Two explosions at the Chinese port of Tianjin, used by more than half of the Fortune 500 as the world’s third-largest port, likely will result in higher property insurance rates due to losses already in the billions of dollars.
The late-night explosions Aug. 12 at a warehouse filled with toxic waste affected a substantial area of the port and surrounding residential areas and resulted in the deaths of more than 100 people. The event underlines the growing accumulation of risks in industrialized areas and touches a multitude of classes of insurance, experts say.
While the port terminals have now resumed service, insurers and reinsurers are still unable to inspect damage on-site to assess losses caused by the destructive blasts.
Insured losses from the event likely will be between $1 billion and $1.5 billion, according to Credit Suisse Group A.G. analysts, and could exceed $1.5 billion, according to analysis by Fitch (Hong Kong) Ltd.
European insurers Allianz S.E. and Zurich Insurance Group Ltd. said they have received claims arising from the blast, while Chinese insurer Ping An Insurance Co. of China said it expected losses of between 300 million yuan and 500 million yuan ($47.0 million and $78.3 million).
Other major insurers and reinsurers said it was still too soon to give loss estimates.
About 40% of automobile imports in China pass through the port at Tianjin, sources noted, and more than 8,000 vehicles are thought to have been destroyed by the explosions.
The International Union of Marine Insurance said losses on motor vehicles alone could be $300 million.
Many major auto manufacturers suffered losses, including Hyundai Motor Co., which said it had about 4,000 cars parked at the port when the explosions occurred, and France’s Groupe Renault, which said about 1,500 imported cars stored in a warehouse at the plant had suffered burns.
“Property damage claims will form a major part of the overall insured loss, which includes property and content losses at and near the blast site, which were damaged by fire or explosion,” A.M. Best Co. Inc., Oldwick, New Jersey, said in a briefing on the explosions.
“Business interruption loss forms a large part of the uncertainty surrounding the ultimate loss for the insurance industry in this incident,” it added.
“On the marine cargo side, it will take time for claims arising from damaged shipping containers to be reported and inspected by insurance companies,” Best said.
The blasts — which come less than two years since a semiconductor fire in Wuxi, China, in September 2013 that caused more than $1 billion in insured losses — likely will prompt a hardening of rates for direct and reinsurance business in China as well as a tougher stance from reinsurers on terms and conditions for large commercial risks, Best said.
The high insurance penetration rate in the Tianjin area could result in the event becoming “one of the most costly catastrophe claims for the Chinese insurance sector in the past few years,” according to analysis by Fitch.
While claims made to local insurers likely will be shared with local and international reinsurers, “their exposure, the amount of retention and the number of reinstatements under the catastrophe reinsurance program are likely to determine the degree of severity to which they are affected,” Fitch said.
“Fitch estimates that the overall risk cession ratios of major nonlife players active in the Tianjin region range from 10% to 15%,” it added.
As well as damage to warehouses and port buildings, property insurance losses likely will arise from damage to road and rail infrastructure and residential buildings, according to London-based law firm Holman Fenwick Willan L.L.P.
Insured losses also likely will arise from death and personal injury claims, the law firm noted.
Supply chain claims also are likely, it said, notably since 285 of the Global 500 companies have offices in the Tianjin region, and many major corporations have substantial facilities near to the site of the blasts.
“The significant property damage at Tianjin will lead to major supply chain disruption and will lead to business interruption coverage for those impacted directly and contingent business interruption coverage for those whose suppliers and customers are impacted by the blast,” it said.
The event underlines the accumulation of values in marine insurance, said Dieter Berg, head of the department for business development in the marine global partnership at Munich Reinsurance Co. and president of the International Union of Marine Insurance.
The increasing size of container ships and car carriers as well as the large-scale container storage facilities at ports, particularly for motor vehicles, can result in large loss potential, Berg said.
While explosion losses are difficult to model, they are comparable to modeling potential terrorism losses, he said.
For this reason, insurers and reinsurers require as much risk information on the values of goods in ports as possible, he said.
Copyright Ships & Ports Ltd. Permission to use quotations from this article is granted subject to appropriate credit given to www.shipsandports.com.ng as the source.