The insurance industry loss from the Beirut port explosion, thought to have been caused by 2,750 metric tons of ammonium nitrate that was stored unsafely, is estimated at up to $3 billion by the Association of Insurance Companies in Lebanon (ACAL).
According to a report by Al Roeya, the ACAL has pegged total losses from the blast at between $5 billion and $10 billion, with insurance and possibly reinsurance protection expected to cover around 30%, or up to $3 billion of this total.
The blast was large enough to damage buildings several kilometers away and resulted in the deaths of at least 137 people, as well as more than 5,000 injuries.
Much of the port area has been totally destroyed, with a crater measuring 140 metres in diameter, partial collapse of the grain silos, total collapse of warehouses and ships overturned.
Recently, officials said the huge explosion is likely to drive economic losses of up to $15 billion, following which reinsurance broker Guy Carpenter estimated that the insured bill for combined hull, cargo and port facility losses from the event should be within $250 million.
In an interview with Al Roeya, President of the ACAL, Elie Tarabay, said that the impact of the explosion on the marine insurance sector is minimal in comparison to its impact on the property space, estimating that marine insured losses would reach around $200 million.
While preliminary losses estimates are beginning to come to light, much uncertainty remains surrounding the total cost of losses for insurers amid an ongoing investigation into the cause of the explosion.
Speaking to the Daily Star, Tarabay explained that for insurance companies, it makes a huge difference whether the blast was an accident of premeditated.
“If for example, the insurance policy excludes accidents resulting from bombs, chemicals, dangerous materials or act of war or act of terrorism, the companies will not cover the cost of material damages,” said Tarabay.
It’s believed that the 2,750 kg of ammonium nitrate had been stored unsafely in a port warehouse since 2013, with authorities and officials confirming that it should not have been stored at the port.
“If the port stored a highly inflammable material then the insurance companies will not cover the losses if this item did not exist in the original insurance policy. The insurance companies usually fully abide by the policies with individuals and companies,” Tarabay told the Daily Star.
Along with the port itself having coverage, all shipping companies and merchants have insurance protection on all cargo ships and imported goods that uses the port.
“The insurance companies are not obliged to cover the material losses if the policies make no mention of dangerous materials or bombs. There are three exclusions in the insurance policies: radioactive material, biological material and weapons,” continued Tarabay.
Furthermore, warned Tarabay, if the blast is found to have been caused by a dangerous material or act of war, then firms and households outside of the port area would not be entitled to any compensation.
At around $3 billion, insured losses from this event are seen as similar to those experienced as a result of damages caused by the Tianjin, China port explosions in 2015. The Tianjin port blasts were the largest insurance and reinsurance loss related to a man-made disaster in 2015, with industry losses seen at between $2.5 billion and $3.5 billion.
A report by Reuters highlights this comparison, citing a director at financial services ratings agency, A.M. Best, who warns that “you will see significant insured losses.”
Sources reportedly told Reuters that although losses related to goods stored at the Beirut port would likely be lower, with Tianjin storing thousands of imported cars, they would still be substantial. Sources also said that the majority of the insurance claim from the Beirut port explosion would come from damages to residential and commercial property, including restaurants and hotels.
Clearly, the overall insured loss from this event will be impacted by the ongoing investigation into the cause of the explosion. However, at this point in time, preliminary estimates point to insured losses of up to $3 billion, meaning that as much as 70% of the total cost of the explosion is not covered by insurance protection.
