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U.K. Police to Pay the Bulk of Riot-Related Claims

Like most everyone else, the insurance industry watched in horror as rioters burned and looted the streets of London. In addition to the general disgust felt by most, those in the industry likely viewed the event with a “here we go again” look and some eye-rolling. Though not as severe as, say, the uprising in Egypt, this was yet another completely unforeseen loss event out of right field.

It looks like insurers are off the hook for the chaos in Britain, however.

The U.K. government has heeded the wishes of the insurance industry by announcing that damages from the riots that have engulfed parts of some English cities will be covered by the police compensation structure that dates to 1886 …

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The announcement, by Prime Minister David Cameron, effectively means that the police will be responsible for making good on a large portion of the insurance claims that will result from the turmoil. This principle is known as “subrogation.

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Given that the revised (upward) loss estimates are just north of $300 million, this wasn’t going to be a market-changing event regardless. But the insurance community in the UK is likely excited to be off the hook regardless.

The prime minister also increased the deadline to submit claims to the maximum 42 days rather than the normal 14, a move also applauded by the British Insurance Brokers’ Association.

Clapham Junction after the three nights of rioting.

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Cyberattacks, Terrorism Are Top Threats for UK

According to the United Kingdom’s recently unveiled national security strategy, cyberattacks and terrorism present the gravest threats to the country. Overall, the report identifies 15 “priority risks” — four of which are considered “tier 1” threats.

Tier One:
• International terrorism affecting the UK or its interests, including a chemical, biological, radiological or nuclear attack by terrorists; and/or a significant increase in the levels of terrorism relating to Northern Ireland.
• Hostile attacks upon UK cyber space by other states and large scale cyber crime.
• A major accident or natural hazard which requires a national response, such as severe coastal
flooding affecting three or more regions of the UK, or an influenza pandemic.
• An international military crisis between states, drawing in the UK, and its allies as well as other states and non-state actors.

Here are the top risks:

• International terrorism affecting the UK or its interests, including a chemical, biological, radiological or nuclear attack by terrorists; and/or a significant increase in the levels of terrorism relating to Northern Ireland.

• Hostile attacks upon UK cyber space by other states and large scale cyber crime.

• A major accident or natural hazard which requires a national response, such as severe coastal

flooding affecting three or more regions of the UK, or an influenza pandemic.

• An international military crisis between states, drawing in the UK, and its allies as well as other states and non-state actors.

Obviously, these are all very difficult perils to protect citizens, infrastructure and the economy against. And unfortunately, these emerging threats are growing at a time when Britain is least prepared to confront them given the national priority now assigned to “austerity measures” designed the cut spending.

The defense budget, for instance, is set to be trimmed by 8% over the next four years, leaving one Member of Parliament wondering how the country can revamp its strategy to keep citizens safe.

Conservative MP Bernard Jenkin, who is chairman of the Commons Public Administration Committee, said it was difficult to see how an effective National Security Strategy could be developed against the backdrop of cuts.

“We seem to be operating under the imperative of deficit reduction,” he said. “But, there’s very little in what’s being done now that reflects deep and sustained analysis about what sort of country we want to be in 10 or 20 years time.”

The Obama administration has also been highly critical of Prime Minister David Cameron’s defense spending cuts. Even the national security strategy itself admits that the country has a “security structure that is woefully unsuitable” for the modern threats it faces — a failing that is squarely blamed on the previous ruling officials.

The last Government took little account of this fact. Twelve years elapsed while the world changed almost beyond recognition. Abroad, our forces were sent into action without the equipment they needed, and on the basis of lamentable planning, and in more simultaneous conflicts than the Defence Review in 1998 had planned for.

At home, the machinery of Government failed to adapt to the new circumstances – lacking both the urgency and the integration needed to cope with the new situation.As a Government, we have inherited a defence and security structure that is woefully unsuitable for the world we live in today. We are determined to learn from those mistakes, and make the changes needed.

In an age of uncertainty, we need to be able to act quickly and effectively to address new and evolving threats to our security. That means having access to the best possible advice, and crucially, the right people around the table when decisions are made. It means considering national security issues in the round, recognising that when it comes to national security, foreign and domestic policy are not separate issues, but two halves of one picture.

