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Tianjin blast contamination likely to boost costs to insurers

A damaged road sign near the site of the explosions at the Binhai new district, Tianjin, August 13, 2015.
Jason Lee | Reuters
A damaged road sign near the site of the explosions at the Binhai new district, Tianjin, August 13, 2015.

Contamination from chemicals is likely to increase the cost to insurers of last month's blasts in the Chinese port of Tianjin, costs which are already expected to exceed $3 billion, insurance specialists say.

While Chinese insurers are likely to bear the brunt, global insurers and reinsurers are also expected to set aside reserves for the quarter ending in September to cover any payouts for the Aug. 12 explosions, which killed more than 160 people.

Zurich Insurance said last week a $275 million loss from Tianjin was partly responsible for the decision to pull the plug on its 5.6 billion pound ($8.5 billion) bid for rival RSA.


Reinsurance broker Guy Carpenter has said so-called insured losses from the blasts could be as much as $3.3 billion, based on satellite images of how buildings, cargo, containers and property around the port were hit.

However, its estimates do not include clean-up or contamination costs.

Read MoreCyanide in waters near Tianjin 277 times acceptable level

While there have been no estimates of contamination costs yet, the U.S. Food and Drug Administration (FDA) said this month it was increasing surveillance of food, drugs and medical equipment shipped from Tianjin on or after August 12.

"Marine surveyors appointed by clients are stating that containerized goods from Tianjin are arriving at final destinations with tainted smells," Nick Derrick, chairman of the International Union of Marine Insurance's cargo committee, said. He said the impact of dangerous chemicals would "add to the final loss figure".

Read MoreScenes from the devastating Tianjin explosions

Specialists say an exclusion zone around the blast site is making it harder to estimate the damage.

In addition to possible contamination of food and drugs, one reinsurer said chemicals were likely to corrode cars outside the immediate blast area. Another insurer said contamination damage could extend to more insurance classes, such as aviation.

"The very large losses will come out of the big Chinese commercial insurers, the second tier will come out of the Korean and Japanese interests abroad, and then losses will come out of the international commercial insurers who have insured the port facilities and physical property," said John Butler, managing partner at specialist insurance fund manager Twelve Capital.

Insured losses from the blasts are not, however, expected to reach the $11 billion linked to floods in Thailand in 2011. But insurance specialists said it could be several months before the full extent of the Tianjin losses are known.