Expert Commentary

The Many "Victims" of "Mostly Peaceful Demonstrations"

As I was watching the morning news, I heard some pundits, who obviously had no idea about insurance, claim that those people whose businesses, buildings, and inventories were destroyed by fire, vandalism, and theft during the so-called mostly peaceful demonstrations were not victims, nor were they harmed, because they were indemnified by insurance. That conclusion is unconscionable and totally wrong on its face. They have apparently never read, let alone learned from history.


Claims Practices
July 2021

When I was a young man, the Watts riots of the 1960s destroyed a great part of South Central Los Angeles. Those whose properties were destroyed who had insurance found it was impossible to rebuild and do business in the area because of the riots and the attitudes of those who destroyed their businesses coupled with the reluctance of the insurance industry to insure any business or structure in Watts. It took more than 3 decades for the destroyed structures and businesses to begin to be rebuilt.

It took so long because it is a truism that entering into business or owning a building requires a person or entity to take a risk that it will be lost or destroyed by some contingent or unknown event. The concern is usually about losses from fire, windstorm, hail, lightning, or theft. The risk of loss is so great that few individuals or businesses are able to absorb a loss on their own assets. For that reason, insurance exists to spread the risk to many so that there are sufficient assets to indemnify the rare person who incurs a loss. That spreading of risk is the essence of insurance.

How Insurance Works

To understand why the conclusion that insurance eliminates the status of "victim" of the people whose property is destroyed or stolen, it is necessary to understand how insurance works to protect those insured and still make a profit. Insurers use the profession of underwriting to determine what risks to take that, when spread far enough, will allow the insurer to pay all legitimate claims and still make a profit. Insurers use actuaries, who are professional mathematicians, to calculate the potential losses a property or properties face. With that information, they can calculate an appropriate premium to have sufficient funds to cover the anticipated losses. Insurers will not take on a risk of loss that is certain.

Insurers are loath to write earthquake insurance on the San Andreas fault, fire insurance in wildfire zones, vandalism insurance for areas inundated with gatherings of unhoused, fire insurance for vacant properties, or flood insurance on the shore of the Mississippi River that traditionally floods every 3 years. No one, therefore, should be surprised if an insurer logically refuses to insure a business against the risk of loss by fire, vandalism, or theft in a location where "mostly peaceful demonstrations" were prevalent. When insurers decide it cannot be profitable to write insurance in those locations, few, if any, will be willing to invest. It becomes unwise, illogical, and impossible for a reasonable insurer to do business in that location.

Riots, civil commotion, and civil demonstrations that were prevalent in 2019 and 2020 in many US cities destroyed billions of dollars worth of property. Many of those destroyed properties were insured. However, some were not insured at all. Those who were insured obtained indemnity up to the limits of their policy and even obtained payments for loss of earnings. Those who were not insured lost everything they had invested in those properties. Those who were insured were, and are, faced with the need to make the decision to rebuild because they will probably not be able to buy insurance to insure against the risk of loss of the rebuilt property.

What those insured did not receive after their buildings burned down was the ability to insure for a reasonable premium the business after rebuilding. What they did not receive was a place to do business for the year or more it took to replace the building that was destroyed. Often, insureds will take the insurance money, demolish the remains, leave an empty lot, and use what is left of the insurance money to start a business in a place deemed safer and more secure.

Other Victims

There is a large group of victims of the fires and vandalism caused by the "mostly peaceful demonstrators" beyond the affected property owners. These other victims include the following.

  • The residents of the community whose properties were not destroyed, vandalized, or looted because insurance will not be available
  • The uninsured small business owners
  • The community whose tax base has been reduced
  • Every person who purchases insurance in the United States, since their insurance premium must go up to cover the extra losses
  • Every city where demonstrations occurred because the cities will not be able to reinstate the destroyed businesses
  • Every insurance company that insured against the risks of loss for the properties destroyed or damaged or the victims of theft

Conclusion

These are not victimless crimes. They destroy the communities where they occur, make them uninsurable, and often make it impossible for the communities to recover. I hope the cities damaged by the "mostly peaceful demonstrations" avoid what kept Watts from being rebuilt. I'm afraid that if history is repeated, the areas affected—Portland, New York City, Chicago, or Minneapolis-St. Paul—will not recover for decades.

© 2021 Barry Zalma, Esq., CFE


Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.

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