Taking stock in Tianjin
On August 12, 2015 two massive explosions left behind an enormous crater and caused an inferno that damaged and destroyed warehouses, containers and thousands of cars. It is understood the warehouse at the center of the blast stored hundreds of tons of hazardous chemicals and sodium cyanide was found as far as 1km from the site.
Hundreds of local residents were evacuated and a three kilometer exclusion zone was imposed. At the time of writing, the death toll was at 161 with many more injured and 12 people still missing.
Executive general adjuster Paul Spurdle with Crawford & Company participated in handling of the resultant claims. The explosion devastated a vast area of the port - the tenth largest and sixth busiest in the world - where shipping containers were thrown around like match sticks, thousands of new cars were torched and port building were left as burnt out shells, according to Reuters. "It's still early days," says Spurdle. "Outside the exclusion zone we've got a reasonable feel for the extent of damage sustained, which includes a lot of uninsured private apartment buildings."
"However, there are also several multinational and local manufacturing facilities within the five-mile blast band," he continues. "They have invariably suffered damage from the explosion shock-wave, which includes broken windows along with distortion to external walls, roof panels and other structural elements. In addition, there has also been ensuing damage caused by water escaping from ruptured sprinkler systems. Production machinery has been shaken around and will need repair/recalibration and there are business interruption issues following the property damage and also the closures of factories due to general environmental safety concerns relating to toxic gases."
The warehouse devastated by the explosions is believed to have stored 700 tons of sodium cyanide - well above what was actually permitted - 800 tons of ammonium nitrate and 500 tons of potassium nitrate. An investigation is underway.
A team of 217 chemical and nuclear experts have been drafted in, as well as professionals from producers of the material to help handle it, and the neutralizing agent hydrogen peroxide has been used. The existence of noxious chemicals has made the loss adjusting task even more of a challenge, explains Spurdle.
"The warehouse that exploded inside the port was storing large quantities of sodium cyanide and if it mixes with water it turns into cyanide gas," he explains. "There were therefore concerns that any heavy rain might mix with the sodium cyanide deposits, and that cyanide gas would be taken on the wind to other areas outside the port vicinity. But the government authorities have recently advised that the chemical deposits have now been identified, removed and neutralized."
Bird's eye view
Because access to the exclusion zone was restricted in the days following the disaster, Crawford has made use of drone footage gathered by the media and others as well as satellite imagery to get a sense of the extent of the devastation. Reinsurance broker Guy Carpenter was able to brief its clients on the container, vehicle, factory and transportation damage based entirely on data and imagery gathered from such sources.
Through CAT-VIEW
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it was able to utilize high resolution pre- and post-event satellite imagery to understand what exposures were present at the time of the blast. Using a traffic-light style system it color-coded assets based on this initial property damage analysis, where red indicated complete destruction or major structural damage, amber indicated visible roof damage and debris through to green, where there was no visible damage.
"The explosions that occurred in Tianjin, China are likely to constitute one of the largest insured man-made losses to date in Asia and will certainly be considered one of the most complex insurance and reinsurance losses in recent history," commented James Nash, CEO of Asia Pacific Operations for Guy Carpenter.
The lion's share of claims arising from the disaster are expected to come from motor, cargo, liability and property insurance. These losses will be shared with both local and international reinsurers. Significant disruption to global supply chains is also expected. If current claims estimates of $1.6bn to $3.3bn prove accurate, (figures released by Guy Carpenter, which are reported to exclude business interruption and supply chain losses) this represents about 88% of total direct premiums written in Tianjin in 2014.
The disaster highlights the concentration of risk that exist in areas such as busy ports, where heavy industry and petrochemical plants sit alongside high value assets such as cars. Media reports available at the time of going to press indicated the number of vehicles destroyed could be as high as 18,000, with losses sustained by Chrysler, Hyundai, Jaguar Land Rover, Mitzubishi, Mazda, Renault, Toyota (Lexus) and Volkswagen among others.
As media images have shown, many of the thousands of imported cars parked at the Tianjin port have only their frames remaining following the violent explosions. "Having seen the footage it looks as if they are a total loss - in fact I'm pretty sure all of them are a total loss primarily due to the fire damage ensuing after the explosions," says Spurdle.
Industrial accidents are not uncommon in China. Last year's crude oil pipeline explosion in Dalian and an explosion in 2013 in Qingdao which killed more than 60 people are recent examples of the kind of losses that have punctuated China's accelerated economic growth. But for Spurdle, the disaster in Tianjin is on a scale that has not been seen before. "There have been similar events in China but none of this size."
Republished and edited with permission from the front line newsletter, September 2015, craword & company