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Transportation of Cargo

Explosion catastrophe in China

How do marine insurers deal with this risk? Dieter Berg, Head of Department Business Development Marine Global Partnership at Munich Re, talks to Topics Online about the explosion at the Port of Tianjin.

14.08.2015

What significance does the port of Tianjin have for international trade worldwide? And what can be said about losses?

Tianjin is the third largest port worldwide, the 11th largest container port in the world, one of the largest ports in China and the gate to the northern regions of China. In the port of Tianjin, many warehouses, thousands of containers and new cars in car depots have been destroyed. We are familiar with such loss scenarios from natural catastrophes such as that of hurricane Sandy in 2012. This catastrophe now demonstrates the persistent growth of accumulation risks, particularly in highly industrialised regions. We as reinsurers have observed again and again over the past years how such individual events can have regional, or even global impact: The destruction of a power plant on Cyprus in 2011 – triggered by the explosion of munition on a naval base – impacted the national economy. Or the floods in Thailand in 2011 – that natural event brought conveyor belts to a halt worldwide. Companies and insurers have since made great efforts to reduce CBI losses.

How can we as insurers model such losses?

We are seeing continuous growth in the accumulation of values in marine insurance through ever larger container ships or car carriers. The large-scale container storage facilities in terminals or goods in warehouses create enormous accumulations of goods and values in ports. With motor vehicles in particular, we frequently see very large loss potential owing to natural hazards such as flooding or hail. But again and again, losses are caused by human beings, particularly around industrial facilities. Such losses (from explosion) are difficult to model, but are comparable to modelling terrorism losses. For large port facilities, we thus analyse not only natural hazards such as flooding, earthquake or hail, but also this type of scenario. For insurers and reinsurers, it is always important here to generate optimum risk information on the values of goods and accumulations exposure in ports. On the basis of this, we can calculate worst-case scenarios, to identify (and, if required, limit) our own risk exposure, on the one hand, and, at the same time, adequately incorporate such very large loss scenarios into the premium calculation.

Are such centres in close proximity to large cities/residential areas not unduly hazardous?

Yes, there is a hazard potential here – however, it does not only affect logistical centres, but also any other forms, such as manufacturing industries that use potentially hazardous goods. It suffices to recall the explosion of the fireworks factory in Dutch Enschede in 2000. This makes safety measures, and adherence to and supervision of these decisive.

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