Capacity shrinks as insurers pressured to make coal uninsurable

Coal mining risks are getting harder and more expensive to insure.

Planning new hard coal and lignite mines such as Złoczew open-pit mines planned by PGE in such circumstances is madness. 

Capacity shrinks as insurers pressured to make coal uninsurable.

Insurance capacity for coal mining and power generation risks is shrinking rapidly as environmental groups put insurers and brokers under increasing pressure to make thermal coal uninsurable.

In July, Chubb said it would no longer provide insurance for thermal coal. It was the first major US insurer to adopt such a policy. Chubb said it will not underwrite new risks for companies that generate more than 30% of revenues from thermal coal mining or power generation and will phase out coverage of existing risks that exceed this threshold by 2022.

The move follows similar decisions to withdraw or scale back insurance for thermal coal by a number of European insurers and reinsurers. These include Allianz, Generali, AXA, Zurich, Swiss Re, Munich Re, Hannover Re and Scor. One-third of the reinsurance market has now restricted cover for coal, according to Unfriend Coal, a coalition of NGOs and environmental groups calling on insurers to divest from and cease underwriting coal.

Unfriend Coal has said that without insurance, almost no new coal mines and power plants can be built. It also added that most existing projects would have to be phased out. Unfriend Coal noted that, as of July, 16 insurers had adopted a policy restricting coverage of thermal coal, while at least 25 insurers with combined assets of more than $6trn had divested from coal. Momentum is growing, as nine of the 16 insurers withdrew from coal this year alone.

Financial services companies are being pressured by consumers and environmental groups to help leverage the de-carbonisation process, according to Günter Becker, head of mining at Munich Re.

“Bluntly said: no investment in coal – no insurance for coal risks and vice versa. And the fact that we insurers and reinsurers are covering both sides, the risk-taking and investment side, makes us an obvious ‘target’,” notes Mr Becker in the recent Willis Towers Watson (WTW) Mining Risk Review 2019.

AIG and Liberty Mutual recently came under pressure from environmental groups in Australia to not insure Indian multinational Adani’s Carmichael coal mine in Queensland. Pressure groups, including the Unfriend Coal campaign, are urging insurers not to support the mine and have organised large demonstrations outside AIG’s offices in Sydney.

Consequently, Australia’s biggest insurers IAG, QBE and Suncorp have said they will no longer insure thermal coal risks, including the Carmichael project. According to Market Forces, 14 insurers – including Allianz, AXA, Swiss Re and Munich Re – were among 55 corporations that have ruled out working with Adani on the project.

The Unfriend Coal campaign wrote to insurance brokers Marsh, Aon, WTW, JLT and Arthur J Gallagher, asking them to rule out providing services to the Carmichael mine. It is also pushing Marsh and Aon to withdraw as advisers to a proposed Vietnamese coal-fired power station.

According to Mr Becker, the global political situation revolving around climate change is directly affecting the mining insurance market.

“In particular, burning coal to generate electricity is being identified by the general public as being the ‘culprit’. Hence the direct link to the mining industry and its insurers,” he writes in the WTW review.

Most insurers are public listed companies with private and institutional shareholders, both of which are becoming increasingly concerned about environmental, social and governance (ESG) responsibility, notes Mr Becker. “And they are demanding answers from the c-suite to their concerns,” he adds.

“The nature of mining and the public perception of the industry is that ESG has not been high on their agenda – not helped by [fatal tailings dam disasters in Brazil in 2015 and 2019],” says Mr Becker. “All this is putting pressure on those insurers and reinsurers [that have] supported and still are supporting the mining industry,” he notes.

In its recent Mining Risk Review, WTW highlights the “increasing and worrying trend” for coal miners of insurers withdrawing from what they consider to environmentally-unfriendly industries.

The withdrawal from thermal coal in the US by Chubb and Zurich means the capacity situation is “more tenuous”, according to the broker. Both insurers were “stalwart coal markets” and their exit “leaves very few primary markets left for coal miners to turn to”, it warns.

Australian and US coal mines are experiencing a contraction in insurance capacity, including for workers compensation, according to WTW. The anti-coal movement has also had a significant direct effect in South Africa, says Adrian Read, industry specialist leader for natural resources at Willis South Africa. The local offices of international insurers such as Allianz, AIG and Chubb have advised that they will no longer be underwriting coal programmes, he explains.

Speaking to CRE earlier this year, Andrew Wheeler, mining practice group leader at WTW, said decisions by a number of largely European insurers to cease underwriting thermal coal risks are affecting capacity and pricing for such risks.

“Coal mining risks are difficult to place and the choice and availability of market selection is not what it once was,” said Mr Wheeler.

“It is disappointing that the insurance industry and capital markets have not identified differences between thermal coal producers. They have taken a broad-brush approach to coal – including met coal and thermal coal – which is wrong.” 

Commercial Risk Online

By Stuart Collins on September 16, 2019  


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