U.S. civil disorders for the insurance industry, a ranking Larry P. Schiffer, senior partner in Squire Patton Boggs’ New York office, says recent civil unrest over the fatal arrest of George Floyd may measure up to.
“This is likely going to be, if not the biggest, one of the biggest insurance losses caused by riot, vandalism and commotion in U.S. history,” he said.
In Minneapolis, where police officers’ May 25 arrest of Floyd turned fatal, demonstrations over police brutality and racial inequality were sparked and quickly spread to other U.S. cities, including East region cities like New York, Pittsburgh, Boston and Washington D.C. However, peaceful protests by day were overcome by violence at night as criminal activity such as looting, arson and vandalism led to property damage and curfews being imposed in some cities.
The Property Claims Service, a unit of the Insurance Services Office, has already labeled this as a catastrophe since it will meet the threshold of exceeding $25 million in losses, according to I.I.I.
“We expect this to be a significant loss event as the impact is being experienced in large and small markets across the U.S.,” said Mark Friedlander, director of corporate communications at I.I.I.
In New York City, several days of looting has resulted in vandalism of store fronts and pillaging inside of retail stores, leading Mayor Bill de Blasio to establish a citywide curfew in an attempt to curb violence. A curfew is still in effect citywide through Sunday, beginning each night at 8 p.m. and ending at 5 a.m.
“The fact that these businesses are facing a double whammy is tragic,” Peter Halprin, partner in Pasich’s New York office said. “They were finally starting to reopen in New York City and get people back on their feet, and to now get hit with vandalism and theft, I mean, it’s just terrible.”
Indeed, for businesses already reeling from the financial impact of the COVID-19 shutdowns, property damage due to the riots could exacerbate those challenges, according to David MacLachlan, agent at Syracuse, New York-based The Dominick Falcone Agency and chair of the board for Big I New York.
“We have this unique situation where we are already dealing with COVID-19,” he said. “To say it’s a unique situation is an understatement.”
In Syracuse, MacLachlan said his customers have already been inquiring about coverage.
“We definitely have had inquiries because people did have broken glass, broken windows at businesses, and things like that,” he said.
It was a similar scene in Boston, Mass., on the night of May 31, as storefronts were damaged and monuments, road signs and buildings were vandalized.
“We have filed many claims already on behalf of our clients who are property owners/managers, store front businesses and some larger chains,” said Mike Vitulli, director of Risk Management Services at Boston, Mass.-based brokerage Risk Strategies.
Vitulli said he expects to see more vandalism claims for property damage, as well as theft and potentially business interruption from impacted businesses in cities that had re-opened after the COVID-19 shutdowns.
After peaceful demonstrations were marred with violence in Pennsylvania cities such as Pittsburgh and Philadelphia, Pennsylvania Insurance Commissioner Jessica Altman told Insurance Journal she expects the flexibility insurers provided with payment plans and claims administration during the coronavirus pandemic to continue for policyholders impacted by civil unrest.
“We encourage impacted businesses to contact their insurance agents and companies with any coverage questions and also to coordinate their policies with any additional coverage, such as a policy maintained by a building owner,” Altman said.
Brandon Mueller, president of Pittsburgh, Penn.-based Seubert Insurance, said that while he hasn’t seen any claims from clients yet, he expects claims to arise in areas such as property damage, business interruption, auto physical damage, workers’ compensation, employment liability and even cyber.
“We need to wait for the dust to settle to see the full extent of the damage,” he said. “However, from a physical damage perspective, there will definitely be an influx of claims in the coming weeks.”
In Washington D.C., where incidents of civil unrest also occurred on the back of peaceful demonstrations, the D.C. Department of Insurance said it expects insurers to process claims in a timely manner.
However, doing so could lead to challenges for some insurers as virus-related restrictions and increased security from the unrest may impede adjusters’ efforts, industry professionals said.
“One thing I had heard anecdotally from a client…was that the insurance adjuster didn’t want to go out to their property to inspect it because of the virus,” Halprin said. “Between the coronavirus and general concerns about safety right now, we may be in a unique situation where an insured may not be able to access their property through government order or police barricade but has a need to try to document the property damage and get that to their adjusters.”
For minor property damage, assessments can be done with photos or even drone technology, although substantial claims could be delayed, said Dan Corbin, director of research at Professional Insurance Agents.
“No doubt, immediate access to damaged premises could be hampered,” he said. “Insureds can begin the process of completing a proof of loss and taking photos in the meantime.”
Schiffer added that a lot of adjusting is being done by telephone calls and video conferences right now, as well as through cell phone photos and videos.
“There’s a lot more trust going on between policyholders and insurance companies because of that,” he said.
Overall, however, Schiffer doesn’t anticipate a large slowdown in the claims process.
“For these property damage claims in the cities that have been looted, my guess is adjusters are on the ground doing their job right now,” he said.
For businesses that sustained damage from a riot or civil commotion, I.I.I. recommends boarding up windows and cleaning up shattered glass, as well as keeping receipts for any expenses incurred to turn in to the insurance company as part of the claims process, Friedlander said.
“Take photos or video of the damage and report the claim as soon as possible to your insurance professional,” he said.
Insurance Industry Impact
As insurers are still facing litigation regarding virus-related claim denials and are in the midst of a hardening market, widespread civil unrest is raising questions about how these losses could further impact the industry, insurance professionals said.
“Any of those losses in excess of the deductibles, as well as losses to business owners with low or no deductibles, are certainly going to hurt the already hardening insurance industry market,” Mueller said. “The property market was already hardening, so this will accelerate things.”
Schiffer said that premiums not only could rise further, but some insurance companies could begin sub-limiting coverage for riots, civil commotion and vandalism in the future.
“A lot of business interruption is sub-limited, there are often sub-limits for hurricane [coverage], so the same thing can happen here,” he said.
He added that some insurers may even cut back on underwriting these risks.
“You could see companies that maybe wrote a little bit of this kind of business in their local community, and they saw what happened on the TV, and they said, ‘You know what? We’re not going to write this business,'” he said. “So you may see a little bit of contraction in terms of how many companies actually write this business or how widespread they write the business.”
With Atlantic hurricane season beginning June 1 and the industry already dealing with issues arising out of the coronavirus pandemic, on top of a hardening market, insurance industry professionals agreed that civil unrest in response to Floyd’s death could have vast implications for the industry simply because of its timing.
“In an industry already pushing higher premiums and reduced coverages, as we head into a possibly active hurricane season, the claims from riots and looters should be insured under property policies and will only exacerbate the hard market conditions,” Vitulli said.
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