The insurance industry may have to pay far more than initial estimates of $1.5 billion to settle claims related to this month’s Tianjin explosions.
According to official Chinese media reports, thousands of residents of the port city have been evacuated from their homes after toxic chemicals were detected in the air following the blast. They are now demanding compensation, along with area businesses who say the chemicals have damaged their assets and disrupted production.
Now, industry analysts are saying insurance companies may be on the hook for significantly more than the $1 billion to $1.5 billion estimates suggested by Credit Suisse earlier this week. In fact, the bill may be so high, it could seriously shake the financial strength of affected carriers.
“Claims from the blasts are likely to undermine the financial performance of some regional players and those property casualty insurers with high risk accumulation in the affected areas,” ratings agency Fitch said in a release.
The increased costs will likely be directed toward local Chinese insurers, particularly those insuring businesses who have been forced to halt operations in the days following the explosions.
Prominent companies like electronics firm Panasonic, logistics firm Singamas Container Holdings and agricultural machinery producer Deere & Co. are among those who have temporarily closed up shop. Additionally, Japanese auto manufacturer Toyota confirmed that more than half of its China production capacity would be affected through the week, and the company has suspended production lines in Tianjin that produce up to 530,000 vehicles a year.
Toyota plans to divert shipments from Tianjin to the ports of Shanghia and Dalian in response to the Tianjin problems, which will cost the manufacturer – and ultimately its insurer – a great deal.
The two explosions, which originated in a warehouse containing dangerous sodium cyanide, were said to have generated power equivalent to 3 and 21 tons of TNT. More than 100 people were killed and 700 injured in the blasts.
Tianjin is one of China’s largest cities, with a population of 11.5 million, and is the third largest industrial and transport hub in the world.
