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Insurers Backing Away from Coal Industry Amid Climate Change

Last year we looked at the impact of climate change on severe weather patterns and what insurers are doing to understand, assess and better manage natural catastrophe risks. It’s in our industry’s best interest to better understand the role of climate change on wildfires, flooding, and other events to develop better modeling and risk management strategies. If not, we will continue to see insurers exit certain markets located in high-hazard zones, with California and Florida two prime examples, as carriers retreat from writing property insurance.

Coal Responsible for One-Third of Global Energy-Related CO2 Emissions

In addition to stepping up efforts to raise public awareness and the need for strong building codes, more prudent land use, and better planning, insurers are also increasingly refusing to underwrite coal-fired plants and coal-mining ventures as part of their Environmental, Social, and Corporate Governance (ESCG) strategy.

Burning coal produces roughly twice as much CO2 for every unit of energy output as natural gas. It is currently responsible for around 30% of global energy-related CO2 emissions. Investors face growing pressure to pull the plug on coal from climate campaigners, many of whom see shutting off financing as the best way to impact the fossil fuel industry.

Insurers Limiting Their Coal Exposure

According to Insure Our Future’s latest scorecard, at least 65 insurers with combined investments of $12 trillion in 2020 have either adopted a divestment policy or refuse to invest in coal. This is up from 35 insurers and $8.9 trillion of assets in 2019.

Over the past year, insurers such as Aviva, Allianz, and Zurich have limited their exposure to coal. According to a report from Yale University, these insurers will no longer underwrite coal projects or companies that receive more than 30% of their revenue from mining or burning coal. Axa promised a total exit by 2030 in developed nations and by 2040 globally. Reinsurers Swiss Re and Munich Re have restricted their coal coverage since 2018.

Zurich CEO Mario Greco explained that “as one of the world’s leading insurers, we see first-hand the devastation natural disasters inflict on people and communities. This is why we are accelerating action to reduce climate risk by driving changes in how companies and people behave and support those most impacted. It is simply the right thing to do.”

U.S. companies Chubb and Axis Capital announced their coal strategy change in 2019. Axis said it will no longer provide new insurance “for the construction of new thermal coal plants or mines.” As with most other insurers, the ban extends to tar sands extraction and associated pipeline projects. Chubb said existing investments and insurance policies with coal mining companies would be phased out by 2022, after which it will begin cutting ties with coal-burning utilities. As a result, it’s becoming more difficult to insure coal-related projects with brokers finding limited capacity and higher rates for their clients.