1Riot, Strike, Civil Commotion & Terrorism Presented by:Shahrukh SubzwariDivisional Head (Actuarial),State Life Insurance Corporation of Pakistan
2Agenda This presentation would cover the following topics: SLIC’s scope of coverage.Interpretation of various terms.Rationale of various exclusions.Treatment of complicated cases.Some general observations.
3Accidental Death & Disability Modes of Coverage Individual Life policiesBasic policyAccidental Death Benefit (ADB) riderAccidental Indemnity Benefit (AIB) riderGroup Life policiesAccidental Permanent & Total Disability (PTD) rider
4Individual Life Policies Basic PolicyDeath by all causes covered except suicide within 13 months of the commencement of risk.ADB & AIB ridersExclusions includeWar declared or undeclared,Strikes, riots, civil commotion,Revolution, any war like operation,Assault or murder, participation in brawl,Committing a felony.
5Group Life Policies Basic policy ADB rider PTD rider Death by all causes usually covered.ADB riderExclusions includeWar or any act of war whether declared or undeclaredParticipating in a riotCommitting an assault or felony.PTD riderWar or any act of war whether declared or undeclared.
6Other Details of Coverage Various terms used in the exclusion clause are not defined in the policy contract, which means they are intended to have their usual meanings.The accident riders are subject to terminationEither on any policy anniversary, at prior notice of thirty days, given either by policyholder or State Life to the other partyOr termination of the basic policyOr on attainment of age 60 by the life assuredOr if the assured ceases to be a member of the group in case of group coverage.
7RiotUnlike many of the terms appearing in standard exclusions, “riot”, has a technical meaning derived from the criminal law.It is a general principle of insurance law that technical terms of the criminal law shall have the same meaning in insurance law.Different jurisdictions define “riot” in different ways.
8Riot Under Pakistan Penal Code it is defined as follows: Whenever force or violence is used by an unlawful assembly, or by any member thereof, in prosecution of the common object of such assembly, every member of such assembly is guilty of the offence of rioting.Under Public Order Act 1986 of England it is defined as follows:Where twelve or more persons who are present together use or threaten unlawful violence for a common purpose and the conduct of them (taken together) is such as would cause a person of reasonable firmness present at the scene to fear for his personal safety, each of the persons using unlawful violence for the common purpose is guilty of riot.
9RiotIt is immaterial whether or not the twelve or more use or threaten unlawful violence simultaneously.The common purpose may be inferred from conduct.No person of reasonable firmness need actually be, or likely to be, present at the scene.Riot may be committed in private as well as in public places.If there are fewer than twelve people present, it is described as "Violent Disorder”, for which there is a requirement for at least three persons to use or threaten unlawful violence together. This is defined similarly to riot, but no common purpose is required.
10Civil Commotion It denotes a stage between a riot and a civil war. It means an insurrection of the people for general purposes though not amounting to a rebellion.The element of tumult or turbulence is essential.If the tumult or disturbance occurs after the criminal act it does not amount to civil commotion.
11StrikeA strike, is work stoppage caused by the mass refusal of employees to perform work.A strike usually takes place in response to employee grievances.Sometimes strikes may become violent.From a life insurance point of view strikes are significant only if they become violent.
12TerrorismTerrorism does not appear in the list of exclusions of State Life per se.There is considerable disagreement regarding what it means but since this term is not used in SLIC’s policy documents the need to define it is not present.
13Insurrection and Rebellion The two terms “ insurrection” and “rebellion” have similar meanings.Insurrection means a rising of the people in open resistance against established authority with the object of supplanting it.When an insurrection is more organized or bigger in size it becomes a rebellion.
14RevolutionIn a revolution a state or a political regime is overthrown and thereby transformed by a popular movement in an irregular, extra constitutional and/or violent fashion.Sometimes a revolution may bring about a fundamental social, economic and/or cultural change, during or soon after the struggle for state power.A revolution itself rarely lasts for longer than a few weeks or days but it may be preceded by an extended period categorized as civil commotion or insurrection or rebellion etc.
