Following a number of tailings dam failures, underwriters now require detailed information before they are able to consider offering cover for this critical mining exposure.
Tailings dams can fail for a number of reasons, including natural disasters, flaws in design and construction, and liquefaction.
In January 2019, the tailings dam at the Vale operated Córrego do Feijão iron ore mine in Brazil collapsed, killing an estimated 230 people. The failure triggered a regulatory and industry-wide safety review of tailings dams, leading to the temporary closure of a number of large mines in the country. It also caused Vale to post a USD1.6bn loss in the first quarter of 2019 after the company incurred expenses of USD4.5bn related to physical damage, business interruption and decommissioning.
The Córrego do Feijão mine disaster was just the latest in a number of incidents to involve tailings dams. In 2015, the collapse at the Samarco iron ore mine in Brazil killed some 20 people and caused wide-spread pollution. A year prior, the tailings dam at the Mount Polley open pit copper and gold mine in Canada suffered a partial breach.
Increased regulatory scrutiny
With several major disasters occurring within the last few years, tailings dams are now under increased regulatory scrutiny. In particular, the “upstream” design of the dam involved in the two most recent incidents in Brazil. Closer attention is also being paid to the monitoring and maintenance of dams, as well as the role of independent audits.
The recent disasters have also triggered an international response from the mining industry. In February, London-based mining organisation the International Council on Mining and Metals (ICMM) committed to developing a global standard for tailings facilities to be followed by its members, as well as technical guidance on tailing dam design, construction, operation and decommissioning.
Continued but cautious support
Despite these disasters, the insurance market continues to support the mining sector with cover for tailings dams, although modest sublimits will often apply.
Mining programmes usually cover physical loss or damage and loss of gross profit within the indemnity period. Business interruption typically makes up the lion’s share of any loss, but must be triggered by a physical damage loss. All-risks insurance will typically cover removal of debris and cost of repairing the insured’s property, likely due to any seepage and pollution because of a dam failure. Cost of clean-up to the surrounding environment is excluded from a property damage programme and would normally be picked up in a general liability policy.
Underwriters will always request reputable third party engineering reports to give credence to the information provided to them. In relation to tailings dams this means a growing demand for external audit reports and dam break analysis. Markets are placing greater emphasis on the conclusions of these reports and require insureds to follow up on any resultant risk recommendations. The key is to be able to evidence proper controls are in place with regular maintenance.
We have recently seen underwriters refuse to cover tailings dams where the required information was not forthcoming, and impose restrictions where they were not comfortable with the standard of engineering.
A changing mining market
Following a decade of intense competition, two consecutive years of large natural catastrophe losses and more recently, weather losses in Latin America, the mining market is now firming.
Whilst the property market remains vigorous at present, the Lloyd’s performance review revealing increased oversight of exposures to heavy industry accounts has caused some peripheral markets to reduce their capacity for mining risks.
How we can help
Such a market demands a specialist broker with both the technical knowledge of mining risks and strong relationships with markets across the globe. The latter in particular enabling us to reduce the pricing volatility for our clients by providing a spread of rated security from various geographical territories.
We can also introduce clients to respected mining engineers and valuation companies to help prepare the data and information required by underwriters, and work with clients on how to present findings to get the best results.
Miller has a growing client base in the mining sector, which covers Latin America, Australia and Africa with insurable values ranging from USD250m to USD25bn. If you have a complex or hard to place risk, please contact us.