To address this concern — at least somewhat — the government announced that it will provide an extra £500 million for cybersecurity that will be “focused on protecting key infrastructure and defence assets.”

We will see if that is enough to do the job — which also includes the below security challenges that the government has identified as “tier two” and “tier three” risks.

Tier Two Risks:

• An attack on the UK or its Oversees Territories by another state or proxy using chemical, biological, radiological or nuclear (CBRN) weapons.

• Risk of major instability, insurgency or civil war overseas which creates an environment that terrorists can exploit to threaten the UK.

• A significant increase in the level of organised crime affecting the UK.

• Severe disruption to information received, transmitted or collected by satellites, possibly as the result of a deliberate attack by another state.

Tier Three Risks:

• A large scale conventional military attack on the UK by another state (not involving the use of CBRN weapons) resulting in fatalities and damage to infrastructure within the UK.

• A significant increase in the level of terrorists, organised criminals, illegal immigrants and illicit goods trying to cross the UK border to enter the UK.

• Disruption to oil or gas supplies to the UK, or price instability, as a result of war, accident, major political upheaval or deliberate manipulation of supply by producers.

• A major release of radioactive material from a civil nuclear site within the UK which affects one or more regions.

• A conventional attack by a state on another NATO or EU member to which the UK would have to respond.

• An attack on a UK overseas territory as the result of a sovereignty dispute or a wider regional conflict.

• Short to medium term disruption to international supplies of resources (e.g. food, minerals) essential to the UK.

Leaders to Watch

On the heels of their “Top Risks for 2010” report, the Eurasia Group released its “2010 Leaders to Watch” list, highlighting the world leaders that are expected to make the biggest impact on the world this year. Not surprisingly, considering that U.S./China relations claimed the top spot in the “Top Risks” report, number one and number two on the leaders list are Chinese Premier Wen Jiabao and U.S. President Barack Obama. The top five leaders are discussed below:

  1. Wen Jiabao, China – “Having guided China through the worst of the economic crisis, Premier Wen Jiabao, the head of China’s sprawling state bureaucracies, now faces the equally difficult task of shifting Chinese policy from stimulating the economy to containing inflation and preventing asset bubbles.”
  2. Barack Obama, United States – “This year may define the presidency of Barack Obama. He enters 2010 with diminished approval ratings, high unemployment, a massive deficit and poor prospects for the Democratic Party in mid-term elections in November.
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    On issues of critical importance to his agenda, he has ceded considerable responsibility to Congress to determine timelines and details—which the legislature will be reluctant to give back.

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  3. Ichiro Ozawa, Japan – “If he survives the scandal that threatens to engulf him, Ichiro Ozawa has the opportunity to maneuver the ruling Democratic Party of Japan (DPJ) to victory in upper-house elections in July, giving it firm control over the government. Ozawa holds no cabinet position, but he is the most powerful politician in the DPJ, controlling its finances, electoral strategy, and the candidate-selection process as its secretary-general.”
  4. David Cameron, United Kingdom – “If, as expected, the Conservative (Tory) Party wins national parliamentary elections in May, its leader David Cameron will take over as prime minister of a troubled country. The UK is still struggling to overcome a recession, a real estate bubble, and a serious crisis in its all-important financial sector.”
  5. Luiz Inacio Lula da Silva, Brazil – “As President Luiz Inacio Lula da Silva begins his final year in office, he looks set to go out with a bang. Brazil is quickly recovering from the global economic downturn; Lula and his relatively market-friendly economic policies are closely associated with Brazil’s economic success. Internationally, he will utilize this appeal to pursue a larger role for Brazil in developing multilateral policies—in forums like the G20 and at climate change negotiations.
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Rounding out the rest of the top 10 are: Ali Akbar Hashemi Rafsanjani, Iran; Ashfaq Kayani, Pakistan; Vladimir Putin, Russia; Sheikh Khalifa bin Zayed al Nahyan, United Arab Emirates; and Olli Rehn, European Union.