Getting to grips with mining insurance ratesThe South African mining industry is facing a unique set of challenges in the form of the cost and unreliability of electricity supply, disruption and destruction of equipment, an unstable regulatory and legal framework in addition the coronavirus black swan event. Paul Pryor, Aon global mining practice leader Coupled to this, the mining insurance sector has been particularly hard hit by claims related to natural catastrophes, strikes and riots, equipment failure and fires over the past three years. Mining insurance rates steadily decreased from 2011 to 2016, however with a returned loss ratio of >100% for the mining insurance market in 2017 and 2018, rates levelled out in late 2017, increased by single digits in 2018 and with double digits in 2019. As a result, underwriters have become more selective in the risks that they will consider and markets are reluctant to write any new business unless ‘adequately priced’, leading to substantially higher rates than seen in previous years,. These developments have a very clear domino effect on the market:
Managing mining sector insurance ratesIn Aon’s recent risk management survey, business interruption (BI), accelerated rates of change in market conditions and fluctuating commodity prices were listed as the top three risks facing the mining sector. All three require robust risk management processes to facilitate risk-averse mining growth and development in addition to underscoring favourable insurance rates. Factors that may influence insurance rates, include:
It is of paramount importance to do your homework, thoroughly, in order to provide the underwriter with documentation that paints an accurate picture of the state of your operations as well as measures undertaken to address risk. These would include recent engineering surveys, responses to risk recommendations, detailed descriptions of mining operations, engineering information on tailings dams, water management as well as an accurate overview of cover that is required, including property damage and business interruption values. Compiling a comprehensive risk management programme that is able to positively demonstrate to an insurance underwriter how you are addressing the instance of a loss occurring and/or minimising the resultant loss, will go a long way to secure a favourable risk analysis and rating. Strategies for securing a successful mining insurance programme include:
About the authorPaul Pryor is Aon's global mining practice leader. |