A View From Me on ‘23: Tom Johansmeyer, PCS

Political Violence in 2023: A Fifth Consecutive Year of Multi-Billion-Dollar Insured Losses? 

After yet another consecutive year of multi-billion-dollar industry-wide insured losses, political violence remains peak-peril. And the indicators for 2023 show how widespread the risk has become. Outside the conflict in Ukraine, political violence threats have arisen from the recent COVID-19 lockdown protests in China [ https://edition.cnn.com/2022/11/28/china/china-lockdown-protests-covid-explainer-intl-hnk/index.html] to Moldova’s civil unrest stoked by disinformation, drought, and financial and energy insecurity [ https://www.reuters.com/world/europe/thousands-take-part-anti-government-protest-moldova-2022-09-18/]. Natural catastrophe-induced civil unrest could become a significant concern in the near future as a result of climate change [ https://www.weforum.org/agenda/2022/10/civil-unrest-climate-disaster/]. Meanwhile, demand for retrocession suggests concerns on both the availability of risk-transfer capacity and the appropriateness of pricing. 

Political violence has only rarely reached levels typically relevant to reinsurers. Before 2019, PCS recorded only two events in our global terror database [: https://www.verisk.com/insurance/products/property-claim-services/pcs-global-terror/] that would reach major industry loss warranty (ILW) thresholds for terror. The largest pre-2019 non-terror political violence on record with PCS, the 1992 riots in Los Angeles, would fall short of US$1.5 billion if adjusted for inflation. PCS research into armed conflict reveals little in the way of large industry-wide insured losses, which is unsurprising given low rates of insurance penetration in countries facing low-intensity post-Cold War conflict. However, the trajectory has changed sharply since 2019.

Riots resulting from an increase in transportation fares in Chile became the largest strike, riot, and civil commotion (SRCC) industry-wide insured loss on record with PCS (through our PCS LatAm platform), and the following year’s industry loss in the United States wasn’t far behind. The 2021 riots in South Africa resulted in an informal PCS estimated industry-wide insured loss of above US$3 billion, exceeding the totals of each of the two prior years. 

The large headline loss events obscured smaller SRCC events that would otherwise have been significant. In 2019, SRCC events in Hong Kong and Colombia resulted in industry-wide insured losses of above US$50 million each, with another in Colombia in 2021 exceeding US$100 million, according to PCS research. Further, 2022 began with an unexpectedly high industry-wide insured loss from the riots in Almaty, Kazakhstan, which approached US$100 million. These smaller losses – which would be considered large during any other period – are enough to suggest a heightened SRCC risk environment. The larger events suggest a magnitude that should make reinsurers take notice. 

The conflict in Ukraine could reach at least US$20 billion according to some scenarios that PCS has researched – independent of the adjacent aviation leasing losses in Russia, making it among the largest industry-wide insured losses from political violence PCS has evaluated. Yet as the conflict approaches its first anniversary, what is most evident is that the risk of civil unrest – and attendant insured loss – has spread globally. The pandemic-driven unrest in China and soccer-related riots in Belgium and the Netherlands may indicate the ease with which protest can turn violent, the situation evolving in Moldova is more likely representative of the risk environment headed into 2023.

Moldova may be both small and economically disadvantaged, leading the global re/insurance industry to spare it hardly a second glance. As an indicator, though, its importance has risen. Ongoing civil unrest since the summer of 2022 has resulted from a combination of inflation, energy insecurity, and drought, and it has been exacerbated by separatist and quasi-independent factions in Transistria and Gagauzia and the use of disinformation to engage and inflame those factions. If isolated, the implications for the global re/insurance industry may remain minimal. However, if disinformation campaigns and other forms of “information confrontation” [LINK: https://www.rand.org/pubs/research_reports/RRA198-8.html] are being used to develop a playbook for more ambitious operations in Western Europe in 2023, then (re)insurers could see the current trend of multi-billion-dollar political violence losses continue. 

In expanding our view of global political violence, PCS has identified more than US$10 billion in industry-wide insured SRCC losses across 19 events from 2010 through 2021, with the possibility of another two, aside from the conflict in Ukraine, coming for 2022. Meanwhile, the retrocession market is already buzzing about an acute need for political violence capacity and where it will come from. The ability to trade SRCC ILWs on a robust, reliable index couldn’t have come at a more important time, which is why we’re getting ready to release an expansion of PCS’s political violence loss reporting platform.