What are the economic consequences of race-related rioting?

In late May, after Black Lives Matter protests first took place in response to the police killing of George Floyd, violence and rioting broke out in Floyd’s hometown of Minneapolis and elsewhere. Coverage of the unrest framed the violence as either a perversion of the protests or an unrelated offshoot, likely caused by outside agitators.

Critics of the protestors have latched onto the rioting and looting to argue that the protests and the resulting violence are more harmful to the black community than police brutality.

In terms of the resulting insurance claims, it’s true that destructive rioting can have a costly impact. Yet the media attention that those actions have brought to the protests may ultimately have helped the cause, not hurt it.

The impact of rioting

The rioting has often overshadowed the protests, even as the source cause of the violence that has occurred in cities throughout the United States cannot be conclusively determined.

On May 28, Minnesota Governor Tim Walz called in the US National Guard in an effort to quell the violence, while still seeking to acknowledge the validity of the protests.

The rioting and looting has reignited a longstanding debate in the US over whether violence has a role in political protest. Those who believe it does often quote Martin Luther King Jr.’s famous words that “a riot is the language of the unheard” to argue that unjust conditions are at the root of violence. This view holds that a group that has long been oppressed and ignored will inevitably strike out violently against its oppressor.

However, in the same speech from which that quote is taken, King also said that “riots are socially destructive and self-defeating.” This sentiment has been echoed by many opposed to the violence in recent days, particularly by those in conservative news outlets, to argue that the damage caused by rioting hurts “the most disadvantaged.”

Black and minority-owned businesses have been among those damaged in the riots and, in St. Louis, a former police officer was shot to death by looters.

For black business owners, the destruction has caused mixed reactions. Some have voiced concern over the future of their businesses while others have said that the fight against injustice trumps any potential losses in revenue.

Insurance companies claim that the damage caused by recent riots and looting could be the most costly in decades. In Minnesota alone, insurance payouts are expected to top US$25 million. As with any large insurance payout, the result could be higher insurance premiums down the line.

It’s yet to be seen if the damage from these recent riots will compare to that experienced after riots in Los Angeles, California, in 1992.

The 1992 LA riots

Rioting in response to racial discord has a long history in the United States, going back to slave revolts prior to the country’s founding.

In recent generations, the most obvious parallel to the rioting that has occurred in response to the killing of George Floyd are the 1992 LA riots, which broke out after Rodney King was brutally beaten by a group of police officers.

In many ways, the King beating and the resulting riots established a pattern that has become all-too-familiar in recent years.

King was a former felon who, in March 1991, led police on a high-speed car chase through Los Angeles. The officers caught up with King and viciously beat him after he resisted arrest. The beating was caught on camera by a bystander and the video soon spread on the nightly news.

Four of the officers involved in the beating were later charged for their actions but were ultimately found not guilty on all counts.

The resulting anger led to widespread rioting throughout LA in April 1992 that resulted in deaths, injuries and multiple fires. California’s governor called in the National Guard and, on May 1, then-President George H.W. Bush sent in the military to quell the riots.

According to Insurance Journal, the damage caused by the rioting and unrest was “the most costly civil disorder for insurers in United States history,” ultimately costing US$775 million, roughly US$1.42 billion in today’s currency.

The lasting effect of the LA riots is still being studied. One direct effect was that, a year after the riots, two of the police officers who had been involved in the Rodney King beating were sentenced to two and a half years in jail by a federal jury. That verdict was considered a “mixed victory” at the time among some in the black community.

If it bleeds, it leads

One undeniable effect of rioting is that it draws greater media attention to protests and, as a result, the cause of those protests.

Though a significant number of black people have died at the hands of police officers in the past decade, including earlier this year, research by FiveThirtyEight found that media attention of the BLM movement had dropped off considerably before the George Floyd protests.

The downward trend coincided with the beginning of Donald Trump’s presidency, with other deaths or police acquittals resulting in minor upticks in media coverage of BLM. The Floyd protests and the related riots have gotten more media coverage than any other related protest since the movement began in 2013.

Notably, coverage of the protests has begun to subside on the three main cable news networks – CNN, Fox News and MSNBC – since much of the violence and rioting have stopped. While all three networks have covered the protests extensively, Fox News has used the words “looting,” “rioting” and other related terms in their coverage more than twice as often as CNN and MSNBC.

Contrary to those who claimed that rioting would undermine the movement, BLM is currently experiencing the widest public support in its history, with 38% of the country saying they strongly support the movement and 29% saying they somewhat support it. This suggests that the financial costs of the protests have been outweighed by the social impact.

Still, a majority of Americans, including more than 80% of Republicans, believe that people are intentionally taking advantage of the current unrest to commit crimes.

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