Mark Shepherd, Manager, General Insurance, Association of British Insurers (ABI)It has been three and a half years since five days of riots, looting and violence shocked cities and towns across England when the insurance industry dealt with nearly £200 million in claims.
Since the riots of 2011, we have had time to review how the claims were settled, and how processes can be improved if a major riot took place again. Clearly, the Riot (Damages) Act of 1886, which still refers to sixpence and shillings rather than pounds and pence, needs to be brought into the modern day. The independent review of the Act which followed the shocking events in 2011 outlined that the Act was ‘well overdue for reform’. However, it is important that the concept and key components of the legislation are retained since it is vital in protecting the most vulnerable, and providing compensation for the uninsured and insured alike when riotous disorder causes damage.
Today, the Government has responded to the Home Office’s consultation on the Reform of the Act and published the draft Riot Compensation Bill. The Government’s decision to shift from a turnover cap of £2 million, which was originally outlined in the consultation document, to a £1 millon per claim limit, means that the vast majority of businesses will continue to be covered under the new Bill. The ABI highlighted that the previously considered £2 million turnover cap would not have adequately protected small and medium sized businesses.
When the Home Office issued their consultation, we estimated that if the original proposal of a £2 million turnover cap had been in place when those devastating events occurred in August 2011, only 33% of commercial property claims would have been entitled to recovery. But with the Government’s move to a £1 million per claim limit, 99% of commercial property material damage claims from those riots would have been fully covered by this limit.
So this change represents a practical and sensible move forward which means that the draft Bill, should it become law, will continue to protect the homes and businesses that need it most. This is good news for commercial lines insurers who want to be able to help businesses have riot cover as a normal part of their insurance. It is also good news for the business community, given how vital insurance cover is for the sustainability and recovery of our local economy when unexpected events happen.
Missed opportunities
Despite this welcome move, the Government could have gone further. For example, the draft Bill will only cover motor vehicles if their insurance does not provide for riot damage. This goes against the principle of the Bill that liability rests with the police, and is contrary to a key recommendation of the independent review. Moreover, if a riot were to take place in the future, businesses and landlords will not be covered under the new Bill for any trading or rent losses they have as a result of the disturbance.
This could have a major impact on whether or not businesses are ultimately able to open their doors again, particularly if premises and stock are badly damaged.There could also be unintended consequences for homeowners or tenants given there appears to be no provision within the draft Bill for alternative accommodation if they need to move out temporarily.
In reforming the Act, the Government intends to continue to allow Police and Crime Commissioners to determine if a disturbance constitutes a riot. Given this legislation outlines that liability for riot damage ultimately lies with the police, this could create a conflict of interest and potentially a delay to delivering compensation for victims. Getting the right procedures and guidance to ensure riots are defined in accordance with the legislation is vital to helping people get the compensation they are entitled to.
Fortunately, riots are rare, but as seen in 2011, they can be terribly damaging to businesses and communities when they do happen. We need to ensure that homes and businesses continue to be protected as much as possible, so that people get the compensation they deserve and communities can recover quickly when riots wreak the kind of havoc that we saw three and a half years ago.
Mark Shepherd is Manager, General Insurance at the Association of British Insurers (ABI).