Insurer coal exclusions to be tested by energy crisis, broker warns

Published in: Risk management, Cat risk, Environment, Corporate strategy, Investment risk - strategy, Climate change and sustainability

Companies: WTW

Insurers are helping to kill off the coal power by withdrawing capacity and hiking rates, but their climate-driven underwriting policies could be tested by the energy crisis, according to broker WTW.

In its Power Market Review, published this month, WTW said insurers of "dirty" power assets, such as coal-fired power stations, are demanding up to 20% rate increases. For other power assets with good loss records and little exposure to natural catastrophes, the increase is up to 2.5%.

The broker estimated the global capacity for power risks at $3.5bn, and a "realistically deployable" capacity nearer $1.5bn. However, as little as $250m is available for coal assets.

The withdrawal of insurance from coal miners and power generators is one of the levers for achieving the UN's 2050 net-zero goal, and many leading re/insurers have adopted environmental, social and governance (ESG) underwriting policies that exclude coal power.

Peter Bosshard from environmental group Insure our Future told InsuranceERM the report confirms "the insurance industry can play a powerful role in driving the clean energy transition forward."

He added: "It is high time that insurance companies use the leverage that they have and restrict their support for the oil and gas industry in line with a 1.5°C pathway as well."

However, the loss of Russian energy supplies from Europe has put pressure on generators to bring back or increase coal-fired output.

WTW said the energy market distortions are unlikely to be short-lived. It advised buyers and brokers to engage with insurers that have ceased to write new coal business, "to acknowledge that for a number of countries of Europe, the 'social' element of ESG currently outweighs the 'environmental' considerations."

Carlos Wilkinson, GB head of power & utilities at WTW, said: "The 'S' of ESG is now for many outweighing the 'E' in Europe. Although necessary, it has the potential to create significant tension for insurers from key stakeholders including investors and environmentalists, and their support cannot be taken for granted."

Joshua Geer