Insurers pulling out of coal mining
With rising concerns about global warming and a push toward ethical underwriting, mining companies operating in today’s landscape are facing a unique set of insurance challenges.
As most mining professionals will be aware, late last year, insurance giant Zurich announced that it would stop offering insurance to mining and power generation companies receiving over 50% of their revenue from thermal coal. With this announcement, Zurich joined a growing list of insurers taking steps to distance themselves from thermal coal in the wake of climate change concerns. While the withdrawal will take place over a two-year period, at Aon, we believe this is a movement that will not be slowing down. In fact, it will likely become more prominent among insurers; putting greater pressure on mining and power generation organisations.
However, it is not all doom and gloom. In fact, there are a number of options available for mining organisations to fulfil their insurance needs elsewhere, and with the help of creative experts, it can instead be an optimal opportunity to take a closer look at insurance coverage.
What is happening?
In December 2015, the parties in the United Nations Framework Convention on Climate Change reached a new accord, the Paris Agreement – aimed at combatting climate change. The agreement called on all members to reduce emissions of greenhouse gases as quickly as possible, to restrict global warming to 2 degrees above pre-industrial levels.
Of course, one way this reduction could be achieved would be for organisations to find alternatives to thermal coal burned to generate electricity. However, as coal is likely to remain part of the global energy mix for many decades to come before renewables are fully integrated, global insurers are now playing a role in facilitating a transition to cleaner energy. To do this, they are making changes to their underwriting and investment policies.
A number of insurance companies – including Allianz, Scor, Axa and of course Zurich – have announced their plans to withdraw insurance from organisations receiving varying percentages of their revenue from thermal coal, with more expected to follow suit in the coming months. As well as changing their insurance policies, some large insurers – including Lloyds of London – are withdrawing their investments into thermal coal companies, with an expected change in insurance policies to follow.
While only 13% of all global insurance assets are impacted by these changes, with increasing pressure put on insurers to do their bit to reduce global warming, the move is gaining momentum.
What does this mean for mining companies?
Firstly, it is important to note that in most instances, insurers are only pulling out of their commitments to companies who are generating a significant amount of their revenue from thermal coal.
What’s more, the insurers are not revoking their insurance to these companies across the board. Rather, they are simply pulling out of property insurance that is directly related to thermal coal. Insurances that impact people – including liabilities and workers compensation – will not be affected, even for companies generating significant revenue from thermal coal.
Further, in many cases, these commitments have been indicated as guidelines rather than hard and fast rules. Zurich has indicated that if a mining organisation has plans to expand into the development of sustainable resources, then they will consider continuing their insurance. As mining companies look to diversify into renewable energies, this becomes a greater possibility.
Therefore, while the movement is certainly gaining traction, the current impact to mining organisations may in fact be rather minimal. Even so, it’s important that these organisations begin looking into their options, and strategise with their insurance broker how they can diversify their insurance portfolio to ensure they have appropriate cover.
How can Aon help?
At Aon, we have already begun working closely with a handful of our clients who are impacted by these insurance changes, to ensure the impact to their business is minimal. A tangible benefit of working with Aon is that due to the size of our business – and the breadth of our reach – these clients have immediate access to many of the leading mining insurers across the globe, with whom we have existing relationships.
Over the next few years, as these market changes continue to unfold, we will be working hand-in-hand with clients to identify what insurances may be withdrawn from their program, followed by actionable plans to close those gaps. In most cases, this will involve the identification of alternative insurers to on-board into their insurance program – whether this is insurance from new markets, or through unexplored relationships.
Another valuable option available to organisations is the Aon Client Treaty (ACT). This innovative solution is unique to Aon clients, and harnesses the scale and diversity of our business to immediately make up lost capacity. It sees that any capacity placed into our three major underwriting centres – London, Singapore or Bermuda – will be automatically doubled by the ACT.
For example, if a mining organisation requires 20% of their insurance to be renegotiated following changes to insurance partners’ programs, they simply need to find 10% from an alternative partner, which will be matched by the ACT. This capacity is guaranteed, instantaneous and highly valuable to replace lost insurance.
As experts in mining insurance, we are confident that replacing this withdrawn capacity with alternate insurance options will not been problematic. There is no current shortage of capacity to insure thermal coal mines – so with the right level of support and insight, companies can navigate through these changes with ease.
To find out how your organisation could benefit from a discussion with an insurance expert in these changing times, please reach out to Aon.