Welcome to the October 2024 edition of Lockton’s London Market Report We are pleased to introduce the first edition of Lockton’s Specialty London Market Report. The Specialty Division was formed 18 months ago to provide Lockton’s retail network and clients across the globe with support and advice from the full breadth of London’s Specialty teams. This report provides insight from our Specialty teams into changing market conditions, shifts in risk appetite, new market entrants, and key trends across all Specialty markets. We hope you’ll find this update insightful and that it can serve as a basis for further conversations with our Specialty teams. We are particularly pleased to introduce you to our new Space, Offshore Energy Projects and expanded US Casualty offering. We will produce updated versions of this report on a regular basis in addition to separate, more detailed 'industry vertical' reports. If you have any questions or feedback, feel free to reach out directly to us or the relevant subject matter experts whose contact information you will find on the respective pages.     Blake Roseveare, Specialty Lead / Carl Moore, Chair of Specialty Please click here to view the full report

We are pleased to introduce the first edition of Lockton’s Specialty London Market Report. The Specialty Division was formed 18 months ago to provide Lockton’s retail network and clients across the globe with support and advice from the full breadth of London’s Specialty teams.

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London Market Report October 2024

As the global climate shifts, wildfires are becoming more frequent and intense. The economic and environmental consequences can be devastating, and the need for effective firefighting aircraft has never been greater. Purpose-built firefighting aircraft and their pilots stand at the forefront of this battle, providing essential service in saving property, forestry, and lives, but traditional insurance models have made insuring these aircraft prohibitively expensive. It is essential that insurers, brokers, and insurance buyers work together to improve the insurance conditions for these operations as the need to fight wildfires is set to rise further. The growing need for firefighting aircraft On average, extreme global wildfires have more than doubled in frequency and intensity globally over the past 20 years, according to Scientific research published in Nature Ecology & Evolution. What’s more, a 2022 report by the United Nations and GRID-Arendal found that climate and land-use change will continue to make wildfires more frequent and intense, increasing the number of extreme fires by up to 14% by 2030, and 50% by 2100. While the latter may feel a long way off, some regions are already struggling to deal with the impact. The EU, for example, reacted to the 2023 Greece wildfires by spending up to €720 million on 12 new firefighting aircraft. As wildfires escalate in frequency and intensity, specially built firefighting aircraft will become even more vital in saving land and life. Leading the fight against wildfires Originally designed for agricultural purposes, firefighting planes’ robust design has made them a versatile and effective tool to combat wildfires. But it is a challenging task for the pilot and the aircraft due to a combination of high speed, low-level flights, hazards like birds or trees, and difficult terrains. The aircraft is required to fly dangerously low to ensure accurate water or retardant drops on the fire, often in mountainous or rugged terrains. Pilots also must deal with what is known as ‘fire wind’ —a phenomenon where the heat of the wildfire creates its own weather system, resulting in erratic and strong wind patterns that can quickly change direction and are difficult to predict. Factors such as wind speed and direction, visibility, and different water surface conditions all present risks. Sudden gusts of wind can put the aircraft off course, potentially destabilising the plane or helicopter. In a wildfire situation, poor visibility due to smoke or other adverse weather conditions can add an extra element of risk. The risk to both pilots and machinery is significant, with 14 fatal crashes of firefighting aircraft reported in the US alone since 2020. Mitigating risk through comprehensive training Comprehensive, highly structured, and personalised training programmes are key to reduce operational risk and consequently, insurance premium. Specialised flight academies are committed to providing rigorous training for pilots in initial courses and recurring programmes. This includes ground school and flight simulator training, allowing pilots to practice emergency procedures in a safe, controlled environment. Flight simulators are particularly important, as they allow pilots to recognise the limits of the aircraft and understand how to react safely in dangerous situations. By simulating real-world scenarios, pilots can learn from past mistakes and improve their skills without putting themselves or their aircraft at unnecessary risk. This structured approach to training ensures that pilots are better prepared for the challenges they may face in actual firefighting operations. Training at a flight academy can be tailored to a pilot's individual needs and experience levels. For example, once pilots have completed their foundational training, they can progress to more advanced aircraft. Dual-seat training programme ensures that pilots receive focused, model-specific training, progressing at their own pace based on their abilities and skills. Before a pilot is cleared to operate an aircraft solo, they should complete a set number of hours under supervision, mitigating risk by ensuring adequate experience in both simulated and real-world conditions. Reducing insurance cost The traditional insurance approach has penalised firefighting aviation operators with steep premium due to the high risk the deployment poses to the aircraft and the pilot. From an insurance perspective, a high level of training provides significant risk mitigation and a key factor in lowering insurance premium. Simulated emergency procedures, real-time scenario training, and data-driven flight analysis all provide underwriters with the assurance that pilots are well-prepared for the hazards they may face. These initiatives address underwriters' concerns, from pilot performance to aircraft safety culture. Evidence of strong risk mitigation practices allows insurers to provide fairer, more reasonable coverage, ensuring that these aircraft can continue combating wildfires. Insurers should also have an interest in reducing the insurance costs for such operations to promote and support firefighting activity. These aircraft provide invaluable service to many stakeholders with clear environmental, social, and governance (ESG) benefits: they protect communities, save ecosystems, protect the global climate, and prevent greater (insured) economic losses. By offering fairer collaborative premium to operators, insurers can recognise the value of the task these firefighting operations perform. For more information, please visit our Aviation page or contact your Lockton representative.

