Insurance industry feels the heat on cover for fossil fuels

The spotlight on the insurance industry’s support of fossil fuel projects is proving so searing that the names of some of those involved have been scrubbed from the record.

Canada’s Trans Mountain, the operator of a pipeline that takes crude from the oil sands of Alberta to the west coast of British Columbia, made a new request of the country’s energy regulator in February.

It wished to redact the names of the pipeline’s insurers in its public filings, now and in the future, to shield them against a barrage of publicity from climate campaigners targeting the energy-intensive tar sands industry.

Under that glare, Trans Mountain had already faced a significant reduction in appetite from the insurance market in 2020, and replacement policies were secured “at a significantly higher cost,” it said.

The regulator granted the request two months later, despite protestations from groups including the indigenous Tsleil-Waututh Nation, who said that a planned expansion in the pipeline “poses an existential threat to our way of life, due to the unacceptable risk of a devastating oil spill”.

The pipeline extension has, like the controversial Carmichael coal mine in Australia, become a critical battleground for campaigners seeking to stop the financing and underwriting of the most polluting industries. 

Naming-and-shaming, physical protest and advocacy have all been deployed to pressure insurers to rule out coverage of these activities, and to put in place wider policies on eliminating their exposure to coal as well as gradually phasing it out for oil and gas.

“The longer it takes for the insurance industry to get itself out of the firing line on this issue, the more attention it is going to get,” said Lindsay Keenan, European co-ordinator at Insure Our Future, a network of climate-focused organisations.

“[That] means more attention from social movements, who have never previously understood the power of the financial capacity of the insurance sector,” he added, citing also closer attention from regulators.

Insurers’ engagement with underwriting clients on climate risks

Green-tinted investors are adding to the pressure. Legal & General Investment Management, an arm of the UK insurer and Britain’s biggest investor, last month dumped AIG shares from some of its funds on mounting frustration at the US insurer’s lack of policy on thermal coal and the failure to disclose emissions associated with its investments.

Policymakers, meanwhile, have hit insurers with new regulatory stress tests forcing them to set out their exposure to climate change risks, while governments are negotiating over global standards for climate risk disclosure for all companies.

All that has made life increasingly difficult for insurers that have generally been happier discussing the sustainability features of the investments they make. Applying the same filter to their underwriting revenue risks cutting out a chunk of renewal business. 

But some are taking their first steps in this direction. In reducing exposure to coal in their underwriting, 30 insurers have set out a policy, according to Insure Our Future. In April, insurers led by Axa formed the Net-Zero Insurance Alliance, pledging to extend climate commitments to their underwriting decisions — with the substance yet to be released.

In the absence of detailed requirements on insurers to disclose their underwriting of fossil fuels, campaigners have sought to lobby underwriters individually and cast those that do not respond as the insurers of last resort to carbon-heavy industries. 

Trans Mountain’s current insurance policy expires at the end of August, with Marsh, the world’s biggest insurance broker, in charge of finding underwriters that will stomach the reputational risk. 

To date, 14 insurers have either explicitly ruled out covering Trans Mountain or oil sands in general, campaigners say. Insurers listed on an unredacted 2020 certificate include familiar names, such as AIG, Chubb, and syndicates from the Lloyd’s of London specialist market. 

Lloyd’s has been subject to numerous climate protests in recent months including a dump of fake coal on its doorstep, and a series of Father’s Day cards addressed to its chair. 

Under a sustainability policy published in December, its members will be asked not to provide new coverage to — nor invest in — the worst carbon emitting projects such as oil sands and thermal coal from January 2022. But the deadline for phasing out existing cover is not until 2030.

Lloyd’s said it was “committed to accelerating the transition to net zero by building a more sustainable insurance marketplace” and noted its pledge to align with UN sustainable development goals and the Paris accord on limiting global warming.

Marsh, AIG and Chubb declined to comment. Trans Mountain said it was “confident that there remains adequate capacity in the market to meet our insurance needs and our renewal”.

As well as targeting those still involved with coal and tar sands projects, climate campaigners are pushing the industry to go further on phasing out oil and gas. They highlight the International Energy Agency’s recent warning that all new oil and gas exploration must be halted to keep global warming below a catastrophic rise of more than 2C since pre-industrial times.

Insurers say they are mindful of the climate and reputational risks. “The board is at the highest level of attention on this point,” said Cristiano Borean, group chief financial officer at Generali, Italy’s biggest insurer.

This year, the insurer cancelled policies covering two energy groups that were not making enough progress on climate risks, Borean said. And more recently, its Czech unit said it would end cover for coal-fired plants owned by CEZ Group. Generali says its “its coal, oil and gas exposure is now minimal”.

Some insurance experts argue that cutting ties altogether with fossil fuel companies, even coal miners, just leaves other operators with fewer scruples to invest in and insure the assets.

Smaller insurers in coal-dependent economies are also “unlikely to exit” in the short to medium term, said Dennis Sugrue, Emea sector lead at S&P Global Ratings.

Video: The corporate world’s net-zero trend

They may find it harder to source reinsurance, however. Swiss Re announced in March that it would start in 2023 to phase out coal from the bundled-up books of insurance policies that it reinsures. 

“We understand that reinsurers from India, China and Russia are more than happy to pick up the slack and cover the risks, so the impact on capital is likely to be limited”, S&P’s Sugrue said, though he added that premiums could rise in that scenario.

Over the coming years, insurers will be put in the tricky position of effectively policing their clients’ adherence to set parameters.

Like many, Australian insurer QBE has deadlines for oil sands companies, or oil and gas drillers, to get on “a pathway consistent with achieving the Paris agreement”.

When pushed on whether compliance assessments would be disclosed, QBE chair Michael Wilkins told the recent annual general meeting that “it will be inappropriate for us to indicate individual customer targets”. QBE would “need to make sure, in our minds, that they are on the right path”, he told a questioner.

A protester wearing a face mask depicting Australian Prime Minister Scott Morrison is seen eating fake coal out of a dog bowl during an Extinction Rebellion protest in Brisbane
A protester wearing a face mask depicting Australian Prime Minister Scott Morrison is seen eating fake coal out of a dog bowl during an Extinction Rebellion protest in Brisbane © AAPIMAGE via Reuters Connect

But the climate campaigners can claim some direct victories. In May, one contractor on Adani Enterprises’ Carmichael mine said it had failed to obtain insurance for the project due to environmental concerns, with 33 underwriters declining to provide public liability insurance, for example. 

The contractor BMD told Australia’s parliament it was “aware that the worldwide insurance market is removing its support for coal related projects and that coverage for projects associated with coal moving forward will see limited available coverage”.

The industry’s concern at the implications was mirrored by campaigners’ joy. “It was a major victory,” said Hannah Saggau, climate campaign co-ordinator at US consumer advocacy group Public Citizen. “Targeting insurance isn’t a silver bullet, but things like that show us that the insurance angle is having an impact and is putting pressure in a meaningful way on these companies.”

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