With rising concerns about global warming and a push toward ethical underwriting, global insurance companies are taking steps to distance themselves from coal in the wake of climate change concerns.
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 coal, joining a growing list of global insurers.
While the two-year withdrawal period will put greater pressure on mining and power generation organisations globally, Aon South Africa does not foresee any major changes in the local market which is still largely reliant on coal, and any changes locally are likely to be very slow.
What is happening?
With the Paris agreement calling on all members to reduce emissions of greenhouse gases as quickly as possible, to restrict global warming to two degrees above pre-industrial levels more organisations are seeking alternatives to coal burned to generate electricity.
However, Paul Pryor, Aon’s Global Mining Practice Leader, notes that coal is likely to remain part of the global energy mix for many decades to come, especially from an African perspective. “This will likely see global insurers now playing a role in facilitating a transition to cleaner energy. To do this, they are making changes to their underwriting and investment policies,” he explains.
“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 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 coal companies, with an expected change in insurance policies to follow,” Pryor adds.
“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,” he continues.
What does this mean for mining companies?
What this means for mining companies is that while in most instances, global insurers are only pulling out of their commitments to companies who are generating a significant amount of their revenue from coal and not revoking their insurance to these companies across the board, mining companies should start to seek alternatives to diversify and change their insurance portfolios to ensure they have continued and appropriate insurance cover in place.
According to Anne Thomas, a Senior Broker at Aon South Africa, the country will remain behind the curve of investment in renewable energy for the foreseeable future.
“The majority of South Africa’s electricity supply is provided by Eskom, which is still investing in coal energy stations and owns a number of coal mines. Change will therefore be slow when one considers the abundance of non-renewable resources and their relative cheapness as a source of energy.”
This does not mean that restrictions and limitations will not filter through following the renewal of the insurers’ reinsurance treaties.
“There are a number of options available to coal mining organisations, who should consider alternatives to diversify and change their insurance portfolios to ensure they have continued and appropriate insurance cover in place. The assistance of an expert insurance broker would be of great benefit in this regard,” Thomas explains.