Lockton highlights benefits of parametric insurance for mining sector
Lockton highlights benefits of parametric insurance for mining sector | Insurance Business New Zealand
Catastrophe & Flood
Lockton highlights benefits of parametric insurance for mining sector
Solution spotlighted as sector continues to face impacts of climate change
Catastrophe & Flood
By
Roxanne Libatique
Lockton is exploring the use of parametric insurance to mitigate the increasing weather-related risks faced by the mining sector.
With climate change driving more frequent and severe weather events such as floods, droughts, and tropical cyclones, insurers are becoming more selective in their underwriting processes, particularly concerning tailings dams.
Paul Jones (pictured), Lockton’s head of parametric solutions for the UK and Europe, highlighted that parametric insurance presents an alternative to conventional insurance methods as the mining sector faces the worsening impacts of climate change.
Increasing frequency of extreme weather
Climate scientists indicate that a warming climate is contributing to more intense and frequent extreme weather events.
Higher temperatures mean the atmosphere can hold more moisture, leading to heavier rainfall over short periods and smaller areas. Furthermore, rapid temperature increases in the Arctic are slowing the jet stream, increasing the occurrence of heat domes that intensify droughts by drying out the soil.
Jones noted that several regions projected to face significant impacts from 4°C of global warming include key mining areas.
“These impacts include extreme heat stress risk, river flooding, drought, and wildfire risk. Many of the regions expected to be affected are also traditional mining locations,” he said.
Effects of extreme weather events on mining operations
Jones said that extreme weather events disrupt environmental conditions, affecting supply chains across various raw materials and mining sites.
Flooding, for example, can lead to hazardous waste spills and operational interruptions. Tailings dams are a major concern for insurers due to their susceptibility to failure from heavy rain, cyclones, snowmelt, or storm surges. Such failures can cause significant environmental damage, infrastructure destruction, and even fatalities.
Droughts also pose considerable risks by causing water shortages, affecting both dust suppression and water-intensive production processes. Increased water stress can lead to competition between mining operations and other users, including communities and agriculture, raising concerns for governments and local authorities.
“A combination or sequence of extreme events can amplify the impact: a wet weather event during a period of prolonged drought can worsen the impact on mining and processing operations,” Jones said.
Benefits of parametric insurance solutions
Jones highlighted the benefits of parametric insurance solutions, including:
coverage for business interruption without requiring physical damage
no deductibles
transparent and straightforward contracts
faster claims recovery, typically within one month
“Traditional insurance policies include a number of conditions and limitations, exclusions, and self-insured retentions that are assumed by the insured. Where insureds or captives want to reduce their exposure beyond what the traditional insurance market will offer, parametric insurance can supplement that cover and fill gaps left in the risk transfer program,” Jones said.
He expects the mining sector to see increased adoption of parametric insurance as it provides gaps left by traditional insurance.
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