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Morningstar DBRS has warned that the latest unrest in France reinforces a growing trend of riots and civil commotion increasingly exhibiting characteristics traditionally associated with catastrophe risks.
“The principal concern for insurers is not necessarily the severity of an individual claim. Rather, it is the potential aggregation of thousands of correlated claims across commercial property, motor, government property and business interruption portfolios when unrest spreads rapidly across several cities,” the firm said in a new statement.
Yesterday, Morningstar DBRS reported that France’s latest riots are expected to cost insurers under €1.2 billion, assuming no further violence.
The agency said the latest unrest highlights the need to treat strikes, riots and civil commotion (SRCC) as an accumulation risk requiring dedicated pricing, limits and reinsurance.
It noted that similar accumulation effects have occurred in the United States, Chile and South Africa, where individual episodes of civil unrest have generated insured losses exceeding $2 billion.
“Repeated episodes of civil unrest are likely to maintain pressure on SRCC pricing, limits, deductibles and underwriting,” Morningstar DBRS continued.
The agency also pointed to France’s pending state-backed riot insurance mechanism as evidence of a changing perception of the risk. Once implemented, Morningstar DBRS said this mechanism should reduce uncertainty surrounding the allocation of extreme riot losses.
“Until then, however, French insurers remain reliant on the existing combination of private insurance, reinsurance and potentially contentious State recourse, reinforcing our view that civil commotion can no longer be treated as an incidental property peril, particularly in France,” the firm concluded.
Beyond the direct impact on insurers, the unrest also poses potential fiscal and sovereign risks for France, according to Mehdi Fadli, Senior Vice President, Sector Lead, Global Sovereign Ratings, at Morningstar DBRS.
Fadli went on, “While the direct fiscal costs associated with the recent protests are likely to remain manageable, the more significant risk lies in the potential for prolonged social tensions to further constrain policymaking, complicate the adoption of a 2027 budget consistent with the government’s fiscal objectives, and increase the risk that France fails to address its fiscal imbalances.
“In turn, sustained political and social pressures could keep sovereign borrowing costs elevated and further challenge fiscal consolidation efforts ahead of the 2027 presidential election.”
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Morningstar DBRS has warned that…
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