The Tianjin Port Explosion

September 07, 2015| By Tom Qiu | Marine, Property | English | Français

Region: Asia Pacific

On 25 August 2015, upon an invitation from local Chinese clients, the Gen Re China team visited the site of the recent Tianjin Port explosion. A field inspection of the affected area was conducted within the 1km to 3km radius. Access within the 1km zone remains restricted due to the presence of hazardous materials and consequent clean-up.

The explosion site is located in the middle of large container stack yards and several hectares of open yard storage of imported motor vehicles. Within the 1km radius are also the Customs House, a lightrail station, and a few commercial building complexes as well as several high-rise residential buildings. The explosion had a devastating impact within the 1km zone and lesser, although still significant, damage beyond. At the time of the visit, the core zone was sealed off from access due to ongoing contamination control and clean-up work. Damaged cars - estimated to number approximately 15,000 vehicles - were in the process of being compacted on site and removed. Buildings inside the core zone were severely damaged - some to the extent of collapse - and some buildings within the 3km radius zone suffered penetrating blast pressure. Even at the distance of about 5km several high rise offices and residential buildings suffered shattered window damage.

Immediately after the incident, the China insurance community mobilized to help with recovery and investigate loss potential by gathering loss information. Where appropriate, all affected insurance companies initiated their own express claim payment processes. New technology, such as drones, robots and satellite imagery, was employed to gather information and assess damage. Major insurers and industry organizations are working together to formulate a claims handling position for the market. The insurance and reinsurance communities are also providing good risk management advice to original Insureds, such as identification of risk exposures of potential hazards, loss mitigation and prevention measures, all of which will help to reduce future potential insured and economic losses.

Now, three weeks after the explosion, our industry is faced with the huge challenge of claim adjustment and settlement. As the 1km zone is still being sealed due to toxic chemicals on site, the determination of assessing building structural integrity by way of full engineering surveying and testing is yet to be completed. Given the site contamination and clean-up, it is likely that a large part of the loss within the 1km zone will be assessed initially by forensic accounting rather than full physical inspection. The contamination and its impact on the physical value of the property is also very difficult to assess and therefore to make claims adjustments; the cost of decontamination and clean-up remains up in the air; repair, residual value and salvage are all extremely complex topics for the insurance community. Claims handling and final settlement will prove to be a challenge due to the multiplicity of insured interests, policies and carriers across multiple countries.

This unfortunate event should serve as a warning to the insurance and reinsurance community. It reminds us that large unexpected losses do happen and highlights the importance of underwriting the “known unknowns.” In their efforts to ensure good risk management, accurate assessment of exposures, appropriate coverage terms and adequate pricing, it is especially important for insurers and reinsurers to actively identify, effectively monitor and pro-actively manage their aggregates when they are located in high-hazardous zones and highly concentrated areas, such as chemical storage parks, ports and harbours.


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