Tianjin Explosions

Tianjin Explosions, a first analysis of losses costs

Tianjin Explosions that occurred in China, 170 km southeast of Beijing on 12th August should constitute one of the largest insured man-made losses to date in Asia and will certainly be considered as one of the most complex insurance and reinsurance losses in recent history.

As the claims process begins, information collected through media, rescue services, customs declarations… but also with the large use of satellite imagery gaves first losses estimations:

Initial analysis indicates that the two Tianjin Explosions will generate insured losses of between USD 1.6 billion and USD 3.3 billion.

As more information becomes available, it is increasingly apparent that the Tianjin Explosions loss will become one of the most complex insurance and reinsurance losses in recent history. It is reported that 285 of the Fortune Global 500 companies are known to have an office in the vicinity of Tianjin with the United States, Japan and South Korea being the top origins/destinations of imports and exports.

But let have an overlook on losses by an analysis of 4 insurance lines the most impacted:

  • Cargo in containers
  • Property including residential, industrial premises & warehouses
  • Vehicles (Cargo and Property)
  • General Aviation

Cargo in Containers

Tianjin authorities initially stated that approximately 18,000 containers may be affected. But based on satellite imagery analysis, risk analyst believe there is a possibility this figure could exceed 20,000.

Of the total area of containers within the port, 16% were within the 1km blast zone, and 41% were within 3km.

Given that the immediate area around Ruihai Logistics included long-term storage, many of these containers could have been empty. However, the loss from containerized cargo may be substantial, reaching USD 528 million, according to estimation based on the Guy Carpenter International Trade Database.

Vehicles

Thousands of new vehicles were incinerated or otherwise damaged following Tianjin Explosions. Many of these vehicles will be classified as cargo, but others are covered under property insurance policies. At this time, the split is unclear.

Vehicles were concentrated in 11 areas surrounding the blast zone of which three fall within the 1km zone. An estimated vehicle count based upon the satellite imagery, suggests 54,065 vehicles within these 11 sites.

Media sources, as of 2nd September, indicate possible damage to more than 22,700 vehicles from a range of auto companies. The discrepancy between the satellite inventory and manufacturers’ reports may be because a number of companies remains unable to access their facilities to provide a count. Also, it remains unclear if vehicles within the 3km zone that did not sustain significant blast damage will be written off. As more information becomes available, it will be possible to match the 11 sites to the car manufacturers and reconcile the numbers.

Losses following Tianjin Explosions on those insurance lines are currently estimated to be between USD 641 million and USD 1,228 million.

Property including residential, industrial premises & warehouses

There were injuries and broken windows in apartment buildings around the blast site. Online footage of damage to high-rise residential property less than 2.0km from the Tianjin Explosions epicenter shows damage to glass and other non-structural elements as well as damage to contents.

As with marine cargo losses, insured property losses will be split between domestic and international insurers and reinsurers. Warehouses and industrial premises surrounding the blast sustained a range of damage levels from complete destruction, to moderate damage that may be reparable, to straightforward reparable cosmetic damage.

Losses following Tianjin Explosions on those insurance lines are currently estimated to be between USD 641 million and USD 1,228 million.

Transportation Infrastructures

Transportation infrastructure has also been impacted. Online picture shows damage to the Donghai Road light rail station, which is approximately 650m away from the main blast site. A highway overpass (the S11 Binhai Highway) adjacent to the port and approximately 500m away from the epicenter also sustained damage.

General Aviation

The Tianjin Binhai Heliport is approximately 1.2km from the Tianjin Explosions epicenter. At the time of the blast three helicopters were stationary outside adjacent to the hangar complex.

Four helicopters of Eastern General Aviation Co., Ltd. are reported to have sustained damage. Initial reports indicate that the helicopters received varying degrees of damage from the shock wave and from parts of the hangar door/wall that buckled. The estimated 100% value for all four helicopters is up to USD 40 million.

However, Losses on those insurance lines currently have an estimated cost below USD 7.5 million.

Conclusion

The existence of toxic substances and the exclusion zone have made access to the impacted area around Tianjin Explosions extremely difficult. This has naturally contributed to high levels of conjecture in the market surrounding loss levels.

It may be some time before the true quantum of the loss becomes clear and we learn which exposures have actually been affected. Whatever the final numbers, this tragic event will be far- reaching and should provide a catalyst to insureds and (re)insurers alike seeking to prevent costly losses and manage risk.