$1.1 billion in insurance claims
are being sought in fresh dollars

Dispute with business associations

Reinsurers to deduct premiums blocked by capital control

More than 14,700 insurance claims for damages resulting from the Port of Beirut explosion have been reported by November 6 with a total value of LL1.66 trillion ($1.1 billion at the official exchange rate of LL1,507), according to a report by the Insurance Control Commission (ICC).

Nearly 95 percent of the total value of the claims is reinsured, according to the ICC report.

The compensations settled so far represent just 1.2 percent of the total claims as the cause of the blast has not been disclosed yet.

The lion’s share of the claims is for fire insurance and amounts to $1 billion. The second and third largest categories of claims are contractors’ all-risk insurance ($20 million) and motor insurance ($18 million).

The damage estimate, insured and otherwise, was reported to reach up to $4.6 billion, with economic losses ranging between $2.9 billion and $3.5 billion, according a compilation report published by InfoPro Research in September. According to the World Bank, the Port of Beirut explosion is expected to cause up to a half percent decline in the growth rate of real GDP in 2020 and 2021.

CONTROVERSIAL DATA

The report is considered controversial by business associations which claim that insurance firms have not reported all the insured losses and that these losses don’t have sufficient reinsurance coverage.

Joseph (Jeff) Khawam, Chairman of Securite Assurance said: “As board member in the Association of Insurance Companies (ACAL) I confirm that 99 percent of local insurers are duly covered through reinsurance and that there are no problems in this regard.”

Local insurers assert that the report reflects the facts in the insurance sector and covers most of the insured losses as the major claims have already been filed. Insurance companies submit reports to the ICC on a quarterly basis about their operations including reinsurance details.

Former minister and incumbent Chairman of the Economic Associations Mohamed Choucair said that the real claims are nearly $2.8 billion and that insurance companies have not submitted all the data to the ICC.

MOST OF LOSSES ARE NOT INSURED

The insured losses reported so far cover around a quarter of total direct losses caused by the explosion. Physical damages in affected areas within a five-kilometer radius of the blast site range between $3.8 billion and $4.6 billion, according to the ‘Beirut Rapid Damage and Needs Assessment’ report released by the World Bank in August. An earlier preliminary assessment by the international consultancy group Strategy&, which compiled different appraisals by various bodies, showed that overall losses were estimated at $15 billion.

A tallying carried out by InfoPro Research of the assistance initiatives to help those affected by the blast, has shown that pledged and received aid with disclosed money amounts totaled more than $1 billion. This means that the overall aid exceeds this figure by far as other assistance was provided in kind or through labor efforts and other forms of support.

In addition to direct damages, losses in economic flows arising from the temporary absence of damaged assets are estimated at $2.9 billion to $3.5 billion, according to the World Bank.

Antoine Issa, Chairman of Allianz SNA, said: “It is a tragedy that 94 percent to 95 percent of residential units are not insured. Even some of the five percent that are insured are not covered adequately.”

REINSURERS ARE READY TO PAY

Choucair said that local insurance firms must publicly announce that they are going to bring fresh money in cash from reinsurers worth 95 percent of total claims.

According to Issa, before paying their share of the compensations, the reinsurers will deduct the reinsurance premiums for 2020 and 2021 owed by local insurers. After deducting the premiums which could reach $200 million, the reinsurers will be paying around 70 percent of the value of the claims in fresh dollars, he said. The 70 percent corresponds to the proportion of the premiums paid in fresh dollars by the clients of local insurers, according to Issa.

Almost all local insurance firms could not pay the 2020 reinsurance premiums which amounted to $80 million to $100 million due to the capital controls. Raymond Cham, CEO of Bankers Assurance said: “The Central Bank was not helpful in easing the capital controls. Only a handful of companies managed to deposit money overseas and they were able to pay reinsures. In our case we did so through a sister company abroad.”

CALLS FOR SPEEDING UP DISCLOSURE OF CAUSE OF BLAST

According to Labib Nasr, CEO of Assurex, local insurance companies have been coordinating with international reinsurers who are ready to start immediate payments when the investigation report about the cause of the blast is released.

Reinsurers have already sent a number of international loss adjusters to Lebanon including Crawford & Co. and Advanta Global Services and they are working jointly with local licensed adjusters.

In order to speed up the payment of compensations, the Ministry of Economy and Trade and insurance firms have asked the judicial authorities to disclose whether the cause of the blast was an act of war as soon as possible and before completing the detailed investigation.

According to Nicolas Chammas, Chairman of the Beirut Traders Association, businesses are in urgent need of fresh money to start rebuilding their premises in the absence of foreign assistance and as the government is not providing any help.

Local insurance companies have started to pay compensations for small claims like damaged cars or small properties. Most of existing insurance contracts don’t cover acts of war. Nasr said that only large malls and commercial centers are likely to have been insured against acts of war or political violence which represent less than ten percent of total claims.

LOCAL INSURERS CAN COVER THEIR SHARE IN THE COMPENSATIONS

Local insurers are able to pay their share of the compensations amounting to five percent of total claims, Nasr said.

The insurance companies own real estate assets worth $4 billion in addition to $1 billion deposited in banks, according to Choucair.

Issa said local insurance companies are completely responsible before the law for the total compensation of damages whether the reinsurance is adequate or sufficient or not. The shareholders of the insurance companies will be accountable for the compensation in case the reinsurance companies don’t pay, he said.