Riots: Why insurers could be left out of pocket

Insurers could be left out of pocket on recovering riot claims, as business interruption (BI) claims are set to be denied by many police authorities and reinstatement is disputed.

The Metropolitan Police Authority and Merseyside Police Authority will not compensate insurers for BI claims based on their interpretation of the Riot Damages Act.

BI claims account for around 40% of the total riot claims for AXA Commercial, with the remaining 60% being material damage claims, according to director of claims and underwriting David Williams.

But Williams said he did not expect to recover much from the police authorities overall. “If we get 40% back, we will probably be doing quite well,” he said.

Williams said he thought legal action would be needed to determine exactly what police authorities would pay out on.
BI claims made up just under 15% of the total riot claims for Allianz, according to property claims manager Harry Rule. “The noises they have made are that they do not believe that the Riot Damages Act caters for business interruption claims,” Rule said.

“Insurers believe they are payable, the police indications are that they don’t think that is so.”

I don’t think there’s any way that we are going to recover 100% of our outlay”

David Williams, AXA

But Rule stressed that many police authorities were still making decisions on what to pay out on.

Problems with reinstatement could also leave insurers short-changed. Insurers have paid out customers for claims related to rioting and then intend to claw back the full amount from the police authorities.

But Williams estimated that AXA would recover 20%-25% less than it had paid out on contents claims from police authorities.

“I don’t think there’s any way that we are going to recover 100% of our outlay with regard to material damage costs, particularly on contents,” Williams said, adding that AXA had not expected much more from the start of the process.