Tianjin Explosions Will Hike Insurance Rates
The explosions that rocked the Chinese port of Tianjin in mid-August will likely result in higher property insurance rates thanks to the losses that amount to billions of dollars.
The explosions August 12 at a warehouse filled with toxic waste damaged a substantial area of the port and surrounding residential areas and resulted in over 100 deaths. The event highlights the growing risks present in industrialized areas, according to experts.
Industry experts have estimated the total losses to exceed $1.5 billion. The Chinese insurer Ping An Insurance Co. said it expected losses of between $47.0 million and $78 million, according to published reports.
Some 40 percent of vehicle imports in China pass through the port at Tianjin and 10,000 vehicles are reported to have been destroyed by the explosions. The International Union of Marine Insurance (IUMI) said losses to motor vehicles alone could be $300 million.
“This extremely sad and regrettable incident demonstrates the persistent growth of accumulation of values in port and storage areas, particularly in highly industrialized regions,” said IUMI President, Dieter Berg. “Recent examples include the floods in Thailand in 2011 and Hurricane Sandy on the East Coast of the United States in 2012 that caused the biggest marine cat loss ever.”
Accumulation risks in insurance parlance refers to when a single event causes an exceptionally large group of related losses. Those risks are likely to grow in the marine sector with the trend toward bigger container ships and the construction of extensive freight handling and storage facilities.
“Although we are focusing on losses caused by natural hazards such as flooding or hail, it is human error that is often to blame, particularly around industrial facilities,” said Berg. “Man-made losses or damage caused by explosions are hard to model but they are comparable with acts of terrorism. To evaluate worst case scenarios we need to fully understand the value of the goods in the port and all potential exposures before we can calculate adequate premiums. This is becoming more of a challenge as these facilities continue to expand.”
More than 10,000 motor vehicles were destroyed at Tianjin, according to Berg. Hyundai Motor Co. had 4,000 cars parked at the port when the explosions occurred, according to published reports, and France’s Groupe Renault, said about 1,500 of its cars stored in a warehouse had suffered damage.
“With average retail values of $30,000 this could result in a loss of $300 million for vehicles alone,” said Nick Derrick, chairman of IUMI’s cargo committee. “Container losses are likely to be spread among many marine cargo insurers but motor vehicle insurance is a specialist sector and so that market is likely to be hit hard.”
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