Q&A: MARSH AFRICA - JSE MAGAZINE

Q&A: MARSH AFRICA

Chester Rambau, client executive of Marsh Africa, on insuring mine operations, the importance of mitigating liability and what 2015 will bring on the underwriting front

Q&A: MARSH AFRICA

Q: What is Marsh Africa’s history?
A: Marsh Africa is part of Marsh, a subsidiary of Marsh & McLennan, which has over 56 000 employees and annual revenue in excess of $13 billion. In 2012, Marsh Africa acquired the Alexander Forbes Risk Service business in SA and their local and correspondent operations across several sub-Saharan countries. Alexander Forbes Risk Services had been operating in Africa for over 75 years, and Marsh since 1989. Marsh Africa now has more than 1 000 employees across the continent and we will continue to develop opportunities that are opening up. We regard Africa as an area with a vast potential for growth.

Q: Which African countries are you active in and what mining services do you offer?
A: Marsh’s presence has increased dramatically since its acquisition of Alexander Forbes Risk Services. Today, the company has a leading presence in nearly 10 countries in Africa, including Botswana, Malawi, Namibia, Nigeria, Uganda, Zambia and Zimbabwe.

Our overall service includes risk management along with enterprise-wide and other specialised aspects; risk finance, from cellphones to full captive insurer management; conventional insurances; specialist insurances including construction, liability, marine and directors; environmental; political risk and kidnap and ransom. We also offer internal and external support services including knowledge management, benchmarking and publications, and claims-management, featuring strategic advice both pre- and post-loss.

Q: What are the biggest differences between working with junior mining companies and the majors?
A: The availability of capital – from a corporate financing perspective – is very distinct as the majors have a lot more to work with. Juniors generally have limited personnel with the necessary skills, knowledge and judgement to identify, measure and handle insurance and risk needs. The big companies have a longer-term view of the cost-to-benefit trade-offs of risk, and greater ability to absorb volatility, which can drive a different view on the cost of funding risks – i.e. insuring them – versus the perceived benefit.

Q: What are the inherent risks in mining various commodities?
A: The more common differences involve the amount of dust, noise and radon fumes present, but risks differ with the type of extraction, whether activities are on the surface or underground, the processing of minerals and the refining process.

Extracting a commodity in one country can be very different to mining that same commodity in another. For example, insurers perceive coal mining as high risk due to spontaneous combustion probabilities caused by the release of methane gas, usually found along with the coal and windblast [a sudden rush of air or gas due to the collapse of a void created behind the roof supports in longwall mining]. But in SA, coal mines have low methane levels and only a few longwall mines have exposure to windblast. Operations are at shallow levels.

Gold and platinum mining is a different story. Here we’re talking about very deep-level mining, in fact the deepest in the world. The temperatures are extremely high and cool air ventilation is critical for workers. Operating conditions are therefore so different to coal mining that they necessitate a distinct set of risk guidelines.

Q: Africa is often associated with lots of business risk. How does it compare to other mining jurisdictions worldwide?
A: There is always inherent risk in doing business on any continent but each has distinct differences. The unique risk elements in Africa are largely operational, for example lack of infrastructure development. Secondly is political instability, such as regime change and civil war. Infrastructure is very pertinent right now because if there are losses it can take a long time to replace machinery and other components due to problems with less developed transport structures.

Q: What risks do mining companies face concerning their employees in Africa?
A: Occupational health and safety is a big one. There is a lack of health standards in certain countries that could compromise the well-being of employees. Then there’s medical evacuation procedures. Most mining companies operating in Africa are foreign domiciled, which means that they send a lot of expatriates to carry out operations in Africa. If there’s a problem, they would need to be evacuated. On that note, expats and locals need comprehensive medical aid cover.

