Don’t throw the baby out with the bathwater
It has been claimed that this phrase dates back to a time when the household shared the same bath. Father would bathe first, then mother, then the children, followed lastly by baby. The water would be so dirty by then that, in theory at least, a baby could be accidentally tossed out with the bathwater if one was over zealous in off-site water disposal. Sounds grim!
Idioms that stand the test of time tend to contain a kernel of truth. This phrase reminds us to recognize the strong foundation of trust people have built between the mining and insurance industries. I’m new to the insurance sector, but I’ve been working in mining since I was a teenager and now that I’m dipping my toe into insurance I’m noticing the water could be a little clearer.
For anybody who is having trouble recognising a metaphor so tortured, I refer to transparency. Two-way transparency is a requirement to ensure trust between parties in a relationship. In seeking to promote a stronger relationship and deeper recognition of the alignment of purpose, miners tend and indeed are required, to be very transparent about the nature of their operations, risk management and exposures.
Insurance is a valuable service for the executives and boards of mining companies. Mining companies benefit from the aggregation of risk across regions, companies and industries. This mitigates the impact of any interruption to production that may otherwise cripple a company or perhaps prematurely end a career.
There are excellent examples where risk engineering services provided by the insurance industry have provided insightful and implementable recommendations to mitigate and even prevent losses. Insurers aim to minimise claims, in part through these recommendations, and miners want to minimise production interruptions. This is a great example of alignment of purpose between the insurance and mining industries.
Information that is more general in nature seems to be much more challenging to access but is arguably equally valuable. For example, if a company can access reliable loss information in the categories, global historical property claims, gross historical property claims for the sector, the relative risk of the company’s operation(s) within the sector an insurance manager worth their salt can paint a picture for decision makers about the insurance market, the performance of the sector overall and the company’s level of inherent risk within the sector.
This translates to:
Transparency benefits insurers as well. Sophisticated purchasers of insurance understand that insurers provide a service and expect that service to include a fair margin.
All these factors inexorably point to a more sophisticated market. This creates opportunities for those insurers seeking to differentiate on the basis of qualitative factors, rather than purely on price.
There is of course a temptation to trade on information asymmetry; in the short run a naïve purchaser may provide additional margin, but insurance is not, or at least should not be, a short run game. Mining companies want profitable insurers so the market is sustainable in the long run and insurers want mining companies to build their resilience to insurable events so there are fewer claims in the long run. Our alignment is based on trust and is best served by increased transparency as we seek to leverage our aligned purposes to strengthen our relationship long term.
The insurance industry is steeped in tradition that sets it apart, provides many of the characters we know and makes insurance such a great industry with which to be involved. We no longer share our baths with the rest of the family to conserve hot water; the application of modern technology like electricity, plumbing and water heating means each family member can enjoy fresh, clear water to bathe. Through the application of new technologies in data analytics and consolidation, perhaps our industries can follow suit, keeping our traditional bath but filling it with some fresh, clear information so we can enhance our aligned purpose and ensure we build a bond between our industries we can proudly pass on to our safe, clean babies.
Brett Forrest is Insurance Manager at South 32 based in Perth, Western Australia.
