Closing the Gap: Addressing future challenges of SRCC protection

In today’s volatile geopolitical environment, insurers face heightened challenges from exposures to strikes, riots and civil commotion (SRCC). Zino Theokli, Senior Underwriter at PartnerRe, delves into evolving challenges of this highly dynamic and complex market and explores how insurers can mitigate SRCC risks. 

Global Strikes, Riots and Civil Commotion (SRCC) losses are escalating in frequency and severity, and reinsurers are re-evaluating their appetite and capacity for SRCC coverage, having suffered more than USD 10 billion of SRCC losses since 2015.^[1]

Where do insurers have SRCC exposure? 

Coverage for SRCC is generally granted under standard property policies as a named peril and all risk policies (unless explicitly excluded) or under specific War, Terrorism and Political Violence (WTPV) only policies which typically protect target occupancies for which SRCC coverage is made unavailable under standard property policies.  In some territories, such as France, SRCC must be provided in standard property policy forms.  

Insurance companies have traditionally ceded their SRCC exposure by embedding the perils in general property proportional or excess of loss reinsurance, with limited underwriting scrutiny or pricing consideration for the SRCC perils. In parallel, underwriters have historically not considered SRCC exposure within property policies as a primary peril from a risk, rating or accumulation perspective, unless written within specific WTPV teams and portfolios. As a result, SRCC risk within traditional insurance property portfolios has been undermanaged and underpriced.     

What’s changed: why should insurers now be concerned about SRCC exposure?  

Several key drivers are heightening focus on SRCC and insurers need to take notice of this mismanaged peril:  

• Increased risk/exposure in the global geopolitical environment and more polarized societies.  

• SRCC losses increasing in frequency and severity. 

• Significant decrease in reinsurer appetite and capacity for SRCC 

• Increased news coverage of SRCC events is leading to an increase in demand from businesses for SRCC coverage. 

How have reinsurers reacted to this escalating risk? 

Since Russia’s invasion of Ukraine, the WTPV market has seen a hardening in insurance and reinsurance markets. The “composite” Marine / Energy / WTPV product has been unbundled, and clients with significant SRCC exposure are pushed to purchase stand-alone WTPV pillars at certain levels.  

Pricing today for PV is up more than 80% from its nadir in 2018, according to Howden’s Global Political Violence Pricing Index. Yet reinsurance capacity has reduced, in part due to overall reinsurer appetite, but also as retro-reliant reinsurers have been unable to maintain WTPV line sizes.^[2]

This has led to a clear differentiation in terms of breadth and price of WTPV cover – spread between clients with robust underwriting controls on their exposures and those without. While tightening of terms appears to have stalled in 2024, the current risk climate means the reinsurance market is still precarious. The choice of WTPV product and carrier is more important than ever.  

At PartnerRe, we work with our clients to gain a deep understanding of their exposure and work closely with them to find sustainable solutions. 

What’s next for reinsurers? 

Insurers have grown accustomed to having their SRCC exposure protected by the reinsurance market at attractive terms and conditions. However, the sustainable provision of SRCC capacity is delicately balanced – especially at “acceptable” pricing – as far as purchasers are concerned (given historical norms). And even if SRCC coverage can be bought, will it be broad enough level to satisfy insurers’ risk tolerance levels? 

The internet and social media have facilitated increased organization among protestors, leading to larger and more widespread protests both nationally and globally, and an increase in frequency and severity of SRCC risk, as well as its impact spatially and temporally. The traditional loss occurrence definitions prevalent in reinsurance excess of loss contracts may lead to insurers retaining more exposure net than desired. With the increased risk environment, insurers now want more cover to reduce their exposure to SRCC.  

The days of automatically including SRCC coverage within composite or traditional CXL/RXL products – without friction from the reinsurance market – are numbered. While this peril is reinsurable, reinsurers are having to take greater underwriting care to gain a better understanding of the risk and achieve sustainable, risk adequate pricing levels. 

How insurers can prepare to mitigate and manage SRCC risks effectively  The effectiveness of underwriting hinges on high-quality data, enabling insurers to accurately monitor their exposures and establish transparent underwriting principles and pricing. Insurers equipped with strong data can engage in meaningful discussions with reinsurers and ensure capacity availability.   For SRCC risk, reinsurers prioritize data-driven insights such as:  A clear framework for SRCC pricing, risk selection and accumulation controls.  The ability to provide high data granularity for SRCC exposure, such as occupancy breakdown, layer attachment and limit, lat/long provision.  Identification and quantification of major loss scenarios. Although SRCC models are limited, insurers can run their own deterministic loss scenario to work out their potential PML per scenario and review if their current level of reinsurance protection is adequate.   Robustness of used policy forms: definition of SRCC perils will face scrutiny, particularly regarding distinguishing between spontaneous riots, organized unrest and acts of terrorism, or between large scale organized riots and wider political violence.

Conclusion 

• The reaction by reinsurers to SRCC and wider WTPV events over the past few years has shown that the availability of this capacity is fragile, and this fragility will only get worse if a large loss event occurs.  

• While the largest recent SRCC losses are relatively small compared to major cat events, market reaction has still been strong. So, what might happen for a double-digit SRCC loss? Given today’s geo-political environment, it seems this is a question of “when” not “if” so it may be prudent for insurers to start preparing now.  

• Insurers with robust underwriting controls and risk selection from relevant data will secure SRCC coverage on favorable terms and conditions. Not being prepared could lead to not only a missed opportunity, but also a loss of market share in the property space. 

• PartnerRe has an active appetite for WTPV business through our specialist team and can offer both proportional and non-proportional structures. Our range of WTPV solutions cater for clients’ different needs and are structured to help insurers address the growing threat of SRCC across the globe. 

Get in touch with our team to find out more.  

Contributor: Zino Theokli, Senior Underwriter Specialty Property, Engineering & Downstream Energy Treaty 

This article is for general information, education and discussion purposes only and does not in any way constitute legal or professional advice. 

References

[1] Will SRCC become a systemic risk? – Cities of the Future (ajg.com)

[2] https://www.howdengroupholdings.com/news-insights/a-world-of-trouble