INSURANCE: Insure for Acid Mine Water Risk
Recent Gauteng Business News
Acid Mine Water (AMW) falls under the category of an environmental catastrophe and typically such risks have short term and long term impacts on the environment, people and society in terms of injury and disease as well as property and financial loss says Aon’s Russell Davis.
Those affected could include private individuals, companies, non-government organisations, society, insurers and government – all of which are potentially exposed to one degree or another to insured and uninsured risks arising from AMW.
Policies that could have a bearing on the situation include: property insurance (assets, interruption), liability insurance (negligence), life and health insurance and social insurance such as Compensation for Injury and Disease cover, (COID).
Points out Davis: “All these policies have sections of cover that either include or exclude effects. However it must be made clear that most insurance policies exclude inevitable, non-fortuitous and gradual losses.
The special Perils extension under an assets insurance policy for instance covers damage by water but does not cover ‘gradual deterioration’ and insurers expect the insured to take all reasonable precautions for the ‘maintenance and safety of the property insured and for the minimisation of damage.’
“AMW risk is not deemed by insurers to be fortuitous. Unless the situation is brought under control the insurance sector understandably views the risk as being inevitable, i.e. it’s not a case of if it will happen, only of when.
“There are moves afoot to find answers to the problem. The South African Insurance Association (SAIA) has formed committees incorporating insurance specialists to discuss possible insurance solutions and reportedly Government and the insurance sector are examining the feasibility of a cell captive insurance structure which would underwrite the risks.
“The current plans also include a short term remedy to pump the water out and put it through treatments to make it useable again.
“Pending such measures however, it makes sense that those at risk think about the potential exposures and how to overcome and minimise them. In other words, everyone in an organisation needs to be aware of the exposures that they have to AMW and to risk manage to ensure business survival.
“Be aware that there is no cover for gradual pollution and that while there is cover for environmental liability, it’s restricted, it’s expensive and only on a spread loss basis under certain conditions.
“These exclude ‘pre-existing/intentional/fines and penalties/bankruptcy of insured’ and the insurers also have conditions of regular audits.
“Liability policies are on a loss occurrence or claims made basis. It’s therefore a question of checking whether cover is still in place, the insurer is still operating and that sufficient limits are in place. Also, statutory legal defense costs will possibly cover legal costs only, but not fines or penalties.
“The most promising solution is the formation of company cell captives as opposed to the SASRIA like structure we referred to earlier, which would presumably receive (compulsory?) contributions from corporates, but which is bound to be controversial and could have a lot of hurdles to overcome before it becomes a fact, if ever.
“Basically in terms of private cell captives, a company puts its capital at risk in the cell structure, thereby automatically creating a risk transfer. The cell captive operates as a cell of the insurance company accepting premium, paying claims, creating reserves, etc.
“Simply put, the company elects to retain additional risk and then provide for the exposure through the payment of a self-insurance premium. Risk in terms of the company’s own exposures and in terms of third party claims is retained but is transferred and a calculated amount of money is set aside to compensate for the potential future loss.
“The company is required to account for their investment in the cell captive and any increase or decrease in reserves will be reflected in their financial statements. The premiums into the cell captive qualify for tax deductibility.“Self-Insurance Programmes of this nature have provided a key element of risk management for many years. However they are an option mainly for larger companies with adequate resources to set up such a structure.
“Smaller companies and individuals that could be impacted by AMW need to start devising and implementing practical risk management methods to manage the exposures. Also, smaller companies and larger ones for that matter could consider forming trust funds rather than cell captives to cater for expected costs in future.
“And everyone can learn from setting up business continuity plans to ensure that if a crisis arises, they already have a plan in place to overcome a catastrophic loss.
“Looking back, it’s alleged that there were inadequate disclosures, failures of treatment compliance and strategies for mitigating the damage arising from AMW. Attempting to obtain redress from any alleged historic wrong in this respect is almost futile.
“The issues are likely to be debated long and hard and may never be resolved. Self help on a case-by-case basis, premised on insurance and risk management offers the most workable solution.”
Business News Sector Tags: Insurance|