Canaries in the Coal Mine

There was no dramatic vibe at the time, but it was an extraordinary meeting when you think about it. On a cold November day, a who’s who of insurance, as well as mining executives, shuffled into a conference room at Vale Base Metals in the Royal Bank Plaza in Toronto—all to hear a presentation on whether they’d like to join a special club, one that got started in the UK. The dues are cheap (only £250, or $450, per company), but the whole point wasn’t to get access to any private billiards room or special garden. No, for the Mining Insurance Group, as board member Brian Birchall put it, “the whole purpose is to collaborate, put our minds together, and identify emerging risks, deal with them, and collectively assist where possible.”

There was already steam for an association like this when risk managers met at the U.S. RIMS and other conferences, much of the discussion focusing on property. “And just to give you an idea,” says Birchall, with a loss triggered by an explosion, earthquake or mechanical breakdown, “we’re talking upwards of $300 or $400 million of loss potential… if the worst nightmare occurred.” If a critical piece of equipment like a ring gear fails on a sag mill, he argues, that could mean the “plant is out for 50 weeks. Half of the production can’t be made. So that’s pretty significant.”

It makes you wonder, then, why an international umbrella group that could exchange info and come to common, workable definitions hasn’t existed before.

“Well, there’s a lot of checks and balances in the system that have stopped it from happening,” says Birchall, who’s also the mining sector leader for Aon Global. “Brokers don’t necessarily want to get together with other brokers and other insurance companies, and bring their clients in to discuss something that they should be capable of discussing themselves.” He says that in 2011, there were $3.8 billion worth of losses in mining business, with about $900 million worth of premium. “All of a sudden, the insurance companies went, ‘Why are we insuring mining? Why don’t we insure real estate? Why don’t we insure hospitals?’ So the capacity dropped 30 percent, and all of a sudden everyone said, ‘Okay, we’ve got to turn this around, we’ve got to make it more user-friendly, or else we’re going to have no capacity, and whatever is there, there will be a broad brush under it, and it will be very, very expensive.’”

He argues that brokers can get into the mining business, “but they need to understand what’s going on.” It’s not a field for amateurs, and with 40 years under his belt and training as a chemical engineer, Birchall would know. “Certainly for Aon, our mining practice in Toronto consists of professional engineers who have done risk control, done claims, done underwriting, and now are handling business for clients. So we’re anticipating risks, we’re anticipating loss, because we’ve been around for a while and we’ve seen it happen. So it needs to be a specialty broker. And if it’s not a specialty broker, then perhaps the risks aren’t being properly dealt with. And certainly the uninsurable risks aren’t being identified by loss prevention, because they’re not out there doing the risk analysis.”

When it comes to brokers getting into the game, Birchall says there are “two schools of thought. They can do it if they want to, but whether they’re effective at it is the big issue, and the client pays the price if they’re not effective at doing it.”

Whether brokers come onboard or not, MIG won’t be free of debate. For the moment, the association is advocating a single adjuster—not a solo company, but one guy. Birchall concedes that this is controversial, and that while four companies on a property program will sometimes agree to a controlled adjuster, “often times they don’t want to totally rely on someone that they haven’t worked with before.” He suggests that “what we’re probably going to morph to is to have a claims preparer, not necessarily an adjuster role, but a claims preparer… The claims protocol was our first blast at what we’re trying to do. It was fashioned after an oil-and-gas claims protocol that has been working very well.”

The organizers clearly want to make MIG global. They already have South America in their sights, as well as Johannesburg, pretty much the mining capital of Africa, despite the country’s various problems and union woes. But there’s still much to do to launch MIG in Canada.

The meeting over, one of its organizers got a few laughs as he urged the delegates with mock desperation, to please, please eat up the catered food. At the elevator, Chubb’s Canadian mining specialist Barry Blackburn told Top Broker that he lauds the approach of “clarity of language in a policy contract.” Blackburn says Chubb has always had its own mining property policy wording, “so we are ones that have already laid it out and vetted that form. We feel it is very clear, but… competitors won’t sign on to our form unless we’re sharing a risk.” And perhaps that’s the crucial thing. It may be mining, sure, but no one likes to be alone in the dark.

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Copyright 2015 Rogers Publishing Ltd. This article first appeared in the January 2015 edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.