Insurance Market Monitor #3: COVID-19 & Mining Industry

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With the situation so much in flux, new information, supply and demand shocks keep emerging regarding COVID-19. Beyond the overarching strategic preparedness and response plans by governments working in collaboration with various role players including businesses and individuals, the most significant consequences to these developments have been the impact to and response by the insurance service industry and, in particular the role we are playing. Minet, secure tomorrow.

THE MINING INDUSTRY AND THE IMPACT OF COVID-19
The World Health Organization has declared the coronavirus (COVID-19) a pandemic. Covid-19 has dramatically and severely affected every corner of the world. There is no doubt that the economic ramifications are already quite significant, and its consequences can already be felt by the mining industry.

The Mining Insurance Market – What’s going on?
Business interruption (BI) and supply chain disruptions due to Covid-19 induced lockdowns forced many mining companies to be placed under care and maintenance in 2020. For the mining industry, risks continue to evolve beyond the traditional loss or theft of property. A decade that has been:


The Mining Insurance Market – What’s going Wrong?
With the various trends being visible in the Mining Insurance Sector as described before, Mining is faced with a variety of challenges that need to be overcome:


Factors Influencing Insurance Rates
The following factors are expected to be major influencers for the Mining Insurance rates:
  • Quality of renewal information (especially responses to risk recommendations)
  • Extent of policy coverage, including policy (sub)limits and basis of Business Interruption
  • Claims experience, declared values and territory spread
  • Maximum Foreseeable Loss calculations (MFLs) per site
  • Surface/Underground and Commodity type
  • Deductible and Self-Insured Retention (SIR) levels
  • Exposure to Natural Catastrophe perils
  • Shareholding (e.g. Chinese shareholders to be more attractive to Chinese markets which tend to be more competitive; similar with Japanese shareholding)
  • Long term relationships with key program leaders

Key Underwriting Information Required
The below is a list of key underwriting information that would be required from companies within the mining industry:
  • Recent engineering survey, describing the risk and providing risk recommendations
  • Company’s response to the risk recommendations
  • Detailed description of the mining operation (layout of site(s), rail lines, ports, …)
  • Detailed engineering information on tailings dams (operation, past inspection maintenance reports, timeline of future wall lifts, …)
  • Detail of cover required (e.g. slip and policy wording, > five years claims history)
  • Water management surveys/reports (particularly if risk is exposed to potential flooding)
  • Future Capex
  • Community Development and Environmental/Sustainability
  • Detailed breakdown of the Property Damage and BI values, including how the BI figure was arrived at

The Mining Insurance Market Outlook
Bearing in mind the current mining insurance market environment and the challenges it is facing, we expect the mining insurance market outlook to be as follows:
  • Increasing rates (+10% up to +30% on some accounts)
  • Rising insured values (with increasing BI values), creating a double whammy for premium increase (premium being the product of rate and value)
  • Underwriting decisions being pushed up in the insurer’s organization, thus creating delays and more conservative pricing as managers attempt to return to profitability
  • Cover enhancements are being charged for (previously for free as part of negotiations)
  • Considerably more underwriting information to be requested by Insurers
  • Renewal/quoting process to be initiated earlier due to longer delays
  • Insurance capacity expected to be steady (except for thermal coal and thermal power generation risks where a number of key insurers are withdrawing)
John Mawere ǀ Global Business Coordinator ǀ Minet Holdings Africa (Pty) Ltd
General
This document and any recommendation, analysis or advice provided are not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy.  Minet shall have no obligation to update this market monitor and shall have no liability to you or any other party arising out of this publication or any matter contained herein.

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