Traditionally there is a disconnect between Risk Assessments and the need of corporate Risk Managers to properly prioritize risks, define possible alternatives for mitigation, and/or define reasonable insurance programs.
To discuss the statement above let’s take a fictional mining company, Acme Corp. (AC) and build a case study scenario.
AC has a problem: their “high level” risk assessment and/or Enterprise Risk Management (ERM) system states that scenario #13, let’s suppose “Explosion at the Tank Farm”, is “pink”, or “Oh my God”, or some other fancier verbalization used to qualify the criticality of the scenario in qualitative terms. Another alternative to this scenario would be that the risk rating is “32” in a scale going from “nil to 42” based on some obscure index definition.
Somebody at AC, most likely their Risk Manager, has traditionally purchased a 100M$ coverage for that “pink risk”, but lately the premium has hiked up considerably, as a result of insurers’ general trend to consider mining companies simply “too risky”. At the point and time of this story the traditional AC’s insurer is actually denying renewal of the contract, refusing coverage.
Although this fictional example is a dramatization, it is not very far off serious situations that can actually be solved by having proper approaches to ERM, Risk Assessments and Corporate tolerability to risks. The hike in insurance premium, or the denial of coverage represent indeed a paradigm shift in the mining world, which requires proven and solid tools.
Specific sets of tools helping corporations to find a way in the new world of overpriced, if not impossible, insurances do exist. Read further in this BLOG or Contact us.
First of all the corporation’s main exposures have to be properly prioritized, and compared to the company’s own tolerability criteria. In a second phase the mitigative alternatives have to be selected, and compared.
Oftentimes it will appear that many risks covered by large insurance contracts are actually tolerable, which could lead to reducing them, or even suppressing them if a very aggressive risk management approach is selected by the company.
A well calibrated study will most likely also show that only a very small group of the perceived main exposures stand way above the rest: these are obviously the ones that require top attention, but not necessarily larger insurance coverage: there are many ways to deal with risks by looking at “out of the box” solutions.
As an example, in a recent actual study for a large mining company, a detailed study on their world-wide multi-modal transportation system concluded that the insurance coverage could be dramatically reduced provided alternative solutions are pre-negotiated and properly prioritized. A tool that allows re-evaluation of the situation when commodity prices and other key financial parameters vary was produced.