February 07, 2019

Making Coal Uninsurable

topic:	Divestment
tags:	#climate change, #coal industry, #renewable energy
by:	Peter Bosshard

Scientists have warned that we need to leave most fossil fuels in the ground in order to keep global temperature increases to 1.5 degrees. We cannot afford to build any new coal projects and must phase out existing coal power plants by 2030 in industrialized countries, and by 2050 in the rest of the world.

Activists have found a new way to accelerate the necessary transition to a low-carbon world: making coal uninsurable.

Insurance companies play an essential but often neglected role in shaping modern industrial society, including the energy industry. Without insurance coverage, most new coal mines, power plants or pipelines could not get funding, and many existing facilities would have to close down. With assets of more than $30 trillion, the insurance industry is also the second-biggest group of institutional investors after pension funds, shaping business decisions throughout the economy.

As risk managers, insurance companies have access to the latest climate models, and they have warned about the risks of climate change for many decades. Many leading insurers have also pledged their support for the goals of the Paris climate agreement. Yet, some of the same companies continue to insure and invest in the projects which are boiling our planet. This is hypocritical.

Through the international Unfriend Coal campaign, climate activists are now putting pressure on the insurance industry to put their money where their mouth is. Backed by groups like ClientEarth in the United Kingdom, Urgewald in Germany and Greenpeace in Switzerland, the campaign researches and publicizes the role of insurers in supporting the coal industry, engages companies in a dialogue about phasing out coal, and puts pressure on laggards through protests, shareholder action, and consumer pressure.

In the past two years, this public pressure has resulted in a growing number of major insurers move away from coal. Since April 2017, seven leading companies – Allianz, AXA, Generali, Munich Re, SCOR, Swiss Re and Zurich – have adopted policies ending or limiting their support for coal. At least six others are currently considering similar measures. And at least 19 major insurers with combined assets of more than $6 trillion have divested from the coal industry.

The proposed Carmichael coal mine project in Australia, which would  be one of the largest coal mines on the planet, is an example for how campaigners are using insurance as a lever to stop destructive fossil fuel projects. In response to an appeal from environmental groups with 76 million members, 10 insurance companies pledged not to get involved in the coal mine or have policies in place which rule out such support. “The mine cannot legally proceed until it can acquire insurance, and the situation seems to be a political tipping point,” an Australian financial newsletter reported. “It is now the tester subject for many similar cases in the future.”

In a recent report, insurance broker Willis Towers Watson found that the withdrawal of large insurers has made securing insurance for coal projects more expensive. “Having to factor this element into their bidding will put [coal companies] at a commercial disadvantage when competing with lower-cost greener generators.” the broker reports. At the same time, the insurers are expanding their offers for renewable energy producers to make up for lost revenue from coal.

While leading insurers are limiting or ending their support for the coal industry, other companies have identified a business opportunity in filling the gap left by them. The Willis Towers Watson report points out AIG, Liberty Mutual, Berkshire Hathaway (all from the US) and Germany’s Talanx as opportunistic actors which are happy to undermine the climate leadership of other companies.

In a scorecard on insurance, coal and climate change the Unfriend Coal campaign has assessed the coal and climate policies of 24 leading insurers and identified leaders and laggards. On this scorecard you can check out where your own insurance provider stands on coal and climate change. It is easy to switch to an insurance provider which is aligned with your values when your policies come up for renewal.

Insurance companies are supposed to protect us from catastrophic risk. It is high time that they stop insuring and investing in the projects which put our well being, and that of our children and grandchildren, at risk.

Image credit: Pat Kilner via Flickr.