Mining and energy insurance is a niche market where only a select few providers can meet the complex, higher frequency cross-border requirements of the industry.
“You can spend a lot of time speaking with hundreds of insurance companies, but there really is only a select few [that] do it right and most optimal for the client and the everyone’s best interested vs. putting trying to fit a square peg in a round hole – from compliance to proper and robust coverage and pure cost-effectiveness,” said Terence Cairns (pictured), senior vice president of commercial lines at Wilson M. Beck Insurance Services (Alberta).
“If a broker doesn’t have a contract with them, that can be challenging. Then, you’ve got to go through an MGA, and there’s less control there,” Cairns said. “If your firm does hold a contract, do you have a key item, trusted relationship with them to bring the absolute best to the client and the insurer, and/or specific access to special programs within that insurer of mining and energy nature? [A] key question that clients need to ask the broker is: do they have the access, ability, and capacity, along with experience to deliver before wasting the client’s and everyone’s time?
“For mining and energy companies, the challenge isn’t just finding an insurer – it’s making sure that insurer has the right reach and capability along with the brokers ability and strength of their relationship with that specific insurer with industry appetite.”
For insurers, global presence is critical because in some jurisdictions, companies can’t simply place a policy in Canada and extend it overseas.
“These companies have local people in these countries; they have people with boots on the ground in Argentina, in Chile, USA, Germany, etc.,” Cairns said. “The government requires that you have a local policy right now.”
As environmental, social and governance (ESG) concerns gain traction, insurers are becoming more selective about the industries they support. With some carriers exiting the space, mining/energy firms are left with fewer options and rising costs.
“You have insurance companies that wanted to support mining and energy, and now they don’t or with limited interest and ability,” Cairns said. “What would be the coverage that would stand behind ESG and protect the environment?”
The answer is environmental impairment liability (EIL) insurance and contractors' pollution liability (CPL) policies. Historically, these were optional add-ons, but that’s changing fast from a requirement and compliance standpoint along with best care and environmental responsibility.
“In the past, you could just get an extension for sudden, accidental (S&A) pollution which may be satisfactory to a contract,” Cairns said. “...The S&A added on was no big cost hit to the client, a couple thousand dollars, another +2-4% premium. But now, in today’s space and ESG drive, vendors and contracts say, ‘No, you require a standalone pollution policy like EIL, CPL for the job and to do business with our organization’ in many cases – which has been a shift and supported by large and higher frequency environmental losses and ESG factors.”
That standalone policy comes with a steeper price tag – anywhere from $5,000 to $100,000, with an average of 20,000/$2 million limit.
“Not to say that people don’t want to get behind and do that and do the right thing,” Cairns said. “There [are] massive exclusions for pollution in standard general liability policies in many cases, which requires your and the client full attention.”
The market itself is constantly evolving, with new players entering and old ones pulling out. Allianz, for example, made headlines a few years ago when it stepped back from this sector and others in Canada and other spots globally.
“When Allianz made that move, it was picked up by Zurich, CNA, Chubb, Liberty, Lloyd’s of London, HDI and a few other dedicated global energy/mining supporters,” Cairns said. “Interestingly enough, it was great seeing these insurers really promote the ESG importance along with getting behind the mining/energy clientele and rewarding clients in rate and capacity that are making a major environmental impact and ESG shift.”
Despite concerns over capacity, Cairns said there was no shortage of insurance availability for mining and energy operations.
“There’s lots of capacity out there,” he said. “It’s a soft market right now, and truly fluid if you want it. It’s very impressive, and there’s been a ton of capacity in the last year and a half.”
That influx of capital includes domestic players, along with global insurers, Lloyd’s and Asian-backed insurers looking to expand in Canada. From Cairns’s vantage point, business is thriving.
“Sompo is a group that are injecting money into Canada making a big impact for consumers,” Cairns said. “You have the likes of Liberty, HDI, and others which [have] become really open to lots of different risks, lots of capability.”
For brokers like Cairns, success in mining and energy insurance comes down to strategy and relationships.
“This business is not rocket science unless you want to make it rocket science,” he said. “You have to get in front of people and have experience and understandings. You have to have early interactions on pre-renewals and draw up strategy of improvement earlier and often, that’s the bottom line. You have to come with ideas. Clients pay us to act safely and offensively in a transparent and responsible manner – and trust is key, which takes time and years of delivering exceptional results”.
One simple yet effective strategy is adjusting deductibles and being open with your clients on their comfort level.
“It can be the most basic idea of increasing your deductibles and getting people’s feel for how much they want to self-insure,” Cairns said. “Because that’s effectively what it is, right? The higher your deductible is, the more that you self-insure, right?”
Mining and energy companies, he noted, are run by savvy professionals. But he’s critical of brokers who don’t take a proactive approach.
“We’re not order-takers, and the high percentage of brokers are order-takers,” he said. “They ram through the renewal. They don’t update the revenues and operations, which is a material change and makes the policy null in void, potentially – and useless in many cases of the most concern.”
Instead, Cairns takes a data-driven approach, tracking global insurance trends. That level of insight is what separates his firm from the bigger players.
“Global composite rates are down negative 1%,” he said. “If you go back +24 quarters, it was plus 15%. So, clients should be expecting a rate decrease and/or betterment in quality and enhanced coverages and limits, along with the personal relationship plus access and advocacy – all of the above.”
