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COVID-19, economic issues complicating assessment of Beirut blast claims

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Assessing the scale of the insured loss following a devastating explosion in Beirut, Lebanon, is being complicated by factors including COVID-19 and economic turmoil.
Source: AP Photo

The coronavirus pandemic, economic difficulties and social unrest are complicating the work to assess the insured losses from the Aug. 4 explosion in the Lebanese capital of Beirut, loss adjusters say.

The blast at the city's port, which has killed more than 200 people according to the BBC, caused widespread property damage. Andrew Bart, global president of loss adjuster Crawford & Co.'s global technical services division, which handles large and complex claims, said in an interview that his company was seeing "significant structural damage up to two kilometers away and possibly further." He added that in the area immediately adjacent to the blast site "the destruction is almost total."

Michael Brogden, CEO for the Middle East at Sedgwick Claims Management Services Inc.'s international division, said via email that initial inspections suggest "we are looking at significant structural damage to property up to 3km from the blast site, but with collateral damage extending up to potentially 7km."

Beirut's governor has reportedly said the total cost of the explosion could be between $10 billion and $15 billion. A trade body for Lebanese insurers said the economic cost could fall between $5 billion and $10 billion and that about 30% of that figure would be insured, according to a report.

Early days

Bart said Crawford has "picked up a number of claims already," but less than a week after the event, it remains highly uncertain how much the blast will cost the world's insurers and reinsurers. Executives from Hannover Re and Munich Re said in earnings calls that the explosion was likely to cost them more than €10 million each, although they also cautioned that it was unclear by how much the loss would exceed the €10 million mark.

Others have been more reluctant to give an indication at this early stage. Spokespeople for two other major European reinsurers, Swiss Re AG and SCOR SE, both said it was too early to estimate claims from the explosion when contacted by S&P Global Market Intelligence for comment. AXA SA CEO Thomas Buberl said on an Aug. 6 earnings call that it was "far too early to say anything" about the company's exposure.

Reinsurance broker Guy Carpenter & Co. LLC, part of Marsh & McLennan Cos. Inc., said in an Aug. 7 bulletin that damage to steel portal frames and masonry suggested that the blast was equivalent to a 100-ton TNT explosion, whereas the 2015 hazardous chemical explosion in the Chinese port of Tianjin was equivalent to a 75-ton TNT explosion.

In 2016 Swiss Re estimated that insured losses from the Tianjin explosion were between $2.5 billion and $3.5 billion, although it is unclear whether this means the insured losses from the Beirut explosion will be larger. Guy Carpenter said in the bulletin that there was "substantial uncertainty" around insured losses, but added that its early analysis suggests combined hull, cargo and port facility losses "should be within $250 million."

Although the level of insurance penetration is unclear, the market is expecting it will be high. Sven Althoff, Hannover Re's head of property and casualty reinsurance, said on an earnings call that because the blast had hit an industrialized port area, "we have to assume there is a good level of penetration here."

Bart at Crawford said: "It's a sophisticated environment. Beirut is a commercial hub and there will be some corporates there, there will be local businesses, there is a strong [small and medium-sized enterprises] market there."

The event is likely to trigger claims across a range of business lines. Chris Wylie, regional managing director for the Middle East at Charles Taylor Adjusting, said via email that the initial focus would be on property and business interruption losses, along with marine hull, machinery and cargo.

"It is likely that political violence, trade credit and contingent/supply chain business interruption losses will also be of significance," he added.

A challenging loss

Claims stemming from an event of this nature are typically difficult to assess, and the Beirut explosion has its own complications.

Brogden said: "The magnitude of the blast area will pose its own problems, and the mix of insured and uninsured property, the types of damage etc. will all provide unique challenges."

In addition, Lebanon was struggling both economically and with the coronavirus pandemic before the explosion, which Brogden said "will impact potential BI claims and the amount of actual insurance in place."

The pandemic is also creating operational challenges for loss adjusters. Bart said the current challenge is logistics, relating to "the sheer scale of the devastation, and also another complicating factor at the moment is that in a COVID environment we need to ensure that our personnel are absolutely safe."

The explosion was reportedly caused by 2,750 tonnes of ammonium nitrate that had been stored in a warehouse since 2013. On Aug. 7, Lebanon's National News Agency quoted Lebanese President Michel Aoun as saying the government was seeking aerial photos to determine whether there was "external aggression" or "if what happened was caused by negligence."

Brogden said: "The cause of the explosion is still under investigation and this will be key to the policy coverage."

The explosion has also sparked anti-government protests in Beirut, further complicating the picture. Wylie at Charles Taylor Adjusting said adjusters "will have to make the distinction between damage due to the explosion and damage which may be related to the protests."

While there is uncertainty about claims, more clarity is likely in the coming weeks.

"As the debris removal continues, estimated conservatively for a minimum of three weeks, we anticipate that the insurers and their insureds will begin the process of collating claims information/reports and appointing the necessary experts," Brogden said.