Climate change and Environmental Social Governance (ESG) will transform the energy industry risk landscape, according to Willis Towers Watson(WTW) at the launch of its annual Mining Risk Review. This transformation is taking place against the backdrop of the impact of both the COVID-19 pandemic and a rapidly hardening global insurance marketplace.

ESG forms the key theme of the report, highlighting that the transition to a low carbon economy requires a fundamental reappraisal of mining company climate risk; the Review shows that achieving a satisfactory ESG rating will be critical in enabling mining companies to attract and maintain the support of key stakeholders in the future.

Other key highlights of the report from an insurance market perspective were:

Capacity: theoretical capacity levels remain broadly similar to last year, although line sizes continue to become increasingly restricted. While in previous years, Willis Towers Watson have reported major insurers withdrawing from coal mining risks, it seems that lobbyist pressure has now moved on to insurers’ involvement in other industries, with only one global insurer pulling out of coal this year.

Losses: It is still too early to provide full details of the significant impact that Covid-19 will have on the Liability and D&O sectors. However, following a series of disastrous losses in 2018 and 2019, the Property loss record for mining seems to be improving, unlike other sectors.

Rating levels: for Property business, rating increases are still modest in comparison to other heavy industries, but retention levels, terms & conditions and sub-limits are all now being significantly affected by the hardening process. However, for the Liability and D&O sectors, rating increases are now much more pronounced.

Underwriting data: the new levels of data required by insurers in terms of underwriting information are proving challenging to buyers; in particular, insurers’ scrutiny of their schedule of values and a growing tendency to impose price caps on both Property and Business Interruption amounts.

George Nassaouati,Head of Natural Resources for Asia, Willis Towers Watson (WTW), said: “China, India, Indonesia are the top three metals & mining markets in Asia accounting for 90% of Asia’ mining production. To meet the surging appetite for economic expansion, industrialisation, infrastructural growth, most of the emerging Asian economies still rely on coal-based power and this leads to increasing coal mining activities. However, slower growth in China and a great focus on renewable energy is quickly translating into lesser coal demand, hence potentially less coal mining. 

In these unprecedented times, the mining industry finds itself is beset by challenges from all sides, as COVID-19 tightens its stranglehold on the global economy and insurance market conditions harden. However, it is the issue of climate risk and ESG that will have a more significant impact on the future shape of the industry. Mining companies must incorporate ESG, above all climate change into their risk mitigation strategies in order to survive in the future.”

He added: “Mining companies need to know how the energy transition is going to affect their industry, why climate change is already transforming their industry risk landscape, how they can play a strategic role in developing their response to this transition and which ESG pressures are going to affect the industry in the future. At WTW, we continue to help mining companies in Asia, especially our key clients in China and Vietnam, navigate this complex risk terrain and manage the transition.”