Insurers need better understanding of strike, riot and civil commotion risk
Rising political and economic unrest across the world is leaving engineering underwriters exposed to a new and more complex type of risk, according to a report unveiled today by IMIA, the international association for engineering insurance underwriters.
Incidents of strike, riot and civil commotion (SRCC) have grown significantly over the last five years in both developed and developing regions of the world, according to the report unveiled today at IMIA’s annual conference in Merida, Mexico.
For example, the number of riots globally since 2010 is already more than double the number that occurred between 2000 and 2010. Large engineering projects have a greater vulnerability to the risk given their potential to expose or become a focal point for contentious social, economic and environmental issues.
The investor-driven nature of modern construction projects has heightened the demand for insurance products, the report notes. However, it warns that while companies are increasingly looking to extend their coverage to include SRCC, understanding this unpredictable risk is a challenge for engineering underwriters:
“In a world of uncertainty, how can one assess the volatility of human nature, estimate the triggering factors which can cause an outburst of social instability; and all this throughout a project’s lifespan which may last for several years?”
Speaking at IMIA’s annual conference in Mexico where the report was launched, the author of the report, Dieter Spaar, chairman of IMIA’s SRCC working group, said: “Engineering underwriters are typically used to dealing with tangible risks grounded in facts, so getting to grips with something that is inherently unpredictable and based on human factors is understandably out of their comfort zone.
“However, with clients increasingly looking to include it in their cover, we would urge them to get a better understanding of the drivers of this risk.”
The report aims to raise awareness of SRCC risk, and gives advice for achieving best practice in underwriting the peril, including guidance on assessing the nature of the risk, wording examples, legal definitions and factors to consider when managing a loss.
Mr Spaar added: “Engineering underwriters are often being asked to include additional clauses which are sometimes presented as not increasing the actual exposure of the project. The reality is actually more complex and we hope this paper will help improve understanding of the many and varying factors involved so that both insurers and customers can ensure they have the best possible coverage in place.”