‘The big companies have a longer-term view of the cost-to-benefit trade-offs of risk’

There are also extensions to health policies – cover for business interruption at a mine due to infectious disease that can halt operations. The Ebola outbreak in West Africa is an example. As with other risks, the services Marsh offers in this regard begin with risk management – assessing supply chain impacts and developing continuity plans – before the transfer of residual risk.

Q: What are the greatest risks currently facing the mining industry in SA and the rest of Africa?
A: In SA, labour unrest. Since Marikana, there have been long, ongoing periods of mining strikes and local social unrest. There has been a dramatic increase in mining houses taking insurance cover through Sasria post-Marikana [via the South African Special Risk Insurance Association, Sasria, the government provides cover for civil commotion, labour disturbances, strikes, lockouts, public disorder and political riots]. As for the rest of the continent, it is obviously political instability, such as the continuous civil war in the DRC.

Power shortages, both locally and further north, are another big issue. Mining needs a lot of electricity and when companies can’t get it, this has a huge impact on operations. In SA, mines have had to adapt to loadshedding and have backup generators to ensure that the pumping underground continues and that all employees are evacuated from the mine safely.

Of importance too are broader social issues. There is a great need to engage with communities around mines and consult with them on issues that will impact them.

Current commodity pricing is also a worry. Lower prices could result in mines either closing or being put under care and maintenance – in fact, we are already seeing this impact. Finally, environmental rulings: mines have to be aware of government regulations that can halt operations.

Q: compared to 2014, How is 2015 looking from a labour point of view?
A: We are cautiously optimistic but also concerned that should there be continued wage disputes, they will be longer and more intense. Labour will remain a key strategic risk issue for miners this year.

Q: what impact do labour relations have with regard to risk underwriting?
A: Good relations with workers and unions reduce risk. There are certain classes of insurance that are heavily influenced by labour relations, such as employment practices liability – as well as coverage for strikes, riots and civil commotion.

‘Through these partnerships we are able to access market information in territories where we do not have a footprint’

Q: Information is crucial to underwriting risk. Yet getting relevant, up-to-date DATA in most of Africa remains a problem. How does Marsh go about compiling this?
A: We have a consulting division that carries out risk and underwriting surveys at all mine sites. This provides risk information that we can submit to insurers and negotiate the best deal for the client. Our brokers are also trained to compile details underwriting submissions to the insurance market.

Q: how important are partnerships to Marsh’s African operations?
A: They play a vital role in ensuring that we deliver a consistent level of service to our clients. It is through these partnerships that we are able to access market information in territories where we do not have a footprint. We also have extensive partnerships with insurers right across the continent as well as globally, and it is by utilising these relationships that we can add significant value to our clients’ strategic plans.

Q: in Africa, What aspect of cover do clients look for the most these days?
A: Generally clients are seeking cover for a broad range of categories. These include cover for their assets – whether construction projects or operational assets – including coverage for the earnings they produce, known as business interruption coverage; and coverage for a range of legal liabilities such as professional indemnity, directors and officers.

Then there’s also employment practices liability; third-party liability; employer’s liability; employee benefits cover; and coverage in respect of environmental risks. Finally, there’s coverage to support commercial and corporate activity, such as surety and trade credit and political risk products.

Q: Illegal mining remains a huge problem throughout Africa, and especially in SA. What role does it play in terms of risk-underwriting activities?
A: Illegal mining can have an extremely detrimental effect. It often occurs in unsafe or closed mine areas, and usually leads to incidences underground that result in deaths or injuries. This can seriously impact on a client’s returns in other parts of the mine that are operational and delivering good results.

Q: How are modern risk models affected by environmental challenges?
A: Firstly, mines need to comply with environmental legislation. Noncompliance may result in various disputes with the authorities and social conflicts. These disputes and conflicts have an impact on the competitiveness, future sustainability and business growth of a company, not to mention licensing. Companies need to make provisions for heavy investment in mining rehabilitation to tightly manage these challenges.

By Patrick Farrell
Image: Hanlie Huisamen