French Insurers Face the Riots That Hit the Country This Summer

Let’s start from the beginning, what are the French riots of 2023? In what ways were these events unprecedented?

Gilles Bénéplanc: France periodically makes the headlines because of strikes and social tensions that can degenerate into riots. Unfortunately, the events of June 2023 were no exception to the rule, just like the ‘Gilets Jaunes’ movement in 2019 and the conflagration in the suburbs in 2005.

Several cities were hit with varying degrees of violence and numerous businesses, public buildings, and street furniture were destroyed.

Benjamin Verlingue: From 27 June to 6 July, France experienced nine nights of intense urban violence. The spark was a young man’s death during a police check.

These riots were unprecedented in their intensity. In 9 nights ‘only,’ 15,600 claims were reported for a first estimate of €730M ($780M).

What was the extent of the damage, specifically? Who was most affected?

Verlingue: The spectrum of victims was quite broad. Paris was particularly affected, but the riots then affected many other cities across France. Public institutions, businesses and individuals suffered significant damage. For the first time, certain businesses have been highly targeted: hardware stores, construction materials, and more generally shops which distribute items that can be easily resold.

Insurance policies have been mobilized both on damage coverage and business interruption. Unfortunately, victims who were not correctly covered will bear some financial cost. Only half of the retailers were insured against business interruption. Retailers and craftsmen reported 41% of total reported claims and 65% of uninsured losses.

According to the MEDEF, the French Employers’ organization, the impact has also been indirect, with foreign tourists canceling up to 20 to 25% of their holidays.

What was the impact on insurance companies?

Bénéplanc: The cost of these events was significant but did not destabilize the major insurers in the French market. Nevertheless, some insurers have been more affected than others because of their customer portfolio.

As an illustration, the insurance carrier SMACL covers 75% of the municipalities affected and must handle around 600 claims. The average estimated cost is €210,000 per municipality, but some losses exceed €5M. SMACL, already bailed out in December 2022, has asked the French government for help to face the estimated event cost. MAIF, another French carrier, announced a new investment of €100+ million to restore SMACL’s solvency, which does not meet the regulatory solvency ratio anymore.

Have any special measures been put in place for the declaration of claims?

Bénéplanc: The first challenge was assessing the damage’s extent and speeding up the payment of claims for clients with fragile balance sheets. The government and insurers, through their professional organization, France Assureurs, reacted swiftly to assist struggling retailers and municipalities. Carriers extended the time limit for declaring claims from 5 days to 30 days. They also set up a crisis unit in contact with public authorities to facilitate the declaration of claims and speed up the compensation process with expert visits taking place as quickly as possible.

In addition, the government has urged insurers to show flexibility and even lower their deductibles for some clients. The industry showed signs of frustration with this request, considering themselves as paying the price for a certain inability of the authorities to maintain public order.

The question of who will support the cost between the state, insurers, reinsurers and the remaining cost for policyholders is partially still pending. Based on first estimates, only a tiny proportion of the €730 million damages will be eligible for reinsurance treaties. Insurers could also file claims against the state to have some of their expenses covered, but these claims have had limited success in the past.

What was the role of brokers in claims handling?

Verlingue: In such an event, our clients fully appreciate the added value of a good broker. Verlingue received over 100 claims, and our priority was to speed up the claims handling and enable them to get on with their business.

The intensity varied in our portfolio, but some clients were strongly affected. As an illustration, one of our clients, a significant player in the mass retail sector, had 57 shops damaged by rioters, resulting in estimated losses of over €10 million. We immediately organized expert appraisals so that repair work could start as quickly as possible for the shops to reopen.

Smart advice was needed by clients as to how to file claims. The gradual integration of the 72-hour clause into riot policies is proving to be in the interest of policyholders, as it makes it possible to manage events that straddle two insurance years. As an illustration, I have one client who reported a claim during the night of June 30th with a policy change on July 1st.

Bénéplanc: Arbitrating retentions is the most frequent issue due to the multi-site nature of riot-related claims. Insurers want to increase the number of events, while brokers and policyholders push for the opposite.

There are still some discussions about the cover to be applied. Depending on the situation, insurers have favored SRCC (Strike, Riot, and Civil Commotion) or Fire coverages, but sub-limits are different. In addition, since 2021, insurers have limited SRCC coverage by event and year for the most exposed activities (distribution, catering, banks, post offices, etc.).

Will these events have longer-term consequences on insurance coverage?

Verlingue: It’s still too early to draw the full consequences of these events on the French market. Property damage policies will logically be the first one to be affected. We expect challenging discussions with carriers for subsequent renewals (most French P&C policies have a renewal date of January 1st). Insurers will ask for rate increases and to reduce their exposure.

In some extreme cases, municipalities have seen their contracts terminated in the middle of the summer. As a result, some players will probably have to turn to alternative markets such as captives and pooled retentions.

On the mid-term, developing and strengthening public-private partnerships to pool risks in the same way as natural disasters could be another lever. Some ideas are emerging, such as mutualization at the municipality level for small claims, mutualization at the insurer level for medium-sized claims and, for exceptional cases, recourse to a fund in conjunction with the state.