Could Latin American mining companies save money by adopting more sophisticated risk management strategies?
Last week, in Santiago and Lima, Willis hosted our inaugural Latin American Mining Seminar, where a selection of mining risk managers from the region met to discover if there are other, smarter approaches to risk management besides the traditional option of selecting the most competitively priced insurance proposal.
How to Reduce Uncertainty
Opening the seminar, Willis Latin America Mining Head, Tom Holliday, stressed the overriding need for the mining industry to reduce uncertainty as it continues to expand rapidly in the region. The seminar then focused on some of the ways in which the industry might achieve this overriding objective by managing its risks more effectively:
- Using analytics to quantify uncertainty, and in particular the use of risk-optimizing technology to identify the most economic risk retention level across a number of different coverages
- Using engineering expertise to identify and mitigate risk, especially with regard to business continuity and supply chain exposure
- Using captive insurance companies, particularly with regard to the advantages of building up a “war chest” against future uninsured losses
- Producing detailed underwriting submissions to enable insurers to partner with mining companies on a long-term basis – nearly 100% of the delegates agreed with the assertion that “Better underwriting information leads to the development of more competitive terms from insurers in both the short and the long term”
- Accessing comprehensive claims data for benchmarking purposes – particularly with regard to business interruption exposure as well as companies’ liability and human capital risks
But perhaps it was the section dedicated to tailings operations that attracted particular interest. Of course, this risk represents one of the most significant liabilities in the mining business, and as the industry continues to expand, the potential exposure arising out of any kind of tailings dam failure continue to mount – particularly given the increasing global sensitivity with regard to the environmental impact of recent failures.
The mining industry naturally looks to the insurance markets for appropriate risk transfer solutions for these exposures. So no wonder risk managers continue to be frustrated that the insurance market has so far resisted calls for the deletion of the sub-limits that are almost universally imposed for tailings dam exposures.
However, perhaps things are about to change. Over 70% of the delegates at both locations agreed with the proposition that:
If the right underwriting information is offered by the Latin American mining industry, the insurance market should be able to delete tailings sub-limits from their offering to their most favoured clients.
With conditions in the mining insurance markets continuing to soften, it’s quite possible that the deletion of these sub-limits may start to become more prevalent—particularly in view of the potential increase in premium revenue that this stance might attract.This question was posed to the delegates following a presentation made by Swiss Re’s Mark Kabierschke, in which he emphasised the need for detailed underwriting information to be provided in order to underwrite tailings dam risks properly, both from a physical damage and business interruption perspective.
As well as the tailings storage facility general information, Kabierschke suggested that this should also include specific information relating to facility drawings, operational procedures, monitoring and instrumentation, external auditing/reports and flood design.
Professional Underwriting Submissions
AIG’s Manuel Moreno then outlined the level of detail currently required to compile professional underwriting submissions in order to obtain the most competitive possible terms from the insurance market. He stressed the value of deploying underwriters’ engineers at client sites to assist in this process as part of an ongoing, long-term risk partnership.
By the end of the seminars, over 98% of the delegates had agreed with the proposition that
Better underwriting information leads to the development of more competitive terms from insurers, in both the short and the long term.
Communications Are Key
Finally at the end of the seminar, after some of the key issues regarding this critical exposure were discussed in more detail, 100% of the delegates had agreed with the assertion that
The Latin American mining industry – owners, operators, designers and regulators – needs to communicate more effectively if the tailings risk is going to be managed more effectively in the future.
Perhaps increased communication will be the key driver in the development of a more sophisticated approach to managing mining risk in this region going forward.