As the global climate shifts, wildfires are becoming more frequent and intense. The economic and environmental consequences can be devastating, and the need for effective firefighting aircraft has never been greater. Purpose-built firefighting aircraft and their pilots stand at the forefront of this battle, providing essential service in saving property, forestry, and lives, but traditional insurance models have made insuring these aircraft prohibitively expensive. It is essential that insurers, brokers, and insurance buyers work together to improve the insurance conditions for these operations as the need to fight wildfires is set to rise further. 

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Reducing the cost of insuring firefighting aircraft

Green walls (also referred to as living walls or vertical gardens) have become increasingly common within our urban landscape. Typically incorporated into the vertical structures of buildings, they are promoted to boost biodiversity, reduce air pollution, and help promote wellbeing. Green walls can also influence the property risk considerations of the associated building or structure, particularly the potential for fire, water, and wind damage. When considering the design, installation, and management of green walls, engage with your broker and involve insurers early to help ensure any property risks are understood, managed, and that any underwriter concerns are addressed. Types of green walls Green walls can be categorised in different ways and summarised into four main types (as reported by RISCAuthority, a research scheme funded by UK insurers: Wire trellis or net systems for climbers Plants grow vertically via a series of wires or nets Troughs Modular or stacked troughs fixed or restrained to structures with climbing, trailing or upright plants. The troughs can be manufactured from materials such as wood, plastic, or metal. Fabric based systems Typically manufactured from textile fixed to structures with pockets or slits for the plant roots. Modular panel-based systems Typically, rigid panels manufactured from plastic or metal and fixed to structures. The panels may also form a rainscreen element to the structure. The panels contain the growing media and are typically delivered ‘pre-grown’. Property risk considerations Green walls can be installed on a range of buildings, both large and small. By definition, the walls contain combustible components and, if not properly designed and maintained, can introduce property insurance challenges, potentially increasing insurer loss estimates (influencing the potential for fire spread) and impacting risk quality. Challenges include: Combustibility of the planted system Combustibility of plastics or other materials within the green wall system Management of penetrations such as windows and vents to prevent fire ingress and spread into the building and void areas Water and wind damage potential Potential impact to the building and surroundings if the green wall was allowed to dry out Green walls need effective management and controls to remain a living system and avoid drying out. There have been instances where green walls have turned brown (e.g., due to irrigation failure). The risk of external fire spread is significantly increased in these circumstances with a potential impact on property insurance, building occupation, exposure to other nearby buildings and other compliance issues. Guidance to help manage property risk. The Fire Protection Association’s (FPA) RISCAuthority has released new guidance to support all those involved with green walls, from designers to suppliers, owners to insurers. The guidance was prepared in a collaborative exercise involving UK insurers and living wall providers. The document includes a detailed questionnaire to gather information on green walls together with detailed background information and guidance. It also includes a scoring matrix which could be used by Authorities Having Jurisdiction (AHJ) such as building control, insurers or fire authorities and can help other stakeholders understand the potential assessment approach by an AHJ. Overall, the guidance provides a set of core principles and a methodology to gather information and assess the characteristics of green walls for property risk management and insurance purposes. The principles cover key topics, including: appropriate fire testing clear record keeping fire risk assessments system information emergency plans maintenance construction materials (using non-combustible materials wherever possible) design (including fire risk and ease of repair) upkeep (including irrigation and management of hot work) The process starts with Principle 1: ‘Engage with all stakeholders at the earliest opportunity and maintain dialogue for the entire lifecycle of the building’. For further information, please visit the Lockton Risk Control page.

