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Coal, oil sands companies feel growing insurance squeeze

Insurance, a basic necessity for any business, is becoming increasingly expensive for some coal and oil sands companies.

That’s because a growing number of insurers are refusing to underwrite companies involved with producing or transporting the most emissions-intensive fossil fuels. Insurance executives are responding to pressure from environmental activists, climate change liability litigation and even their own children, experts and environmentalists say.

Underwriters’ move away from fossil fuels already has impacted a massive coal mine project in Australia and a government-owned oil sands pipeline company in Canada. If the trend continues to gather momentum, regulatory filings suggest, it could pose an existential risk to some energy companies.

The insurance industry “is coming to an important crossroads here because for a long time the sector has been warning about climate change,” said Swenja Surminski, the head of climate adaptation research at the London School of Economics and Political Science, or LSE.

Now many top insurers are “realizing that you can’t do both,” she said. “You can’t be concerned about climate risk, but then continue underwriting those who contributed to it.”

Globally, 31 insurers have vowed to restrict underwriting for coal projects, according to data provided to E&E News by Insure Our Future, a coalition of environmental groups that’s working to drive a wedge between underwriters and their fossil fuel company customers. Twice as many insurers have promised to limit their investments in the coal sector.

Some of those no-coal commitments were made partially in response to pressure from Insure Our Future members like the Sunrise Project, an Australian environmental group founded in 2012.

 

The beginning of a movement

The Sunrise Project launched shortly after Adani Enterprises Ltd., an Indian conglomerate, was moving to dig a massive open-pit coal mine in the Australian state of Queensland.

The so-called Carmichael mine aimed to produce 60 million metric tons of coal per year — enough to supply nearly 15% of the coal India burns annually, according to statistics from the U.S. Energy Information Administration.

Sunrise Project campaigners quickly began to pressure insurance companies to quit underwriting the $11.7 billion coal-mining plan.

“The Sunrise Project was founded with the idea to identify neglected pillars of support of the fossil fuel economy,” said Peter Bosshard, the Switzerland-based director of the group’s finance program. “And the first such actor we identified was the insurance industry.”

In 2015, French insurer AXA became the first multinational underwriter to rule out new investments in the coal industry. Within two years, a dozen other insurers followed suit (Climatewire, Nov. 15, 2017).

In Australia, climate activists made the Carmichael mine so politically toxic that Adani was forced to self-finance and scale back the scope of the project. The conglomerate now says it only expects to pull 10 million metric tons of coal per year from the mine — less than a fifth of the annual tonnage it initially sought to produce.

Even some Adani contractors, including a major Australian construction company, have been unable to find insurance for their work on the mine.

“What BMD has endured is the result of a conflict between the social stance of the majority of the insurance industry and the government supported export industry of Australia,” a BMD Group subsidiary wrote in a submission to the conservative-controlled Parliament earlier this year.

“Insurers that BMD (and other contractors) have relied on for over 40 years to provide market standard coverage for the performance of common construction work involving rail and roads are prevented from providing coverage to works simply because the work is performed for a client connected to the coal industry,” the construction company said.

Bravus Mining and Resources, Adani’s Australian subsidiary, didn’t respond to questions about the activist campaign or the challenge posed by limited access to insurance.

But a spokesperson said in an email that Bravus “has the requisite insurance in place for the Carmichael mine and rail Project.”

 

Global reverberations

For climate activists, who have long picketed coal companies and staged protests at anthracite mines and the power plants they supply, pressuring insurers is just the latest evolution of a long-running campaign against the planet-warming industry. Early indications suggest their efforts are yielding results.

“Insurance has become a major obstacle for the coal industry,” Bosshard said.

And not just in Australia, either.

“It’s now gotten to be the No. 1 issue that our members face,” Jonathan Fortner, the vice president of government relations at the Lignite Energy Council, told the Grand Forks Herald in January. The North Dakota coal trade association executive said no more than 10 underwriters are still willing to provide basic insurance to the state’s plants and mines.

