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Mining Risk Review 2019 - Addressing uncertainty

Casualty|Property
N/A

September 6, 2019

Our Mining Risk Review shows that the last 12 months have proved to be a difficult and challenging time, both for the mining industry and for those involved in the insurance and risk management industries.

The last 12 months have proved to be a difficult and challenging time, both for the mining industry and for those of us involved in the insurance and risk management industries. Our Review is being published in the aftermath of yet another tailings dam tragedy, at a time when the mining industry is already having to cope with an unfavourable press and, at times, a strident attitude to environmental concerns that often paints the industry in an unfavourable light. In the meantime, negative underwriting results across the global Natural Resources spectrum have brought about a distinct change in underwriting climate across several “heavy” industries, including mining.

As a result, all of us involved in mining industry risk management are facing a period of considerable uncertainty. This year we’ve split the Review into two halves; the first addresses uncertainties relating to the mining industry itself, the second addresses uncertainties involved in transferring risk as efficiently as possible, given the backdrop of a hardening insurance market.

What are the four key areas of uncertainty for miners that we have identified for 2019?

  1. Digitisation: Upgrades in digital technology and artificial intelligence are transforming the way in which the mining industry operates. Even now, this process is still in its infancy; human agency is still required to ensure that the process of mineral extraction is carried out to optimal standards. But already, this process is presenting its own challenges.
  2. Bottlenecks: The linear nature of mining risk means that the impact of a natural catastrophe such as a windstorm or earthquake on a mining operation can be hugely significant. Far too often, getting a mine back up and running after a major incident is dependent on factors outside the mine operator’s control; far too often in the event of a major loss, the precise cause can often remain uncertain.
  3. Geopolitical risk: Whatever side of the geopolitical fence you happen to sit, no one can doubt that we now live in a world where the geopolitical stakes have risen considerably during the last 12 months. Increased tariffs, regulations, legislation and tax liabilities imposed between different countries have had a direct impact on the viability of mining projects in a variety of locations around the world - especially given the global nature of the industry’s supply chains.
  4. Social Economic Development (SED): the relationship that miners form with local communities is always a fundamental factor to consider in developing an effective risk management strategy.

Having a programme that assists in improving the economic potential of nearby communities and local stakeholders usually results in a symbiotic partnership that benefits both the company and the community.

As we move further in to 2019 we are finding that the atmosphere in the market is becoming increasingly uncertain, not only because of the recent loss record in the industry but because of the increasing and worrying trend for insurers to withdraw from what they consider to be environmentally unfriendly industries such as coal. Our Review highlights the following key reasons for the rapid turnaround in market conditions, despite the continued deployment of excess underwriting capacity in the market:

  • A depleted premium income pool
  • An atrocious loss record
  • Negative results for other parts of the Natural Resources portfolio
  • Centralisation of underwriting authority
  • Major insurer retrenchment

However, the final chapter of our Review strikes an optimistic note, pointing to new ways in which miners can offset the current market uncertainties; firstly by using modern analytical tools to determine the optimum retention levels and secondly by considering parametric risk transfer solutions that would provide cover for disasters such as tailings dam collapses well in excess of what is currently provided by the conventional insurance market and/or captives/captive cells.

But the reality is that this is not yet a truly hard market; capacity remains plentiful by historical standards and when rates are on an upward trend, we are by no means in the distressed situation that the market found itself in in the immediate aftermath of 9/11 some 18 years ago. Sooner or later, the laws of supply and demand would suggest an easing of these conditions at some stage in the future; it will be interesting to see which buyers – and their brokers – will be best positioned to take eventual advantage to navigate their way towards a more certain future.


Read the Mining Risk Review 2019 report

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