How the Trump-China trade war is impacting mining insurance
Published 13 December 2018
Commodity prices have been fluctuating in the wake an escalating trade war between China and the United States, with mining insurance premiums also being impacted.
On May 23, the Bloomberg Commodity Index hit its highest note this year at 91.53 before plummeting to 82.84 on 16 July – its lowest ebb in nearly 12 months. The Index had rebounded to 85.28 on 31 July but fluctuating pricing remains a concern for mining firms.
As the US and China continue their back and forth over trade, and commodity pricing has been hampered over the last several months, mining firms have seen their business interruption risk fall, according to Gallagher specialists.
As commodity prices dip, so too does the need for large limits on a business interruption policy but other risks become more noticeable.
In a low commodity price environment, many mining firms try to cut costs to eke out as much profit as possible, a tactic that John Koeppler, National Head of Mining at Gallagher, said brings its own risks.
“Underwriters are sometimes concerned by these reductions in costs because it can put pressure on other aspects of the business, such as preventative maintenance. Mining firms need to spend a certain amount of time sustaining capital.”
Koeppler called the situation a “catch-22” for mining companies, but a challenge the majority are meeting admirably. I would say that over the past 20 years mining companies have improved their maintenance processes immeasurably,” Koeppler said.
“Also, the way that mining risk profiles have changed is worth noting. In modern mines there are areas where companies have been able to substantially reduce or eliminate a particular risk.
How Gallagher can help
The shifting nature of mining risk requires a close relationship between mining companies and their broker as they work with an insurer to ensure that coverage is fit-for-purpose.
In an environment where commodity prices are low or fluctuate regularly, and as mining firms look to reduce costs wherever they can, Koeppler said that Gallagher are able to take an holistic view of a mining firms’ insurance needs and look to reduce insurance pricing wherever possible.
“We always push very hard on price,” Koeppler said. “Our attitude is that cover is a given, but price is something that is negotiated and we drive that very hard. We are able to offer a product and services suite that can be specially designed to any mining client."
Gallagher regularly works with major international mining companies to develop and design risk management and risk transfer mechanisms to meet risks faced by individual businesses and the mining sector more broadly.