Green walls (also referred to as living walls or vertical gardens) have become increasingly common within our urban landscape. Typically incorporated into the vertical structures of buildings, they are promoted to boost biodiversity, reduce air pollution, and help promote wellbeing.  

 

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Inside Risk: Managing the risk of green and living walls 

The market for insuring satellites in orbit has seen many developments, but space itself continues to be a challenging environment. The satellites we launch to space must survive years of intense solar radiation, damaging vacuum conditions and temperatures ranging from minus 150C to plus 200C. This means that sometimes – despite careful design, highly-regulated manufacturing, and stringent testing - parts can fail. Indeed, that is why space insurance – as a class – is  as a crucial risk mitigation measure, not only for satellite operators and manufacturers but also for those seeking finance for new space missions. When you consider that a single communications satellite can generate $100-200m a year in revenue – potentially repeated across a fleet of up to 30 spacecraft - the advantage of placing insurance to cover lifetime in orbit becomes clear. The challenges Although space insurance may seem like a new concept, it dates back to 1965 when the first policy was issued for the Intelsat I satellite. It was restricted to Third Party Liability and Pre-Launch risks, but it marked the beginning of a  space insurance market.  The field has developed over the past six decades to meet the requirements of satellite operators and has reached a certain level of maturity. However, the space insurance market is continually faced with two major issues: the relatively small statistical sample and the pace of technology development. The first is a result of the simple fact that the number of insurable satellites compares miserably with, for example, the much larger number of Airbus A330s or Boeing 737s in operation. The constant desire to innovate is a natural process in any field of engineering , but it doesn’t sit well with an underwriting focus on equipment heritage and reliability. The overall result is a volatile market in which a couple of major claims can decimate a year’s premium income. For example, in 2023/24 claims have greatly exceeded premiums and rates have risen dramatically as a result. An inherent problem with satellites is the relative inaccessibility of their operating environment. Most communications satellites are stationed 36,000km above the Earth’s surface, which means that if anything goes wrong, we cannot simply send a maintenance crew to fix it. However, this is where technology development may come to the rescue - in the form of a suite of technologies collectively termed in-orbit servicing (IOS). Orbital repair A number of space agencies and industry contractors are currently expanding the envelope of space operations by developing spacecraft to dock with and take control of satellites. The aim is to extend satellites’ operational lifetimes. This has already been demonstrated by Northrop Grumman, Astroscale and others. Meanwhile, other vehicles that resupply a satellite’s  propellant are being tested.  The ultimate intention is that  ‘space tugs’ with robotic manipulators will be able to readjust or replace some failed components, many of which will be produced in space by 3D printing and other manufacturing techniques. This would go some way towards normalising space insurance in comparison with other classes. The hope is that being able to fix a problem in orbit, rather than making a claim for the entire cost of a disabled satellite, will dramatically reduce claims costs (especially since replacing a large satellite can cost hundreds of millions of dollars). This, in turn, would reduce the overall volatility of the space market and potentially attract other insurers, thereby enhancing market capacity. Lockton Space There are quite a few ‘technological ducks’ to get in a row before we can declare the satellite-repair problem ‘solved’, but the promise of in-orbit servicing is  the space insurance community, not least Lockton’s new Space team, based in London. In fact, the team is looking even further ahead, as the space industry develops commercial space stations in low Earth orbit and conducts a structured return to the Moon for both automated spacecraft and crewed missions. If the often-discussed concept of lunar mining is to become reality, it will require communications and navigation satellites in lunar orbit (like the ones we have around the Earth) …and they will require insurance. The space insurance market has never been shy of a challenge - and the next few years will test its resolve to the limit – but the team at Lockton Space looks forward to this new opportunity. For further information, please contact the author of this article or your Lockton representative. 

The market for insuring satellites in orbit has seen many developments, but space itself continues to be a challenging environment. The satellites we launch to space must survive years of intense solar radiation, damaging vacuum conditions and temperatures ranging from minus 150C to plus 200C. This means that sometimes – despite careful design, highly-regulated manufacturing, and stringent testing - parts can fail.

