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CAPACITY INFLUX DAMPENS MINING MARKET RATES
Monday 07 February 2011
Author: Russell Group
 

Despite a torrid 2010 which was marked by significant loss events the global mining sector has seen a rush of insurance capacity for 2011 which has stymied attempts to increase rates.

Broker Willis launched its annual revenue of the global mining insurance and risk markets at the annual Mining Indaba conference in Cape Town which reported despite a 30 percent rise in natural catastrophes last year, insurance rates for good quality risks in the operational mining market continued to decline in 2010, for the second year in a row.

Willis said the decline was in a very large part due to a surge in demand for mining commodities attracting $1.8 billion of insurance capacity to the sector.

Speaking at the event, Steve Higginson, Willis Mining Practice Leader in Australia said, “There has been a very noticeable ‘flight to quality’ with underwriters looking to focus their capacity on quality risks operated by groups that can show definitive proof of an embedded enterprise-wide risk management protocol, together with a strong and defined sustainability commitment. For these quality risks, rates in the mining sector have been generally softening over the past two years. However, for risks that cannot illustrate the required degree of quality, the insurance market remains tough with high deductibles and relatively high pricing.”

Mr Higginson said that it is too soon to tell how much of an impact the recent floods in Australia will have on insurance pricing in 2011, but added that along with last year’s mining disasters in Chile and New Zealand, the floods highlight the importance of risk management and insurance to the mining industry. The broker’s report includes a chapter on disaster management that asks whether internal crisis committees are effective.

Looking ahead at the main challenges facing the mining industry in 2011, Andrew Wheeler, Willis Mining Practice Leader in the UK, said that sustainability is rising to the top of the risk agenda: “With an ever increasing focus on the environment and increasing resource nationalism, mining activities are not only expected to be financially and technically sound, but must also demonstrate that they have a social license to operate by implementing sustainable development initiatives and supporting the local community.”