Managing Increased Volatility to Build Resilience and Capture Growth in Mining

Mining companies face a precarious balancing act. The industry has a vital role to play on the path to decarbonization by providing the critical minerals needed for renewable energy and climate technologies. However, increasing mining activity often comes at a significant environmental cost. Increased carbon emissions and land disturbance are intrinsically linked to a rise in natural catastrophes, which can, in turn, severely impact mining operations.  

Yet the quest to balance economic growth and environmental sustainability isn’t the only issue challenging the mining industry. Volatility has increased on multiple fronts - from fluctuating commodity prices and industry-wide labour and talent shortages, to rising geopolitical risks and the challenge of managing reputation in the face of tightening regulation and increasing stakeholder demands.

For industry players, managing and mitigating these increasing risks have never been more critical. Failure to take meaningful action on sustainability and social responsibility and ensure good governance practices increases an organization’s risk across multiple factors, including risk capital challenges, talent strategies and litigation risk. In this environment, companies must adopt holistic risk management frameworks that cover both physical assets and human capital investments that includes expanding environmental, social and governance (ESG) expectations, and reflects the industry’s rapidly rising insurance needs.

Presenting on the back of the Invest Africa Mining Series, Paul Pryor, Aon Global Mining Practice Leader, unpacks some of the key risk and insurance market trends as they pertain to the mining and natural resources sector.

State of the insurance market

“While many insurance markets have swung back in favour of buyers, underwriting remains disciplined, with insurers focused on ‘profitable growth.’ For mining businesses with well-managed risks and clear energy transition plans, this means more favourable pricing and renewals, with trends expected to continue into 2025, barring any major loss events,” Paul explains.

• Property

The property insurance market is seeing a phase of stabilisation and softening as of the second half of 2024, following an almost six-year hard market that exerted tremendous pressure on the mining sector in terms of pricing and available capacity.

“Going into 2025, we expect to see increased competition among insurers and barring any major loss events, we should see more favourable pricing and terms for insureds with well-managed portfolios and loss ratios. The second half of 2024 brought average rate reductions on Aon’s mining property book in the mid-single digit percentage range, and we see that continuing into 2025 and even accelerating to double-digit rate decreases.

“For hard-to-place portfolios – notably risks with a high percentage of thermal coal – finding capacity remains a significant challenge as many global insurers and reinsurers have continued to withdraw capacity to align with the Paris Agreement and meet Net Zero targets. In 2015 when most of the European insurers signed up to the Paris Accords, what was initially anticipated to be a gradual withdrawal of insurers from coal turned into an immediate disruption, with reduced capacity and rates that increased exponentially. 

“While capacity and pricing remain challenging on this front, there is growing consensus that the energy transition will take time and that there are many incredibly complex trade-offs that industry sectors and economies face as they navigate the energy transition. The insurance market is grappling with the tension between immediate market needs and long-term sustainability goals, and whether a more measured approach, like selective underwriting based on transition plans and robust ESG plans could address some of the criticisms and pitfalls of abandoning the thermal coal market, while still maintaining alignment with climate objectives,” says Paul.

Geopolitics also plays a role, and across the globe there are shifts to more conservative governments, which could further play a role in the speed of the energy transition. Critical mineral supply is also becoming an increasingly geopolitical issue on the path toward clean energy.

• Casualty/Liability

A hard casualty market saw five years of severe rate increases, but during 2024 we saw the market soften and rate reductions start coming through, albeit at a low rate.  Insurers are likely to remain cautious though due to loss trends and the impact of social inflation.  Liability claims are typically long tailed, so insurers price now for claims that may eventuate in 5-10 years’ time, and where the impact of social and economic inflation as well as mental anguish can have a dramatic impact.

Social inflation has become a disruptor that is increasing risks for the mining industry. In recent years, the insurance sector has been navigating escalating costs of liability-related insurance claims, particularly personal injury. These continue to rise over and above general economic inflation. While recent economic volatility has contributed to this challenge, other factors include increased litigation and higher settlements. The concept of social inflation reflects an increasing pressure largely attributed to more aggressive legal tactics and a shift in societal attitudes from the growing recognition of social and income inequalities, a public shift in sentiment toward corporations and an increase in the appetite and ability of claimants to file lawsuits. ¹

Insurers see social inflation as a phenomenon that will encompass more geographies and accelerate in severity in the years ahead, pressuring excess casualty and liability lines of coverage most significantly. ¹

For mining industries, the impacts of social inflation could translate into higher insurance premiums, lead to lengthy and costly legal battles and inflict significant reputational damage.

In addition, worker to worker events are starting to arise in the market. As a new theme, we have seen dramatic awards for mental injuries associated with mining incidents and they are becoming extremely hard to control. i.e. workers claiming mental anguish whilst they are at home because they ‘could have been there’.

• Directors & Officers

D&O market conditions remain favourable, with abundant capacity and competitive pricing. However, insurers are focusing on sustainable pricing, and some insureds are leveraging the current environment to purchase additional coverage.

Emerging risks, such as artificial intelligence (AI), are gaining attention as mining companies integrate technology and automation, increasing their exposure to cyber threats. ESG risks also continue to reshape corporate liability coverage in mining and resource industries.

• Cyber

Across all sectors, cyber pricing has continued to soften, yet underwriting is disciplined, and risk differentiation and detailed underwriting information are required for a positive renewal outcome. A growing number of insureds are taking advantage of favourable market conditions to purchase additional limits, using data and analytics to support their decisions.

However, despite the widespread and evolving risks that cyber threats present to all industries, the mining sector is lagging in defence against these threats. In Aon’s most recent Global Risk Management Survey, cyber risk is cited as the number one risk for all industries, yet the mining sector is an outlier, not even landing as a top ten industry risk. ³  

As mining operations modernize, increased connectivity exposes operational technology (OT) networks to cyber risks. Attacks can disrupt operations, compromise safety, and damage reputations. Examples include blocked tanks and pipelines, shut-down of heating, ventilation and cooling (HVAC), cooling and fire suppression systems, catastrophic failure of equipment due to over-speeding, train derailments, port blockages, unsafe furnace shutdowns and uncontrolled chemical reactions. Whether through a cyberattack on a remote operations centre or an espionage campaign targeting highly sensitive and valuable exploration data, the results of a cyber breach can have catastrophic consequences on operations, safety and reputation. The mining industry’s oversight of cyber risks must be urgently addressed as exposures increase through greater digitalization and automation.

Better risk decisions through data-led insights

“Fundamentally, with data-led insights, leaders can identify and quantify specific risks to make better risk mitigation, retention and transfer decisions. As risks become more complex and connected, it is essential to address their interconnectedness across the business, with an enterprise-wide approach to risk that helps improve decision making and strengthens organizational resilience. With greater resilience against uncertainty comes greater opportunities.

“By adopting a forward-thinking approach to risk management, mining organizations can position themselves as industry leaders, attracting vital investment, unlocking sustainable innovation and building lasting trust with stakeholders to drive long-term success,” concludes Paul.