A Practical Methodology for Business Interruption Insurance

1. Understand the Mining Operation

Document the complete mining value chain:

• Exploration (if applicable)
• Drilling and blasting
• Loading and hauling
• Crushing and screening
• Processing / beneficiation
• Tailings management
• Stockpiling
• Rail / road transport
• Port / export facilities

Identify: annual production (tons), commodity sold, revenue streams, major customers, critical assets.

2. Identify Business Interruption Triggers

Determine events that could stop or reduce production: fire, explosion, flood, slope failure, conveyor collapse, processing plant damage, power failure, tailings dam incident, equipment breakdown (if insured), natural catastrophes.

3. Identify Critical Assets

Rank equipment according to impact on production. Example:

These assets generally dictate the required indemnity period.

4. Determine Maximum Foreseeable Loss (MFL)

Estimate the worst realistic insured event — e.g. fire destroys the processing plant, production stops completely, rebuilding takes 16 months. This becomes the basis of the BI scenario.

5. Calculate Gross Profit at Risk

The insurance definition of Gross Profit differs from accounting gross profit.

Variable costs often include royalties, freight, export charges, fuel linked directly to production, consumables directly related to output.

Fixed costs remain insured: salaries, administration, debt servicing, depreciation (depending on policy), lease costs, security, maintenance staff.

6. Determine Maximum Downtime

Estimate debris removal, engineering, procurement, manufacturing, shipping, customs, construction, commissioning, ramp-up. Example:

Choose an indemnity period longer than the expected recovery.

7. Estimate Reduction in Turnover

8. Calculate Increased Cost of Working (ICOW)

Estimate additional costs incurred to reduce the interruption: hiring mobile crushers, contract mining, temporary generators, equipment rental, alternative haul routes, outsourced processing, air freight of spare parts. These costs are generally recoverable if economically justified.

9. Consider Supply Chain Dependencies

Evaluate single-source suppliers, explosives supply, electricity provider, water supply, rail network, port facilities, fuel suppliers. Also assess contingent business interruption exposures where available.

10. Assess Risk Mitigation Measures

Document redundant conveyors, spare transformers, backup generators, critical spare parts, duplicate pumps, preventive maintenance, emergency response plans, fire protection systems, stockpile capacity. These measures can reduce BI exposure.

11. Select an Appropriate Indemnity Period

Long-lead items such as mills or transformers often justify longer periods.

12. Determine the BI Sum Insured

Example: Annual Gross Profit USD 320m, Indemnity Period 18 months, ICOW USD 25m  →  (320 × 1.5) + 25 = USD 505 million

Scenario Analysis

Model several credible scenarios to test adequacy of cover:

The largest credible insured loss should guide the BI limit.

Final Deliverables

A robust BI insurance assessment for a mining facility should include:

• Description of the mining process and critical operations
• Asset criticality ranking and production bottlenecks
• Maximum Foreseeable Loss (MFL) scenario
• Gross Profit calculation based on policy wording
• Production interruption and recovery model
• Increased Cost of Working assessment
• Supply chain and utility dependency analysis
• Recommended indemnity period with justification
• Recommended Business Interruption sum insured
• Scenario-based BI loss estimates
• Key assumptions, exclusions, and sensitivity analysis

This methodology aligns with common practices used by mining companies, insurers, brokers and risk engineers to establish appropriate Business Interruption insurance limits and support underwriting decisions.