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02

Mining firms 'need more dynamic approach to risk'

Open-access content Tuesday 5th February 2013 — updated 2.51pm, Wednesday 6th May 2020

The unprecedented number of challenges facing the mining industry this year means companies operating in the sector must check their risk and insurance requirements more frequently and dynamically, Willis said today.

Resource nationalism, the constraints on development associated with poor infrastructure and supply chain disruptions are some of the biggest risks facing the sector this year, according to the broker's Mining market review 2013.

Andrew Wheeler, Willis' mining practice leader, said: 'Resource nationalism and business interruption as a consequence of strikes probably represented two of the biggest risks facing mining companies in 2012 and this trend is set to continue for 2013.

'For example, in July last year the Bolivian government announced the nationalisation of a silver and indium mine, Mallku Khota operated by a Canadian firm, the third major nationalisation project within four months.'

He added: 'One way in which foreign investors may mitigate the risk of resource nationalism is building relations with the host state by adopting a sound corporate social responsibility strategy, such as healthcare initiatives, building schools and other community projects.'

Volatile demand for metals, natural resources and commodities, as a result of global economic uncertainty, were added to last year by a slowdown in Chinese growth, which caused commodity prices to tumble, Willis noted.

To address the fast-changing trading and financing environment, mining companies are urged to do more to consider the type of coverage they are purchasing in the insurance market and the trade-off between their insured and uninsured risks.

According to Willis, while the insurance market has been relatively stable financially during the global economic crisis, insurers in the mining sector have been tightening their pricing, capacity and coverage in response to a period of poor underwriting results.

Insurers need to be more 'adaptable and innovative' to enable them to make adequate profits at the same time as providing products that take into account the 'very different' circumstances mining companies currently find themselves in.

This article appeared in our February 2013 issue of The Actuary.
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