Insurance Post

Riot Damages Act set for reform

Home Office minister Lynn Featherstone told MPs late on Monday that the future of the 1886 Riot (Damages) Act is under review.

Reform of this antiquated Act moved a step closer on Monday when Lynn Featherstone (below) responded to a debate on the Act initiated by Tottenham MP David Lammy. She said that the government wanted "to ensure that the legislation is fair and reflects a modern policing world" and added that the Home Office was considering holding a public consultation on what changes are needed to the Act.

This is likely to receive a mixed response from the insurance industry.

lynnefeatherstoneportraitSoon after the riots, the Association of British Insurers told the All Party Group on Insurance & Financial Services that it did not believe an overhaul of the Act was necessary. I think that Nick Starling's reluctance to commit the ABI to backing a review of the Act was partially based on a fear that more might be lost than gained. There is a concern that police forces might use a review of the Act to argue for further restrictions on the right of insurers to recover claims paid out as a result of riots. This would have a series of unpalatable consequences, probably leading to some businesses and households in inner city areas struggling to find insurance at any price.

Others in the insurance market take a different view from ABI.

Many agree with David Lammy that the antiquated forms and arcane language of the claims forms deters some people from making claims when they are entitled to and frequently delays them when they do make a claim. It is not hard to imagine a hard-pressed shopkeeper struggling to sort out the logistical chaos and physical destruction of their business despairing when a 19th century claim form – complete with references to £ s d and guineas – requires completing.

There are also some significant gaps in the coverage of the Act, most notably business interruption costs and damage to vehicles and several insurers have drawn attention to this. This was also highlighted by MPs.

In the debate on Monday night, the minister also claimed the Act prevented the Home Office accepting the ABI's offer last August to process the claims made under the Act. Mr Lammy drew attention to the relative speed and efficiency of the insurance industry's response to claims compared to that of the Home Office and, in particular the Metropolitan Police. This was a significant change in Mr Lammy's tune when it comes to the insurance industry and suggests that he has been sweetly seranaded by the ABI in recent months. He was scathing in his criticism of the way claims under the Act have been handled in an "overly bureaucratic and unprofessional manner".

I suspect the Home Office refusal to sub-contract the claims handling had less to do with the wording of the Act and rather more to do with a suspicion that the insurance industry might be too generous, especially as nearly 4000 claims under the Act have come from insurers. To date, nearly 2000 of these have been rejected and only 853, worth £4.3m, have been settled. This compares poorly with the industry's record of having made payments in over 95% of household and 92% of commercial claims. Even cases submitted direct to police authorities by uninsured victims of the riots fall behind the industry's rate of settlement as a very high proportion have been rejected in their entirity. There are some confusing figures in the minister's statement for those with an appetite for more detail.

It is hard to predict how an open consultation on the Act could play out with the police pushing for a more restricted coverage and insurers pushing for an expansion. It is quite possible that we might end up with a reinsurance pool being created rather along the lines of Pool Re for terrorism risks, this being the price the industry – and its policyholders – will have to pay for the extended coverage it seeks. This, of course, would have the advantage of getting the processing of claims out of the hands of civil servants and police forces and into the hands of insurance professionals.

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