15Civil WarThis phrase is ambiguous and its meaning may vary according to the contextIt clearly applies to an armed and organized rebellion under recognizable leadership which has assumed the power of government by making laws and punishing disobedience to them.However it can also have a wider meaning whereThe event is more serious than riot or civil commotion and warlike activities are presentParticipants are guilty of high treason rather than merely felonySome sort of organization is discernible.
16War There is no precise technical definition of war. A war may be either declared or undeclared.In case of an undeclared war the scale of hostilities must be such that there is a general public perception of war.
17War-like Operations This has a slightly wider meaning than just ‘war’. According to English case lawIt includes such operations as belligerents have recourse to in a war.Nevertheless the acts must have been done in the context of a war.
18Objective of the Insurer An insurance company running on commercial lines desires to:Avoid financial ruin or a big loss in any single year because the company cannot hope to recoup its losses in the future if it takes a knock out blow in a single year.Make a reasonable profit or avoid a loss on the average in the long run because the company is in business to earn some profit for its shareholders.
19Desired Characteristics of Commercially Insurable Risk A risk is deemed to be commercially insurable if it has the following characteristics:Many entities are exposed to it independently and desire to protect themselves against it.It is not too heterogeneous.Losses produced by it are definite as to cause, time, place and amount.The expected loss for each insured during the policy period is calculable.Its incidence is accidental from the view point of the insured.
20Reasons for excluding Riot, Civil Commotion & Civil War Losses caused by these perils are not mutually independent. Many insured persons can be affected at the same time resulting in total aggregate losses far beyond the capacity of the insurer.In affected areas the cost of insurance would be so high that the demand for insurance may be non- existent.Lack of homogeneity. Exposure to this risk can vary greatly with the location of residence, travelling habits, nature of work of the person.These risks are heavily dependent upon the political climate and hence almost impossible to quantify. This creates severe pricing difficulties.
21Some Complicated Cases Sometimes due to presence of multiple causes it is difficult to determine whether the loss was caused by an excluded peril.For example a person is a heart patient. He experiences a riotous event and suffers a heart attack. He remains hospitalized for prolonged period and eventually dies due to inability of the heart to recover. Would his death be deemed to be due to a riot?A number of legal principles are available for deciphering such complicated cases.
22Guiding Principles for Complicated Cases The proximate cause principle: “Causa Proxima Non Remota Spectatur”.This is a legal maxim which means – the immediate not the remote cause is to be regarded.Cause and effect must be directly related. The cause which is truly proximate is that which is proximate in efficiency.
23Classification of Causes Causes may be classified under three headings:ConcurrentConsecutive in broken sequenceConsecutive in un-broken sequenceIn the first and third case the dominant effective cause which is proximate in efficiency is the deciding factor.In the second case the proximate cause in time would be the deciding factor.
24Minimization of Complications To some extant complications and disputes can be minimized if the exclusion clause contains the phrase:“Directly or indirectly, wholly or partly caused by war, civil war…etc.”Many cases involving two or more causes can be excluded by use of this phrase.c
25Some General Observations Historically riots, strikes, civil commotion and terrorism have caused significantly more losses to general insurers than to life insurers.As a rough guess an average man made disaster is nearly ten times costlier for general insurers than for life insurers, although due to unpredictable nature of such disasters this ratio could change in the future.For the present at least this risk is felt more acutely by the general as opposed to the life insurance industry.In case of terrorism not insuring this risk disrupts the economy, which plays into the hands of the terrorists since their objectives are achieved.Hence not insuring terrorism is perhaps not a desired response since it may attract even more terrorism.
26Some General Observations On the other hand, as the severity of terrorist incidents have increased the insurability of this risk has increasingly been questioned.Considering that insurance keeps the wheels of the economy well oiled and it is equally in the interest of the State to help contain terrorism, it is increasingly being realized that the State has a stake in helping the insurance industry to resolve this dilemma.As a result in many countries, such as USA, UK, France and Germany State sponsored re-insurance schemes have been developed to help the insurance industry to cover the risk of terrorism.It remains to be seen how the insurance industry in this country responds to the challenge posed by man made disasters.