Photorealistic 3d illustration of a satellite orbiting the Earth..World map texture credits to NASA: https://visibleearth.nasa.gov/images/74218

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Space insurance: the promise of in-orbit repair

Climate change poses several challenges for viticulture. Grapes are vulnerable to changes in temperature, precipitation, water availability, pests and diseases, and extreme weather events. Changes in weather patterns are becoming less predictable and they can have significant impacts on the yield, ripening, sugar content, acidity, phenolic compounds, and aroma of the grapes. In this article, we will look at the impact of climate change on five major wine-producing regions: South Africa, California, Chile, Europe and Australia. We will also discuss some of the adaptation and mitigation strategies that viticulturalists have implemented or are planning to implement in response to the changing climate. 

Climate change poses several challenges for viticulture. Grapes are vulnerable to changes in temperature, precipitation, water availability, pests and diseases, and extreme weather events. Changes in weather patterns are becoming less predictable and they can have significant impacts on the yield, ripening, sugar content, acidity, phenolic compounds, and aroma of the grapes.

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 Mitigating the climate change impact on vineyards

Aerosols are a familiar sight in our daily lives, providing the easy application of deodorant, cleaning materials, paint or other products in our home or workplace. However, aerosols can also contain flammable substances as well as  flammable propellants, such as propane or butane which can easily ignite and lead to rapid fire spread. In a fire, containers can rupture, producing jets of flame and projectiles, spreading the fire, and making firefighting more difficult. The smoke from the resulting fire can pose additional health risks. Robust property loss controls are therefore needed to manage the storage and handling of aerosols. Understanding the risk Not all aerosols are the same. Lower-hazard aerosols can include water-based toiletries such as shaving foam or carpet shampoo. Water-miscible flammable liquids such as hairspray or windscreen de-icer present a higher hazard. The highest hazard category includes insoluble flammable and combustible liquids, such as spray paints and vehicle engine cleaning products. The hazard and flammability classification of aerosols can depend on the country and code being used. Two example classification systems are provided below: Mitigating the risk of aerosols The assessment of property risk and associated control measures will depend on factors such as the aerosol classification, the location and quantity stored. Several considerations are provided below when storing aerosols in bulk within commercial and industrial situations: Risk assessment: Conduct a formal risk assessment and review and update existing controls in accordance with local fire safety legislation such as the Regulatory Reform (Fire Safety) Order 2005, Dangerous Substances and Explosive Atmospheres Regulations 2002 (DSEAR) and, where larger quantities are stored, major hazards legislation such as the Control of Major Accident Hazards (COMAH) Regulations and Planning (Hazardous Substances) Regulations. Property protection and business resilience: Reinforce the risk assessment by considering property protection and business resilience features, such as fire divisions and fire protection systems. These will help to keep losses small and accelerate business recovery. Liaise with your broker and property risk engineering provider for more information. Storage: Carefully consider the storage of aerosols to limit the likelihood and severity of an aerosol fire. Where aerosols are stored in bulk, segregate and isolate storage, ideally in a separate building in a cool and ventilated area to prevent the build-up of flammable . Where this is not possible, store the aerosols in a dedicated fire compartment or enclosed within stout steel mesh cages of limited size and with self-closing doors. Smaller quantities should be stored in a dedicated container such as a metal gas cylinder storage cabinet. Avoid accidental damage of aerosols and have a process to manage containers should damage occur. Ignition sources: Identify potential ignition sources, ensure they are well-controlled and away from aerosols. This includes managing activities on site such as hot work, electrical equipment, sources of heat and smoking as well as other sources such as arson, exposure to external fires and lightning. The movement and charging of forklift trucks (or similar) is a common potential source of ignition and such equipment should be suitably specified and managed for the aerosol hazards. Management systems: Ensure appropriate management systems are in place including training of personnel, housekeeping (avoiding the build-up of combustible materials or packaging) and emergency procedures. Fire detection and protection: Install appropriate fire protection systems. Sprinklers can help prevent a fire spreading to involve aerosols and potentially limit a fire involving aerosols. Other considerations include fire detection, alarms, extinguishers, and fire water for manual firefighting. Emergency and incident response: Develop and practice emergency plans to help contain and suppress the fire (where appropriate) and evacuate personnel from the area. Ensure good access and information is available for the responding fire brigade. Following any incident, conduct a thorough investigation to identify any control failures and implement corrective actions. Education and training: Regularly train staff of the dangers of aerosols including handling, storage and emergency and incident response procedures. Clear signage should indicate where aerosols are stored and their associated risks. For more information to assess and manage the handling and storage of aerosol,  the relevant  guidance. Examples include: RC19: Recommendations for the storage of aerosol products. 2015. Fire Protection Association https://www.thefpa.co.uk/resource-download/327 NFPA 30B: Code for the Manufacture and Storage of Aerosol Products. 2023. National Fire Protection Association. https://www.nfpa.org/for-professionals/codes-and-standards/list-of-codes-and-standards/free-access Property Loss Prevention Data Sheets 7-31. Interim Revision July 2024. FM Global. https://www.fm.com/resources/fm-data-sheets 

