Canadian Underwriter

The tough question for insurers withdrawing coverage from coal

October 14, 2020   by Greg Meckbach

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The industry’s concern over carbon emissions, and their impact on climate change, raises the question of whether nuclear energy is better for the environment.

“One the one hand, nuclear [energy] is a source of carbon-free power generation. On the other hand, we all know there is a certain down side to it,” said Mark Way, director of global coastal risk and resilience at The Nature Conservancy.

During a CatIQ Connect session Wednesday, panelists were asked how insurers feel about coal versus nuclear energy.

“I think that’s a really tough one,” Way said during the session, titled Risks and Opportunities for the Capital Markets. “My strong suspicion is there is not an industry consensus on that.”

It is becoming more common for insurers and financial firms to exclude firms or projects if they are high-carbon emitters, with no clear plan or ability to transition to a low-carbon model, said panelist Alyson Slater, senior director of sustainable finance at the Toronto-based Global Risk Institute.

“Fossil fuel energy producers are in the crosshairs here. Insurers have significant influence on energy producers because every stage of production relies heavily on insurance protection. Therefore, [insurers] can, and are, using this influence to support and encourage companies’ transition to low-carbon operations and products.”

The context of Slater’s remarks was a discussion about the insurance-linked securities sector’s view of climate change. The panel was part of Financial Sector on Catastrophes & Climate Change, a one-day webinar that is part of the CatIQ Connect series of quarterly talks. The next CatIQ Connect webinar is scheduled Dec. 3.

“Insurers are vulnerable to the systemic disruptions that climate change is already unleashing on ecosystems, societies and economics; and therefore, they have an incentive to try to avoid the worst climate impacts by addressing climate risk right at its source if they can,” Slater said Wednesday during CatIQ Connect.

She cited Chubb Ltd. as an example. Reuters reported in June of 2019 that Chubb became the first U.S. insurer to say it would no longer sell policies to or invest in companies that make more than 30% of their revenue from coal mining.

Separately, Zurich announced in June 2019 that it plans to speak with customers with exposures of more than 30% to thermal coal, oil shales, and oil sands. Zurich said at the time that it has “pledged,” depending on the outcomes of those conversations with customers, to stop underwriting companies that generate at least 30% of their revenue directly from the extraction of oil from oil sands.

In October 2019, Axis Capital Holdings Ltd. announced it plans to stop insuring some oilsands sites. Insurers should help mitigate climate risk and transition to a low-carbon economy, Axis CEO Albert Benmichol said at the time.

Also in 2019, 32 environmental advocacy groups sent letters to 27 insurers urging them to stop underwriting the Trans Mountain pipeline, which takes crude oil from Edmonton to a tanker terminal near Vancouver.

At least 35 insurers representing about 40% of the global industry (by assets under management) have begun pulling out of coal investments, Slater said Wednesday during CatIQ Connect.

Canadian Underwriter asked the panel whether the insurance industry had reached a consensus that nuclear power is more environmentally responsible than coal.

“I think there would be organizations who would argue that [nuclear power is], at the very least, a transition technology,” said Way. “Some countries would argue that without it, they are not going to make their emissions target.”

Some people point to nuclear power as an example of a risk that could be shared by the public and private sectors, suggested Tobias Meier, Washington, D.C.-based key account manager for Swiss Re Public Sector Solutions team, during Wednesday’s panel.

“People used to look at [nuclear] risk and think it was beyond insurance …  and the reality is, many countries do have some sort of scheme where risk is shared between the public and the private sector,” said Meier.

Until 2003, Ontario got roughly 25% of its power from coal and 40% from nuclear power plants. Now the majority of the province’s electricity is generated at nuclear plants. A decade ago, the province ordered the shutdown of five coal power plants and increased its reliance on nuclear power.

On Wednesday morning, Ontario’s independent electricity system operator reported there was about 9.4 Gigawatts of generating capacity available from the province’s nuclear power plants, 3.9 Gigawatts from hydro and 0.4 Gigawatts from wind power. Less than 0.4 gigawatts each were available from gas and solar sources.

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