Oil sands and coal companies are facing rising challenges getting affordable coverage worldwide.
Insurance coverage is critical for any large business to operate, but firms centered around oil sands and coal are finding it increasingly challenging to get the policies they require, particularly at an affordable price.
A growing number of insurers have stopped underwriting companies in high-polluting fossil fuels.
As a result, insurance coverage is harder to find for companies producing, transporting or storing certain fossil fuels that are among the highest greenhouse gas emitters, such as those involved in coal or oil sands. Insurance execs have been moving away from such coverage in response to pressure from activists and consumers alike, who view covering those companies as a form of support. Moreover, insurers are also stepping away from covering those types of businesses due to risks associated with rising climate change liability litigation.
The more underwriters step away from covering those companies, the lower the competition. At a time in which risk is increasing due to climate change, the policies that remain available come at a notably higher cost than they ever have before. This has had a massive impact at sites worldwide, ranging from a huge coal mine project in Australia, as well as a government-owned oil sands pipeline company north of our border in Canada.
Should this insurance coverage trend continue, some energy companies will start facing sizeable risks.
The insurance industry “is coming to an important crossroads here because for a long time the sector has been warning about climate change,” said London School of Economics and Political Science head of climate adaptation research Swenja Surminski, as quoted in a recent E&E News report. It has reached to the point that several leading insurers are “realizing that you can’t do both,” according to Surminski. “You can’t be concerned about climate risk, but then continue underwriting those who contributed to it.”
Thirty-one insurers worldwide have committed to restricting or even entirely ceasing underwriting insurance coverage for coal projects, according to the report. Moreover, double that number have committed to limiting their financial investments into the coal sector.