The impact of rising geopolitical tensions on supply chains is worsening volatility in the mining sector, according to a report by Willis Towers Watson.
According to the global brokerage and advisory’s Mining Risk Review, the heightened geopolitical tension, which includes environmental and social pressures on mining companies, has increased the risks of doing business in mining. However, demand is still huge, with global consumption of coal remaining above five billion tons, with China accounting for almost half of this figure.
The review outlined key losses over the past five years and noted a decline in major claims – from 73 in 2017 to 30 in 2018 (to date). It also revealed that the 2017 natural catastrophes did not have as huge an impact on insurance market pricing compared to predictions 12 months ago.
Several other issues tackled in the report include the impact of major re/insurers’ retreat from underwriting coal, increased regulatory pressures in certain regions, such as Latin America, and a possible change in mining insurance market dynamics, as Direct and Facultative (D&F) capacity becomes more restricted following recent losses.
“This is a critical time for the mining sector,” said Graham Knight, head of downstream natural resources, Willis Towers Watson. “Although there were encouraging signs of a rise in commodity prices earlier this year, it is clear that things are looking bleaker for the rest of 2018.”
“Meanwhile, increased geopolitical tensions are clearly posing significant uncertainty for the industry, as is the retreat from thermal coal risks by certain sectors of the insurance market. And as D&F market capacity becomes more restricted, our mining clients may need to look for alternative solutions if they want to mitigate any future volatility in insurance market pricing,” he said.