Aerosols are a familiar sight in our daily lives, providing the easy application of deodorant, cleaning materials, paint or other products in our home or workplace. However, aerosols can also contain flammable substances as well as pressurised flammable propellants, such as propane or butane which can easily ignite and lead to rapid fire spread. In a fire, containers can rupture, producing jets of flame and projectiles, spreading the fire, and making firefighting more difficult. The smoke from the resulting fire can pose additional health risks. Robust property loss controls are therefore needed to manage the storage and handling of aerosols.

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Inside Risk: Aerosols – managing the property fire risk

Logistic firms are extending their offering. They now provide end-to-end services, covering the complete logistic cycle: starting with procurement and distribution, transport, delivery to the customer and ending with return logistic. The evolution of the sector and its changing scope has far-reaching impact on logistic firms’ risk exposure.  Expanding service offering The expansion of logistic services to manage more elements of clients’ supply chains is driven both by clients’ needs and logistic firms’ growth aspirations. Following the rapid growth of e-commerce, logistic clients are requiring tailored, efficient, and comprehensive logistic solutions. This entails end-to-end visibility across the transport life cycle. To persevere in this competitive environment, logistic clients require a wide range of support services, including advisory and supply chain consulting services, reverse logistic, data and analytics capabilities, e-commerce channel management capabilities and even algorithms that match demand and supply. For logistic firms, this offers an opportunity to rethink the scope and end-to-end nature of their services, to integrate more capabilities across the logistic value chain, and to create a deeper, broader, more customer-focused approach to service delivery.  For logistic firms it is often easier to expand or diversify their services by acquiring a business that already delivers the products or services required. However, this brings a measure of risk associated with integration, including culture, financial parity for employees, legacy claims, or other contractual exposures.  Lockton’s Risk Control Services have provided risk management advice to logistic firms in the process of expanding their service offering via acquisition. For example, a logistic firm took over some operations from a UK based malting company which produces malt for whisky distilling and brewing. The logistic firm extended operations to include grain storage and are now working with farmers to supply grain for the core business, creating a “field to glass” model. Advantages include enhancing the traceability of the product and, by working with farmers, aligning the strategy with sustainability goals. Perhaps most importantly, by overseeing and combining grain storage and supply, the logistic firm is making a vital element of the supply chain easier and more efficient. However, the strategic move is also transferring new risks to the logistic firm with potential exposures; including the unavailability of product if there is a disruption and susceptibility to severe weather events affecting harvests.  In another instance, a logistic firm acquired a UK provider of major infrastructure engineering services to enhance service capabilities. During the process, the logistic firm encountered integration challenges. With hindsight, the business noted that it should have had greater confidence in its core management structures and focused on defined strategic goals to better manage the integration instead of relying on some of the expertise coming from within the acquired company. In the US, logistic firms are taking on more cargo operations. A widespread risk sweeping across the industry is cargo theft through fictitious pickup. Thieves gather enough information on a shipment awaiting pickup and send an impostor trucker to pick up the load before the legitimate carrier. As the carrier did not collect the load, the full value falls upon the freight broker and their insurers for liability.  Furthermore, some US logistic companies are acting in the capacity of freight broker. The risk of nuclear verdicts in the highway accident space creates the need for Contingent Auto insurance. This protects the broker against third party suits claiming vicarious liability or contributory negligence despite the broker being at arms-length to the carrier.  One note to add is that many logistic providers will develop their own software to best fit client needs and, in many cases, will provide this software as a service to clients. While Software as a Service can represent a great business opportunity, it also adds new risks to logistic firms. Cyber Liability, Technology Professional Liability, and legal compliance are areas that require added focus with this new . Risk management recommendations  Logistic firms expanding into new areas need to conduct a thorough risk analysis of the new business to understand the risk environment they will be entering. This is necessary not only to identify potential challenges but also to develop solutions to mitigate against them. Areas of focus that may need to be understood include:  An unfamiliar regulatory environment  Potential financial exposures – including contractual penalties, adverse terms, hidden costs etc.  Market constraints and trends including the competitive landscape  Furthermore, logistic businesses will need to evaluate the extent to which a new enterprise is aligned with core strategic values and objectives. This includes evaluating the extent to which the planned expansion is within the ’s current risk appetite and risk tolerance. The logistic firm will also need to decide if it has the technical skills and knowledge to oversee the new enterprise and deliver anticipated outcomes. If wholly reliant on the expertise within the new entity, this could present an unacceptable exposure.  Finally, bringing previously outsourced services and products inhouse can increase supply chain risks and reduce the ’s resilience. At the same time, having a single internal source to maintain strong relationships as opposed to multiple external suppliers can also be advantageous.  For further information, please contact the author or your Lockton representative. 

