Drissa Traoré, deputy managing director of SanlamAllianz Burkina Faso, discusses the opportunities that the Burkinabè mining sector offers to the local insurance industry. Traoré disagrees with the argument that local insurers do not have the necessary expertise to take on the risks related to the extractive industry.
Ranked among the five best gold producers in Africa, Burkina Faso has been experiencing a mining boom in recent years. What opportunities does this sector offer to the national insurance sector?
The mining sector is very strategic for our economy. It is a large chain that goes from research to exploitation, through the construction phase of the mine, including the rehabilitation phase. At all these phases, there are people working with enormous capital invested in terms of goods. So there are risks related to mining activities—risks in case of accident, illness, goods destructions etc. that insurers are trying to capture, by offering suitable products and assure their distribution.
The risks of terrorist attacks also exist and are insurable in our market. There are also risks associated with the transport of gold bars, from the production until sale. All these risks also exist at the level of mining companies’ subcontractors, in particular those who provide catering, equipment, transport, maintenance, etc. In view of this range of risks, it is safe to say that the mining sector brings a lot of premiums to insurance agents.
Are local insurance companies able to capture all these opportunities?
Yes. There is the article 308 of the CIMA Code, which requires the insurance company to have a local domiciliation. As a result, mining companies, which are generally multinationals (even if nationals take more and more parts), are obliged to take out insurance contracts with insurers established in Burkina Faso. Even if there are losses, there is a huge effort that is being made to ensure that contracts are issued to Burkinabè insurance agents and particularly with the “local content” law.
More concretely, what risk coverage do local insurance companies offer to the mining industry?
Behind the risk mapping, Burkinabè insurance companies are sufficiently equipped to offer a whole range of products adapted to these risks, because there is the co-insurance and reinsurance technique that supports them.
In terms of products, we offer health insurance policies for mining staff (and their families) and mining companies individual accident policies in case of death and disability. In terms of life insurance risks, there is the end-of-career indemnity to manage social liabilities, temporary death from any cause and coverage of bank loan risks for staff related to death or loss of career.
Beyond this life insurance component, there is non-life insurance, which takes into account products such as civil liability (CL) taken out by both mines and subcontractors, the CL of social representatives, the “all-risk construction”, the transport contract for the displacement of construction materials to the mine, the displacement of gold bars and the operation process.
We cover operation sites in case of fire and other risks, the rolling material (car insurance) policies, violence, terrorism (PVT) contracts and the aviation contracts.
In addition to the insurance companies that benefit from these premiums, there is a set of taxes that are paid to the government, such as insurance taxes and control fees in the order of 1.5% from the issued premiums. This contributes to the mobilisation of resources for the government budget. The mining sector has a huge impact on the turnover of insurance companies, even if aggregated data on the share of this sector are not available.
Mining is considered to be a capital-intensive sector with a high level of technicality, for which the local insurance industry does not have the necessary skills to ensure optimal coverage of the related risks. Is this a factual criticism?
This is a wrong criticism because the insurance technique is universal. What the Burkinabè insurance agent does is the same as what a Brazilian or American insurance agent does! We all use reinsurance, because no company in the world can insure the risk 100% on its own.
All insurance companies with a licence on the Burkinabè market have the capacity to cover mining risks. And we are fighting to ensure that insurance in the mining sector is not taken out abroad, because we have the capacity to do so, especially through the mechanisms of co-insurance and reinsurance. I insist, this is a criticism that is not fair! We have all the skills at the local level.
We should therefore not hide behind certain considerations to get premiums out of our country. The proof is that we insure large mining companies established in Burkina Faso. For example, at SanlamAllianz Burkina Faso, we covered and paid the Natou Mining claim for more than 4 billion CFA francs (US$7.1 million). This means that no matter how much the claim is, we can pay.
The same is true with the damages at Houndé Gold where the following day, we ensured the continuity of the work in the mine. The payment also followed without any problem. The list is long on the market in terms of compensation. All this shows the market has technicality and skills. We have the technical arsenal that allows us to no longer outsource bonuses from the mining sector.
I welcome the creation of the national reinsurance company, Faso-Ré, which will be able to capture a part of the reinsurance business ceded in our country (premiums conservation), and which will also contribute to the regulation of the insurance sector. Our wish is that insurance companies get more organised so that they can keep premiums as much as possible in order to make investments in our country by creating insurance pools for underwriting in the field.
Despite the existence of the expertise, are there not still constraints or challenges for Burkinabè insurance companies to meet for better coverage of mining risks?
There are no particular constraints because the legal arsenal is there, especially with the current policy on local content, which means that we are increasingly interested in the nationality of the insurance agents in place. There is this obligation to subscribe 45% of the premiums to local insurance companies whose majority shareholder exceeds 51%.
We have engineers and managers who are sufficiently trained to do the job to meet the expectations of mining companies. The constraint lies rather on the side of investors who may have international networks and who may wish to outsource the coverage of their risks to their networks established at the national level because of the international rating constraints of their partners.
In other words, on the field, there are mining companies that outsource their risk coverage outside the country?
At the beginning, there were cases. But today, with the pressure and the surveillance carried out mainly by the Ministry of Mines, within the framework of local content, these cases are becoming very, very reduced. As a result, these constraints that we had at the beginning are starting to shrink, because mining companies and subcontractors are obliged to send all their annual budgets in advance to the Ministry of Mines. This makes it possible to carry out the control and ensure that 45% is placed with local companies and that all policies are underwritten at the national level.
What can be done to further optimise the share of local insurance companies in the mining sector?
We are in a global world where investors who are in the mining sector, very often, find themselves in strategic sectors such as banking or insurance. For a certain number of investments, which are practically the very heart of the mine, such as heavy machinery and equipment covered in “overall damage”, they tend to place these risks in their insurance and reinsurance networks.
The other difficulty lies in the fact that mining companies want to deal with internationally listed insurance companies, especially with regard to global-damage risks to facilitate the negotiation of premium levels and to obtain commercial conveniences in case of a claim. As for local risks, such as cars, freight transport or health insurance, we don’t necessarily need to invest them elsewhere; all local insurance companies can take care of them without any problem.
To counter this argument of mining investors, shouldn’t local companies also tend towards this stock market listing?
This is correct but the real problem lies in the convergence of interests of mining investors, who invest in strategic sectors such as mining, banking, insurance and hospitality. There is therefore a chain of business that is organised around the mine and that guides the partnerships. Otherwise, the reinsurance mechanism makes it possible to remove any suspicion. But overall, everything is going well. Through co-insurance, local insurers manage to capture this windfall, in terms of premiums, taxes and control fees.
Does this mean that when premiums are not subscribed at the national level, the government loses in terms of tax revenues?
Yes, absolutely! When premiums are subscribed at the level of an insurer registered in Burkina Faso, whether it is with a local insurer or an insurer-subsidiary of an international group, the government is sure to capture its related credit taxes, because the mechanism is systematic in our business system.
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