Reading the Riot Act

The Association of British Insurers (“ABI”) has just published a tearful lament under the title £40 Million a Day - Counting the Financial Cost of the August 2011 Riots.

If as I did initially you read that and think “hang on, how could it possibly be that much?” don’t spend too long searching.  The simple arithmetic behind it is “insurers expect to pay out around £200m” against claims arising from five days of rioting.

So not quite what it seems at first glance. Surprise.

It’s a short article and worth a read but do have a freshly-peeled onion and a large bucket to hand before you begin.

We’re told not once but three times (in a seven-page article with wide margins, photographs and big spaces) about how “insurers expect to pay £200m in compensation”.

We read how marvellous insurers were in acting quickly despite “overly bureaucratic” and "slow and cumbersome” responses from police authorities to processing claims under the Riot (Damages) Act - “which some people wrongly thought was the fault of their insurance company” (surely not!).

But what is this piece of legislation you mention?  Well, that’s the point.

The Riot (Damages) Act 1886 provides that compensation must be paid by the police to individuals and businesses who suffer loss and damage following a riot.  There is no limit on the level of compensation. 

How does that fit with the much vaunted claim by insurers that they will be paying out as much as £200m for the costs?  Simple. Whilst they pay out in the first instance to their policyholders, they then recoup the money from the Government - or should I say the taxpayers, many of whom are, er, policyholders. 

The bottom line is that it’s all about cash flow. 

The article tells us piously that “insurers worked around the clock handling claims from their customers” - for which no doubt they will reap reward ultimately from the taxpayer.  “But”, the ABI tell us “a number of factors mean that a handful of claims await final settlement” (it’s worth reading the actual percentage stats on the preceding page.)

The pinnacle of this sickly sermon is: -

“Insurers are doing everything possible to ensure that any outstanding claims are fully settled as soon as possible.  Indeed there is no financial incentive on an insurer to delay the settlement of the claim.”

Except, that is, that where the Government is so slow to reimburse insurers out of the taxpayer’s money, insurers will be losing interest on the funds paid out in settlement of policyholders’ claims.  Whoops - gotcha!

The rest of what follows is a lecture about how the Act needs to be retained but updated, extending the period of time for claims but speeding up payment.  Since the majority of property owners probably hold property insurance, for whose benefit will that be?

For when my outward action doth demonstrate the native act and figure of my heart in compliment extern, ‘tis not long after but I will wear my heart upon my sleeve for daws to peck at:  I am not what I am.