Insurers are providing cover less frequently for energy providers that remain committed to the use of coal to help reduce climate change and force the energy industry to embrace renewables. While insurers stand to lose business in the short term, the long-term benefits to the industry could be considerable, finds GlobalData, a leading data and analytics company.
“With climate change potentially causing the increased frequency of extreme weather events and rising sea levels, ceasing protection for fossil fuel-based energy providers may enable the industry to benefit from reduced exposure to potential environmental liability risks and enhance its public reputation,” says Daniel Pearce, Insurance Analyst at GlobalData.
AXA is extending its climate change policy to its recently acquired XL division. The move will result in XL no longer insuring any construction projects related to coal-fired power plants and the extraction of tar sands, bringing the XL division into line with the rest of the AXA business. It is expected to drive a €100m ($112.16m) loss in revenue, mainly in 2020.
However, it will undoubtedly improve public perception of an insurance industry that has historically borne a fractious relationship with consumers for its typically money-first approach.
Other insurers are also taking action. Chubb recently announced a ban on coal-related underwriting and investment. The company will no longer provide insurance or investments to companies that operate coal-fired plants, or to firms for which coal mining generates more than 30% of revenue. According to insurance group Moody’s, there has been no meaningful loss of business for the handful of providers that have taken such action.
Pearce adds: “On the surface, distancing itself from coal may have a significantly negative impact on the insurance industry, given the loss of business. However, in addition to the possible progress in consumer perception, the industry may in fact enjoy a considerable financial benefit in the longer term as a result of any anti-coal stance.”