Even major U.S. coal mine operators are feeling the pinch, securities filings show.

“Increasingly, both foreign and domestic banks, insurance companies and large investors are curtailing or ending their financial relationships with fossil fuel-related companies,” Peabody Energy Corp. said in a February report. “This has had adverse impacts on the liquidity and operations of coal producers.”

An urgent concern for Peabody is continued access to reclamation bonds, which are intended to fund post-mining cleanup efforts.

“Our failure to maintain adequate bonding would invalidate our mining permits and prevent mining operations from continuing, which could result in our inability to continue as a going concern,” the nation’s largest coal company said in its annual report.

Peabody didn’t respond to a request for comment.

But the National Mining Association, a coal industry trade group that counts Peabody as a member, argued that insurers are overlooking the benefits of coal.

“Insurance and financial institutions of all kinds need to recognize the role they play in ensuring affordable and reliable energy and the materials needed for every dimension of our economy,” Conor Bernstein, an NMA spokesperson, said in an email. “They must also recognize that industries that rely on their products are made up of workers and communities that depend on those jobs.”

 

Oil sands test case

A Canadian National rail worker stands on an idle locomotive as protesters opposed to the Trans Mountain pipeline expansion block rail lines in Burnaby, British Columbia. | Darryl Dyck/The Canadian Press via AP, File

There is also growing pressure on the insurance industry to quit underwriting companies producing or transporting oil sands, which release more emissions than conventional crude oil because they are harder to mine and refine into gasoline.

The controversial expansion plans of Trans Mountain Corp. have made it a oil sands test case for insurers.

Canadian Prime Minister Justin Trudeau’s administration purchased the company’s 715-mile pipeline system three years ago from Kinder Morgan Inc. for $3.5 billion after protests and legal challenges stymied the Texas operator’s plan to expand the network, which has been in operation since 1953.

The government-run company is now working to finish construction of a new line connecting oil sand mines in central Alberta to oil tankers on the southern coast of British Columbia. The expansion project would nearly triple the system’s capacity to 890,000 barrels per day.

With Trans Mountain’s insurers facing pressure from activists to drop the company, the pipeline operator sought to hide the names of its underwriters from public filings. The Canada Energy Regulator, or CER, granted Trans Mountain’s request in April and approved a similar request earlier this month from TC Energy Corp., another Canadian pipeline company.

“Maybe they thought that would deter us and we would go away,” Kiki Wood, a British Columbia-based activist with the environmental group Stand.earth, said of Trans Mountain’s confidentiality request. Instead, Insure Our Future coalition members decided to “target a much wider group of insurers than we might otherwise have done,” she said.

The result: 16 companies have publicly committed to not insuring Trans Mountain, including five this year alone.

While there are 26 more insurers Stand.earth believes could still be underwriting Trans Mountain, the shrinking number of options is having a financial impact on the pipeline company. Last month, for instance, Trans Mountain reported that the cost of operating the system in the first half of the year had increased $200,000 from the same period in 2020. It attributed that increase in part to higher insurance premiums.

“Trans Mountain has all the required and necessary insurance in place,” a spokesperson said in a statement. “Trans Mountain is committed to providing the CER with full information about our financial resourcing and ensuring Canadians know that we are sufficiently insured.”

Other oil sands companies are feeling the squeeze, too.

“Certain insurance companies have taken actions or announced policies to limit available coverage for companies which derive some or all of their revenue from the oil sands sector,” Calgary-based Cenovus Energy Inc. noted in its most recent annual report. “As a result, we may not be able to renew our existing policies, or procure other desirable insurance coverage, either on commercially reasonable terms, or at all.”

Cenovus didn’t respond a request for comment.

The Canadian Association of Petroleum Producers, a trade group that includes Cenovus, criticized activists and insurers who are seeking to cut off support for the oil sands industry.

