Lockton has partnered with a New Zealand-based property company to address challenges related to escalating insurance premiums that have outpaced the growth of the firm’s asset values.
The property company, which manages a nationwide portfolio including assets in high seismic risk zones, faced capacity limitations and found few viable options within the traditional insurance market.
To tackle these issues, Lockton collaborated with the company to establish a captive insurance firm and implement a strategic reinsurance plan. This approach involved comprehensive catastrophe modelling and updated risk assessments at key locations, carried out in conjunction with independent specialists.
Lockton also assisted the client in preparing a tailored insurance submission and presentation for both insurers and reinsurers.
Proactively engaging with the insurance market ahead of policy renewals, the property firm – guided by Lockton – presented its risk profile to a broad range of underwriters. This strategy led to an oversubscription of the material damage & business interruption program, securing more than 175% of the needed capacity.
As a result, the firm was able to negotiate more favourable premium rates and terms, achieving significant savings compared to initial quotes from the lead insurer.
Additionally, the company benefited from ceding commissions from reinsurers, which offset the initial costs of establishing the captive and ongoing administrative expenses.
Lockton is also investigating the use of parametric insurance as a means to mitigate the increasing weather-related risks impacting the mining sector.
With climate change driving more frequent and severe weather events, such as floods, droughts, and cyclones, insurers are becoming more cautious in their underwriting, particularly concerning tailings dams.
Paul Jones, Lockton’s head of parametric solutions for the UK and Europe, explained that parametric insurance offers an alternative to traditional coverage, particularly as the mining sector deals with the growing impacts of climate change.
He highlighted that extreme weather could disrupt mining operations, with risks ranging from hazardous waste spills due to flooding to water shortages during droughts, which affect production processes.
Parametric insurance provides several advantages, including business interruption coverage without requiring physical damage, no deductibles, and faster claims payouts, typically within a month.
Jones noted that this type of insurance could complement traditional policies by filling gaps in coverage. He expects that the mining industry will increasingly adopt parametric solutions to better manage the financial risks associated with extreme weather events.
