A quiet revolution is happening in insurance, as many of the industry's big players pull their backing and investment from the coal power sector, potentially raising the price of electricity.
About 10 per cent of global insurance assets are being impacted by these changes, but risk management firm Aon believes that as the movement gains momentum, 20 per cent of all insurers could drop their coal assets by the end of the year.
Insurers are pulling away from coal-fired power stations, dropping support and investments in the sector.
Photo: Michele Mossop“Insurers and investors are turning away from coal mining and coal-fired generation,” Aon global mining practice leader Paul Pryor said.
In the past few months, global insurance firms such as Allianz, Skor, Axa and Zurich have all indicated they will dump coal power companies in the coming years.
“Miners and generators need to start developing their strategy now to prepare for the impact. Two of our clients, in NSW and Queensland, are expecting to be affected, while we are already seeing other companies start to come to us about it,” Mr Pryor said.
Grattan Institute energy director Tony Wood said that as insurers left the sector more risk was being created for the industry.
“Generators will have to pay higher costs for insurance as the pool of insurers shrinks, which means the price of power will go up as they shift these increased costs onwards,” Mr Wood said.
“Although large companies like AGL often end up self-insuring anyway as they can better manage the risks.”
He said even though the National Energy Guarantee, the federal government’s energy policy, had set emissions reduction targets of 26 per cent, the direction of the electricity sector was clear.
KPMG's national head of energy and natural resources, Ted Surette, said the industry was making a shift towards more sustainable operations, which included backing out of coal.
Major banks are also reducing their exposure to coal by pulling investment.
Photo: Bloomberg“The insurance industry is stating its position globally, and that is that coal isn’t a sustainable investment,” he said.
However, he believed the impact would be minimal over the medium term as many power generators had already begun a shift from coal to renewable energy, which has the backing of insurers.
Allianz Insurance has pledged to halt all insurance coverage for operational coal-fired power plants.
A spokesman for the company said it would start with standalone power stations before phasing out all exposure to coal-fired power.
It said that in countries where it has large operations, such as Australia, business would be substantially impacted.
“Allianz will no longer invest in energy companies that put the 2-degree [Paris climate] target at risk by building coal-fired power plants,” the company said.
Zurich Insurance, one of the world’s largest insurance and risk management companies, said it would stop providing services for all new thermal coal mines, and any companies that made more than half their revenue from thermal coal mining or generated more than half their energy from coal.
It had also begun divesting its holdings in these companies, Zurich head of global property and energy Robert Kuchinski said.
Major Japanese bank Sumitomo Mitsui, which has been one of the world’s largest backers of coal-fired generators, has also signalled its exit from the sector, joining fellow bankers Societe Generale and Deutsche Bank as they move away from coal.
“Coal-fired power generation is relatively low cost and has a big impact on climate change, so we are considering making our financing policy stricter,” Sumitomo Mitsui Financial Group president Takeshi Kunibe said.
In Australia, the big four banks – the Commonwealth, NAB, Westpac and ANZ – have all announced their commitment to slashing lending to coal companies.
The shift comes as coal has undergone a price resurgence.
Earlier this year, thermal coal climbed to a monthly average price of $US106 a tonne, a benchmark not seen since 2012 during the height of the mining boom, although since then it has tracked steadily downwards, falling 11 per cent in the space of three months.
However, confidence still remains for thermal coal as analysts raise yearly average expectations due to growing demand for energy in south-east Asia.