Logistics firms are extending their offering. They now provide end-to-end services, covering the complete logistics cycle: starting with procurement and distribution, transport, delivery to the customer and ending with return logistics. The evolution of the sector and its changing scope has far-reaching impact on logistics firms’ risk exposure. 

Supply Chain Management - SCM - The Coordinated Process of Producing and Delivering Goods and Services from Suppliers to Consumers - Conceptual Illustration

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Managing logistic firms’ risks as service offering expands 

In a significant ruling for the marine insurance industry, the High Court of England & Wales has confirmed the enforceability of “pay to be paid” clauses in marine insurance policies.  What is a “pay to be paid” clause?  The “pay to be paid” concept stipulates that an insurer’s obligation to indemnify an insured only arises after the insured has paid the third-party claim in question and has consequently discharged the relevant liability.   Such a rule applies to all marine insurance policies, including P&I.  The background   MS Amlin Marine NV on behalf of MS Amlin Syndicate AML/2001 -v- King Trader Ltd & others (Solomon Trader) EWHC 1813 (Comm)  Owners: King Trader Ltd (owners of the Solomon Trader)  Charterers: BMC  Charterers’ insurer: MS Amlin  The owners fixed the vessel to the charterers under a time charterparty dated 29 May 2017. BMC held a charterers’ liability insurance policy with MS Amlin, effective from 1 April 2018 for 12 months.   On 4 February 2019, the vessel grounded in the Solomon Islands.  In March 2023, arbitrators from the London Maritime Arbitrators Association (LMAA) found BMC liable to the owners and their P&I Club in respect of the grounding for a total award amount of US$47 million.   BMC’s liability insurance included a “pay to be paid” clause, and MS Amlin argued that it meant that no indemnity was payable unless BMC had first discharged liability towards the owners. The Court had to consider whether this clause was enforceable considering BMC’s insolvency.    The High Court decision  The Court ruled that the “pay to be paid” clause was enforceable. It held that such clauses are common in marine insurance and are intended to ensure that insurers are only liable to indemnify once an insured has discharged its liability.   The Court further found that there was no inconsistency between the “pay to be paid” clause and the main purpose of the charterers’ liability policy, which was to provide liability cover.   The Court has also addressed the applicability of the Third Parties Act 2010. This Act transfers the rights of the insured to third parties in the event of insolvency.   The Court held that while the Act allows third parties to claim directly against insurers, it does not override “pay to be paid” clauses in marine insurance contracts, except in cases involving death or personal injury, which was not the case in the circumstances.  The consequences  The “pay to be paid” concept is now a protected right of the insurers and cannot be challenged as per this recent High Court decision. This means that even if there are contractual contradictions between the marine insurance policies and other documents, the “pay to be paid” clause will prevail.   We should therefore expect marine insurers to rely on this rule and resist any direct third-party actions.   Also, this court decision  the need for every insured to manage their financial responsibilities and be ready to discharge  any claim and liability before claiming any reimbursement from their insurers.  At the same time, we recommend any insured to carry out due diligence when dealing with a new counterparty to ensure their credible financial standing. This is to to avoid situations of insolvency which may deprive the insured of their right to claim against the insurer on the basis of the “pay to be paid” rule.      For further information, please contact the author or your Lockton representative. 

