5th August 2014
The Association of British Insurers has warned that Government proposals to change the Riot Damages Act would leave many firms and motorists facing financial hardship.
The ABI estimates that for every £10 paid out in compensation after the 2011 rioting, only £1 would be paid out under the planned reformed Act.
It is particularly concerned at plans to remove businesses from cover which has more than £2m turnover.
Huw Evans, director of policy & deputy director general, at the ABI says: “The review of the Riot Damages Act is overdue, but Government proposals to drastically cut back compensation are at odds with its intention to retain the principle that the state is responsible for the costs of riot damage, that has proved its worth for taxpayers for over one hundred years.
“Not only does the Act provide important protection for the uninsured, it means insurers can cover riot damage in England and Wales as a standard part of property insurance.
“Both would be in jeopardy under Government’s new proposals. Insurers want to continue to offer riot cover as a standard part of property insurance, but such drastic change could significantly impact on premiums, lead to the incorporation of excesses for riot into business insurance policies, or the exclusion of riot from insurance cover in certain areas.
“Thankfully riots are rare, but, as August 2011 highlighted, they can have a devastating impact on communities from which it can take years to recover from. We urge the Government to ensure that changes to the Act strengthen the tried and tested approach, not leave some of our most vulnerable communities without support and place them at greater financial risk.”
The Riot Damage Act 1886 enables compensation to be paid by the police to homeowners and businesses who suffer riot damage to their property or possessions and have no insurance or are under insured. There is no limit on the amount of compensation payable. Insurers are also able to claim under the Act for any property damage claims paid to customers – this has meant that they have not needed to price for riot cover.
Following a recommendation by the Kingham report into the August 2011 riots, the Government undertook to review the operation of the Riot Damages Act.
Key concerns set out in the ABI’s submission to the Government consultation are:
The proposal to limit businesses who can claim under the Act to those with an annual turnover of less than £ 2 million would leave all but the smallest firms unable to claim compensation. Businesses with a turnover of less than £2million constituted around 9% of the total value of commercial property material damage claims in the 2011 riots and around 13% of the total value of business interruption claims.
A cap would also severely limit the ability of insurers to recover the cost of riot claims for a risk that they had not had to price for. This could impact on the availability of riot cover under commercial policies in certain areas. As an alternative, some form of limit on the maximum amount paid under the Act would preserve the principle of state responsibility, and limit costs.
Removing consequential trading losses, such as loss of trade or rent, from the Act would seriously impact on a business facing disruption following a riot. Businesses forced to close because they would be unable to receive compensation, would impact on the local economy and could hinder re generation in deprived areas.
Only including third party motor policies would leave the vast majority of motorists – around 96% with comprehensive cover – outside of the Act. This, despite the recommendations of the independent review which called for the Act to include motor vehicles, regardless of the cover.
The intention to allow Police and Crime Commissioners to decide what constitutes a riot would create potential conflict of interest as the police are liable for riot damage. A more independent process is needed to avoid this potential conflict.