Most mining operations are of a scale and complexity that when something goes wrong the quantum of loss is often significant. And when the loss is so significant, it is not uncommon for disputes to arise over the insurance claim.

Typically, when measuring a loss, the issues described below become a feature of the adjustment process.
 

Fixed vs variable costs & savings:

• Pricing – typically contract/spot along with impacts of pricing caps (if applied)
• High Grading/loss mitigation – both these issues go to grade & yield/forecast v actual
• Make up of lost production
• Changing of mining plans – understanding impacts

Volumes, grades and yields are the key drivers of the quantum of any business interruption claim in the mining sector. Assuming early visibility of key documentation, it should be possible to accurately estimate 90% of the potential quantum of a claim within 3-6 months. However, a lot of time, effort, and expenses are incurred by all parties in:

• Validating that original estimate
• Agreeing the remaining 10%

Commodity pricing caps are becoming a regular feature of mining programs which substantially remove one of the variables common to many disputes. Is there an argument for taking this a stage further by agreeing a Rate of Gross Profit or unit price per commodity?

• This could become an issue if there are significant movements in commodity pricing,particularly falls
• Which could perhaps be avoided by setting the unit cost/agreed RoGP at 90% of the prevailing GP (at renewal) with a revaluation trigger at say 75% of the agreed rate
• The revaluation trigger should include an agreed mechanism for that revaluation

Advantages of a fixed gross profit/unit prices include:

• Clarity – creating certainty for both Insured’s and Insurers
• More efficient adjustment process – less cost and demand on Insured’s and Insurers
• Increased likelihood of quicker, more efficient claims resolution

Disadvantages:

• Wording changes – moving away from indemnity
• Commodity volatility
• Potentially lower indemnity payments to Insured’s

Irrespective of whether there are any changes to the policies issued in this sector, it is incumbent upon the adjusters appointed to mining claims to:

• Understand the main issues impacting the ultimate quantum of mining claims: usually volume, grade and yield, so these should be the focus
• Proactively explore mitigation opportunities
• Seek simplicity and find early solutions to complex processes and issues
• Seek an open and transparent process (Mining Claims Protocol can assist here)
• Keep external consultants to a minimum – and where engaged ensure they are properly briefed

The key is for the adjuster to focus on the key issues and proactively engage with all stakeholders to achieve an efficient and timely settlement.
 

Stephen Thorpe

Managing Director – International Onshore Energy & Mining
stephen.thorpe@charlestaylor.com

Expertise:
Property, Business Interruption, Mining, Natural Resources, Energy, CAR, EAR, DSU, Marine, Construction & Engineering, Offshore pipelines, Cargo losses, Transport/infrastructure, Catastrophe losses

Location:
Adelaide and Singapore