In a significant ruling for the marine insurance industry, the High Court of England & Wales has confirmed the enforceability of “pay to be paid” clauses in marine insurance policies. 

Lady Justice on top of Old Bailey the Central Criminal Court of England and Wales in London

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“Pay to be paid” clause: consequences of the High Court’s marine ruling  

Extreme weather events such as floods and droughts, and natural catastrophes like tropical cyclones are major causes of disruption in the mining sector. As such events are expected to increase in frequency and severity, insurers are becoming more cautious in their underwriting approaches, particularly for tailings dams. Parametric insurance can offer an attractive alternative solution, filling the gaps in the traditional insurance  . Extreme weather events Scientists are warning that a warming climate is making extreme weather events more frequent and severe. Warmer temperatures increase the amount of moisture the atmosphere can hold, making heavier rainfall in a shorter space of time and in smaller areas more likely. Further, average temperatures in the Arctic have risen faster than the global average. This is causing the jet stream to slow, increasing the likelihood of heat domes. Such heatwaves can worsen droughts by drying out the soil. The map below shows regions where multiple severe impacts may occur at similar times at 4°C of global warming above pre-industrial levels. 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. Source: Met Office The impact on mining operations The environmental impact of such weather events can disrupt supply chains across different raw materials, mining sites and climatic zones. For example, flooding, following heavy rain or surges, can cause hazardous or toxic waste storage to spill and disrupt operations. Insurers are particularly concerned about tailings dams. They can fail for many reasons, including floods caused by heavy rain, tropical cyclones, snow melt or storm surges. Tailings dams can represent a big risk for insurers as a failure can not only result in extensive environmental damage, but it can often also destroy livelihoods, damage infrastructure, and even cause fatalities. However, having too little water also poses risks to mining. Droughts can lead to water shortages, affecting both environmental aspects (e.g. less water available for dust suppression) and supply aspects (e.g. water-intensive production processes need to be slowed down). In addition, increased water stress might intensify water competition between mining and other water users (e.g. communities or agriculture). This is of particular concern to 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. Alternative protection Parametric solutions can help protect mining businesses against weather-related losses and the consequent non-damage business interruption. Parametric policies respond when pre-defined parameters (triggers) are met or exceeded. The client must suffer a financial loss due to a triggering event taking place but unlike traditional insurance, there is no need for loss adjusters to determine the loss and there are no exclusions for any assets or business interruption losses. For floods and droughts, the obvious trigger for a parametric insurance policy would be rainfall. There are various data sources available to insurers to measure and trigger policies. It is key that the data source is independent of both the client and the insurer to ensure complete transparency in the contract. Lockton works with several data providers to structure and price a solution that suits the mining company’s needs. Benefits of parametric insurance 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 . Advantages:  Business interruption doesn’t require a physical damage trigger There are no deductibles Contracts are transparent and simple Claims are usually recovered within one month as there are no lengthy loss adjuster requirements Example of a mining company in Peru  Main purposes of the coverage: Cover deductible Cover self-insured retention (SIR) Cover sublimit of the tailings dams Cover physical damage/business interruption in their location Cover any contingency that could happen in supply chains While there is no need for loss adjusters for parametric insurance claims, clients need to present proof of loss declaration signed and . Depending on the insurance company, some of them require presenting financial statements and invoices as part of the claims process. Parametric insurance will keep growing in the mining industry because it can fill the gaps in traditional insurance programmes. At Lockton we can create tailor-made structures that leverage data-driven triggers that can stabilize your business’ cash flow and reduce downtime. For further information, please contact the author or your Lockton representative.

Extreme weather events such as floods and droughts are major causes of disruption in the mining sector, but also natural catastrophes such as tropical cyclones continue to cause disruption. Because such events are expected to increase in frequency and severity, insurers are becoming more cautious in their underwriting approaches, particularly for tailings dams. Parametric insurance can offer an attractive alternative solution, filling the gaps in the traditional insurance programmes.

Huge iron ore quarry opencast mining of iron ore opencast mining.

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Parametric solutions: mitigating extreme weather risks in the mining sector

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