Risk Insider: Allen Melton

A Watchful Eye on Tianjin Losses

By: | August 27, 2015

Allen Melton is a partner and the Americas Leader for EY’s Insurance & Federal Claims Services practice. He has spent the majority of his career assisting clients to achieve financial recovery from disasters through commercial insurance claims, FEMA’s Public Assistance program, HUD CDBG-DR grants and other sources of funding. Over the past 20+ years, Allen has assisted clients in the attainment and resolution of over $10 billion in insured claims and federal disaster grants resulting from various loss events around the globe. He also regularly provides industry thought leadership through presentations at the various industry events. He can be reached at [email protected]

As I write this, little is yet known about the total loss impact, both locally and globally, of the recent explosions in the port of Tianjin, China. Current estimates as reported in news media are that losses could exceed $1.5 billion.

Around the globe, risk managers are keeping a watchful eye on the escalating impact of this event. Potential losses continue to unfold within companies, and insurers are already being put on notice accordingly.

Given the nature of this event, it is likely that analyses of coverage and the various loss impacts will be vastly complex.

Some of the key areas to monitor include:

Supply chain / contingent business interruption impact

Damages to products and materials flowing through and stored at the port of Tianjin will likely impact companies throughout multiple tiers of the supply chain.

Similar to supply chain impacts following the earthquake/tsunami in Japan and flooding in Thailand, it could take some time for the full impact of losses from Tianjin to be realized by many companies.

This creates a critical need for risk professionals to communicate early and often with their organizations’ supply chain management and sales departments to identify potential business interruption, contingent business interruption and extra expense losses.

Marine cargo, stock throughput, and other property coverage

The myriad of different coverages maintained by most companies can create a complex mix, requiring careful analysis to determine how each applies to the situation in Tianjin.

Because the event encompassed direct destruction of product and materials, contamination due to toxic chemicals and quarantine of vessels at the port, unraveling the related coverage issues may be a daunting and lengthy task, particularly given the limited flow of information concerning the explosion and its impact.

It is essential that risk professionals work closely with their advisors to understand application of their coverage.

Civil authority and ingress-egress claims

The closure of the port by Chinese authorities has prevented companies from accessing or moving their assets, thereby creating causes of loss that may trigger business interruption coverage.

Insurers typically require explicit documentation, including government documents, to support these types of claims. The capture of necessary and crucial documentation should occur as soon as possible and continue throughout the claims process.

Local versus master insurance policies and related coverage issues

Companies need to be aware that differences in underwriting practices and policies by Chinese insurers may create gaps in coverage.

Additionally, any operating companies in China that are part of joint ventures with foreign companies may face issues regarding varying interests by the parties to the joint venture.

It is crucial to fully understand these interests and their potential impact on insurance recovery early in the claims process.

At this time, we anticipate losses resulting from Tianjin will continue to unfold over the months ahead. Risk professionals are well encouraged to closely monitor potential losses as discussed above and to consult with their advisors, as required, throughout the process.

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The R&I Editorial Team can be reached at [email protected]