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UK: Insurers read the Riot Act – Concessions but still Concerns
Following the widespread rioting in the summer of 2011, and the subsequent consultation by the government last summer on modernising the riot compensation regime, the Home Office has published a draft Riot Compensation Bill, which aims to clarify the way the public and insurers can claim compensation from the police for loss caused by civil unrest.
Effect on Insurers
Where insurers have met a claim for riot damage, the Bill permits insurers to claim compensation from the local policing body responsible for the policy area in which the insured's property was situated at the time of the riot.
Previous proposals included a "turnover cap" whereby insurers would only receive compensation for riot damage payments made to insureds who had an annual turnover of over £2 million. This proposal was widely criticized and the Bill contains a key concession, replacing the "turnover cap" with a less arbitrary £1 million limit of the amount of compensation insurers are entitled to receive from the police in respect of each claim.
This change has been welcomed by the industry on the basis it significantly increases the scope and value of the compensation available to insurers.
Another positive change is the move to include compensation for damage to motor vehicles caused by a riot. Under the current Riot (Damages) Act 1886, there is no compensation for this type of damage but the Bill allows limited motor vehicle compensation for the first time.
The insurance industry has also broadly welcomed the establishment of a new Riot Claims Bureau to handle claims and increases to the time limit in which claim applications can be made.
However, there has also been criticism of the Bill for not going far enough in some respects.
Businesses and insurers will not receive compensation from police authorities for consequential loss, so there will be no compensation for loss of trade, loss of rent for landlords, or alternative accommodation costs as a result of the riot.
Another area of concern is that the Bill states that Police and Crime Commissioners (PCCs) will retain the power to decide whether or not an incident constitutes a riot. Industry bodies have expressed criticism over these plans, saying they give rise to a fundamental conflict of interest since it is the PCCs who will be liable to compensate insurers (and the public) for the cost of riot damages.
The draft Bill is intended to be considered in the next Parliament, so keep following the blog for further developments.
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