“Attempts to stifle Canadian production by restricting insurance can have only one effect; countries with lower environmental standards — and in many cases lower social, human rights and governance standards — will fill the void,” CAPP spokesperson Jay Averill said in a statement. “We would encourage groups who are redefining their insurance portfolios to consider that Canadian energy is a sustainable choice.”

 

Limits of activism

But preventing the worst impacts of climate change requires reaching net-zero emissions, which can’t be achieved by eliminating the use of coal and oil sands alone. So campaigners have targeted insurers underwriting conventional oil and gas drillers as well.

“That’s been a much heavier lift,” Bosshard said.

Just one, Italian insurer Assicurazioni Generali SpA, has vowed to quit backing new drilling. Swiss Re, the Zurich-based reinsurance giant, also plans to stop underwriting the “most carbon-intensive oil and gas production by 2023.”

Some insurance experts doubt that climate activists’ strategy of targeting insurers would stop major fossil fuel projects — the main goal of the effort. The Carmichael mine, for example, is set to start producing coal by the end of this year, and Trans Mountain plans to finish its pipeline expansion project in 2022.

“Even if you eliminate third-party insurance involvement with fossil fuels, the industry itself has plenty of capital to continue on and insure itself. And that would suggest that this, as a campaign activity, has a limiting success factor at some point,” said Lindene Patton, the former chief climate product officer at Zurich Insurance Group Ltd.

In instances when insurance premiums do become unmanageable, “sometimes governments figure out ways to make it feasible,” added Patton, who is now a partner at the law firm Earth and Water Law LLC. The U.S. government, she noted, has programs to backstop private-sector insurance for civilian nuclear incidents and terrorist attacks. (Patton said she doesn’t currently represent any major insurance companies.)

Yet there are reasons to doubt that the Biden administration or many European governments, which have struck urgent tones about the threat of climate change, would be willing to offer guarantees for fossil fuel companies. And relying on self-insurance isn’t likely to be a durable option for many fossil fuel producers either, according to Surminski, the LSE professor.

In-house underwriting is “usually there to plug a gap if either insurance is not available or too expensive,” said Surminski, who previously worked as an insurance broker and continues to talk to industry leaders. “Companies might see that as a short-term solution. But I think, if you are a large corporation, you will get this pressure — not just from your underwriters but probably also from your lenders and your investors.”

Self-insured producers “will find it more and more difficult to maintain,” she predicted.

 

Personal and legal pressure

Meanwhile, insurers are continuing to reconsider their oil and gas lines of business.

For instance, Chubb Ltd., a major underwriter for oil and gas companies, recently signaled that it wasn’t insuring Trans Mountain. The move came after activists brought a 15-foot inflatable of Chubb Chairman and CEO Evan Greenberg wreathed in flames to the U.S. Open Tennis Championships, an event his company paid to sponsor.

Even insurers that specialize in oil and gas policies are adjusting their offerings to account for the growing risks climate change poses to the sector.

“Portfolios could potentially have some class action litigation in the US,” Mike Hayes, a senior vice president at Berkley Offshore Underwriting Managers, said in a recent interview with an insurance broker. “It’s an area that the market should be taking very seriously.”

Hayes added that his company has implemented a climate change exclusion for some policies.

“We have listened to various lawyers and now is the time to get some clarity before all this escalates,” he said in the interview, which was included in Willis Towers Watson’s 2021 Energy Market Review. “There is always the concern in the back of insurers’ minds that climate change may be the next asbestosis.”

Some insurance industry leaders also are facing scrutiny at home, according to Surminski.

“Senior executives mentioned the fact that their kids at dinner table start talking to them about, you know, what is your business doing about climate change, and why are you not changing things?” she said. Those questions have caused leaders Surminski has spoken with to rethink the impacts of their work and to feel more personally accountable for their company’s climate-related decisionmaking.

“I’m surprised how often I hear that from senior executives,” she said.

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