How 2020 protests changed insurance forever

US civil unrest became a significant insurance industry problem in 2020, arguably for the first time. Such events had relatively small impacts on insurers in the past, but the protests that began in response to the killing of George Floyd seem to have changed everything and large retailers may be behind that. In fact, with the benefit of hindsight, we can see how large commercial players have increasingly contributed disproportionately to insurance industry political violence losses since 2016, an impact that becomes pronounced when applied to some factors related to the retail sector.

The 2020 US protests were unusual for the insurance industry for two reasons. First, the cost was unprecedented. According to proprietary data from PCS, the team we lead at data analytics company Verisk, there were only 12 riot and civil disorder catastrophe events from 1950 through 2019. The largest was the 1992 riot in Los Angeles at nearly $800 million in insured losses (not adjusted for inflation). And even that was an outlier. The average loss to the insurance industry from riot and civil disorder catastrophes over those 70 years was only around $90 million.

In 2020, the George Floyd protests became the first civil disorder catastrophe event to exceed $1 billion in losses to the insurance industry. In fact, it has exceeded $2 billion so far and could still go higher. This “catastrophe event” was also the first to affect more than one state. PCS ultimately found more than 20 states with sufficient insurance industry impact to be included in the event. So, what made such a big insurance industry loss possible? It wasn’t just the scale and intensity of the event. High concentrations of risk exposed to the riots also contributed.

According to our estimates, approximately one third of the insurance industry loss has come from only three retailers and two of them could see further insured losses. Other retailers could see significant insured losses, too. It’s going to take more time for the full scope of those losses to become clear. What is evident, though, is that large retailers may be particularly vulnerable to broad, simultaneous protests and could accumulate losses very quickly – much of which would pass to the insurance industry.

The contribution of large retailers to the insured losses from the 2020 US protests may have caught many by surprise. However, recent riot and civil disorder events provide some insight. A 2016 political violence catastrophe event in southeastern Turkey – which had more characteristics of riot and civil disorder than terror – resulted in one of the largest industry-wide insured losses in the past 20 years (which is when PCS record-keeping began in the country). The fact that approximately 10% of the insured loss came from only four insured parties was astounding at the time.

The concentration of losses among only a few insured companies has since intensified. The fourth-quarter 2019 protests in Chile resulted in an industry-wide insured loss of just under $3 billion (with further estimation efforts in progress), with a little more than a third of the total coming from a handful of retailers. In fact, one of them accounted for nearly 20% of the total insurance industry impact itself.

The recent increase in the size and frequency of insurance industry losses from riot and civil disorder is alarming enough, and the threat hasn’t receded. Since early June 2020, no individual incident of unrest in the United States has become large enough to qualify as a catastrophe in the insurance industry, but ongoing social turbulence – such as we saw at the US Capitol on January 6, 2021 – is a reminder that the risk of significant loss remains. Tight election results in several key states suggest that local populations are still divided. Protests and counter-protests have shown the potential for escalation and spread to other cities, which in the extreme could result in conditions and outcomes similar to those of June 2020.

Even if the threat does recede in the near future, polarization in the United States could continue for quite a while. As a result, the potential risk of civil unrest could linger, and that means we’ll need to better understand how the riot and civil disorder spikes within periods of unrest can affect some of the largest and most accessible businesses in our day-to-day lives. We’ve seen from insurers that disproportionate impact can come from concentrations among its customers – a lesson that can be adapted for virtually any enterprise.