Tianjin ‘wake up’ call for insurers

Following the blast at Tianjin early last month, the International Union of Marine Insurance (IUMI) is warning that large cargo losses are having a significant impact on the marine insurance sector and this recent incident should serve as a “wake-up call to all cargo insurers”.

The Tianjin incident, coupled with other large losses in 2015 – including the grounding of car carrier Höegh Osaka resulting in a vehicle loss exposure of £35m – is expected to have an impact on the profitability of the marine cargo sector in 2014 and 2015.

“Tianjin port covers an area of around 125km² but only a small part of the port was affected by the explosion,” said Nick Derrick, chairman of IUMI’s Cargo Committee. “Even so, we are expecting to see cargo losses of at least US$1.5bn with some reports stating that the final figure could be as high as US$6bn.”

IUMI says the management of unexpected accumulation risk will become an increasing problem for cargo insurers in the future and has called for new technology to help insurers handle that risk.

“Cargo insurers need to understand what the dollar loss might have been if the entire port had been affected, perhaps by a natural catastrophe such as an earthquake or tsunami,” he added. “Added to the direct impact of the Tianjin explosion, we also understand that goods outside of the blast area have been contaminated by dangerous chemicals. This will add to the final loss figure.”

More positively, IUMI has reported a reduction in successful piracy attacks off the Somali coast but warned that attacks off the Malay Peninsula were increasing and has called for more to be done to suppress this trend.

With this, the IUMI says while the 2014 underwriting year seems to have produced a technical profit (based on figures as of December 2014), it is likely that the Tianjin explosion – as potentially the largest single cargo loss ever recorded – will impact significantly on 2014 and 2015 results and that “the outlook for the cargo market is hard to predict in light of the current changing economic environment”.

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