Lebanese Insurance Industry Faces Up To Life After Beirut Port Blast

Five weeks after Beirut’s devastating explosion, uncertainty remains surrounding the total cost of losses to insurers amid an ongoing investigation into the cause.

The blast on August 4, caused by 2,750 tons of ammonium nitrate stored improperly for years at the port, devastated much of the city centre. More than 200 people are dead or missing, 6,500 wounded, and an estimated 300,000 are homeless. Damage to property could reach $15 billion and insurance companies in Lebanon will share a chunk of this damage, with consequences for banks and foreign reinsurers.

Fateh Bekdache, chairman and chief executive officer of Arope Insurance in Lebanon

Speaking to Arabian Business, Fateh Bekdache, chairman and chief executive officer of Arope Insurance in Lebanon, said: “The only obstacle to paying all the claims resulting from the unfortunate blast is the release of the investigation report, which clearly shows the reason behind the explosion. Accordingly, all insurance contracts will be executed in accordance with the terms and conditions applicable.

“The Lebanese insurance sector, which is one of the few living private sectors in Lebanon, has been facing this devastating catastrophe at all levels. Open and intensive discussions are taking place with authorities and reinsurers who made it clear from day one that they need to be aware of the cause that triggered the explosion in order to act accordingly,” Bekdache said.

Claims have been frozen until the government finishes investigating the blast. Insurers would largely be off the hook if it were a deliberate act.

With regard to the existence of explosive materials in the Port of Beirut, it wouldn’t affect the obligations of the contract since it wasn’t the fault or negligence of the insured member, said Bekdache.

"In this respect, it's worth mentioning that the claims arising from a similar explosion in Toulouse, France, dating back to 2001, were settled by Total a year later by claimants," he told Arabian Business.

If the investigation confirms that the explosion was an accident, and based on the number of insured damaged vehicles and properties, the estimate suggests that a 30 percent of the damages are liable to insurance coverage based on each policy’s limits and conditions. The main sector affected is residential, followed by commercial properties and motors.

The chairman of Arope said: "Like several other insurance companies, [Arope] has already begun to fulfill its obligations to insured members who have their vehicles damaged by the explosion, as an initiative to stand with our valued clients.

“Arope appointed loss adjusters on the spot to assess damages and will follow up with clients until restoration works are completed. Definitely, policyholders will be compensated fairly according to their policies’ conditions and limits,” Bekdache added.

Arope, one of the 10 largest non-life insurers, is owned by Blom, Lebanon’s second-largest bank, which saw net profits fall 77 percent last year. Other lenders in the country, such as Byblos and Credit Libanais, also offer insurance products.

“The total value of damages ranges between $5 billion and $10 billion, with only a fraction of 30 percent being insured by insurance companies, representing a claims volume of around $2 billion, according to preliminary estimates,” Bekdache said.

He stressed that the liability of each company is variable "depending on its risk management strategy, the type of treaties and protection covers they have in place, in addition to the share of claims they have and the severity of the damages".

Bekdache said he expects that the Lebanese insurance market will "weather the storm", as the market has always been a mature one, adding that the Association of Insurance Companies in Lebanon (ACAL) has played a major role during the crisis acting as the official representative of the insurance sector and the coordinator with the government and economic bodies.

Without ruling out that some of those affected by the blast would file cases against insurance companies, Bekdache said: “I hope not, but due to the huge number of claims currently managed by companies, it will be normal that few will not be satisfied and will resort to the courts.”

Whatever the final bill, some Lebanese insurers will struggle to pay it. Written premiums fell by 4 percent to $1.63 billion in 2019 as an economic crisis forced some policyholders to drop their coverage. This year has been worse and several insurers are subsidiaries of the country’s insolvent banks.