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Insuring Coal No More

The Unfriend Coal campaign calls on insurance companies to stop underwriting and investing in climate-destroying coal projects. This monthly newsletter shares campaign highlights on climate, coal, and the insurance industry.

First major US insurer takes action on coal

On December 18, 10 major international insurance companies pledged not to support the Adani Group’s giant proposed Carmichael coal mine in Western Australia or had adopted policies that rule out such support. The list includes Allianz, AXA, Generali and Zurich, reinsurers Munich Re, Swiss Re and SCOR, Australian insurers QBE and Suncorp as well as FM Global from the US.

The insurers responded to an appeal signed by 73 organizations representing 76 million people, and followed the example set by 37 other financial institutions. Specialty insurer Beazley revealed that they (and likely many other carriers) had declined to offer cover for the Carmichael project in the past. However, Hannover Re, AIG, Berkshire Hathaway, Chubb and many other insurers refused to rule out support for the project.

Developing the Carmichael mine would release up to 4.6 billion tons of CO2 over the lifetime of the project and would open up even larger coal deposits in the region’s Galilee Basin for exploitation. The project would violate the land rights of the traditional aboriginal owners and irreversibly damage the Great Barrier Reef, through which the coal would be exported.

FM Global, a mutual insurer with a strong focus on preventing losses of their policyholders, is the first US carrier to take any action to limit coal insurance. Time will tell whether  the insurer, which recently published a white paper warning chief financial officers about increased financial losses from natural disasters, will take the lead in developing a corporate policy on coal as well.

Time for insurance brokers to Unfriend Coal 

Only four companies – Marsh, Aon, Willis Towers Watson and Arthur J. Gallagher – dominate the global broker market. These brokers arrange and negotiate insurance on behalf of their customers. If the intermediaries at the heart of the global insurance industry stopped facilitating coal projects, they could make a huge contribution to the goals of the Paris Agreement.

Except for Arthur J. Gallagher, these brokers have all made rhetorical commitments to the importance of climate action. Aon for example called for “a rapid shift away from fossil fuels” in a recent report. “If society does fail to take action”, the broker warned, “the final outcome may be catastrophic.” In spite of such warnings, none of the brokers have so far ended or limited their services to coal companies.

In early January, the NGOs of the Unfriend Coal and Stop Adani campaigns urged the CEOs of Marsh, Aon, Willis Towers Watson, Arthur J. Gallagher and specialty insurer JLT “to publicly rule out any insurance broker and risk management services that would enable the construction and operation of the Adani Carmichael coal mine and rail project”. Support for the toxic project would be incompatible with their public brands and sustainability commitments, the NGOs argued.

Other than Willis Towers Watson, none of the brokers bothered to respond to the global NGO letter. Even WTW did not rule out support for the Carmichael project, emphasizing that the company did not comment on specific projects as a principle. The brokers’ lack of climate policies and public accountability suggests that they are prepared to offer services to any kind of project whatever its climate impacts.

Leading insurance broker under fire for coal business

Arthur J. Gallagher not only refused to respond to the NGO letter regarding the Carmichael coal mine project, the broker is also heavily invested in US coal refineries in a scheme which harvests government subsidies for the production of so-called “clean coal”. Coal refineries made up a full quarter of A.J. Gallagher’s revenues in the first three quarter of 2018.

Based on its role as a broker, A.J. Gallagher is currently included in green indices run by MSCI and FTSE Russell. Given its massive investment in coal refineries Reuters just reported that two green investors, Green Century Funds and Calvert Funds, are currently reconsidering their investments in the company.

In light of their critical role for the coal sector the Unfriend Coal campaign will pay closer attention to the role of brokers in 2019. Investors should do the same.

Wildfires demonstrate climate risks to insurers

According to latest estimates from Munich Re, natural catastrophes – mostly extreme weather events – caused losses of $160 billion in 2018. Insurance companies absorbed exactly half of the losses which, according to Swiss Re, were the fourth highest in history.

With damages of $16.5 billion California’s Camp fire was the costliest catastrophe in 2018. Fueled by the state’s ever warmer and drier climate, the wildfire exposed the risks which climate change poses to the insurance industry. In November, the California Department of Insurance took over Merced Property and Casualty, a small insurer overwhelmed by high wildfire losses. In early January, three insurers filed lawsuits against PG&E, whose power lines may have triggered the Camp fire. On January 14 the utility, whose potential wildfire liabilities from 2017 and 2018 are estimated at more than $30 billion, announced that it would file for bankruptcy.

If the utility goes bankrupt insurers, which hold $4.1 billion of its $18 billion debt, will again pay a heavy price. As California’s outgoing insurance commissioner Dave Jones warned, the looming bankruptcy “underscores the need for investors and regulators to address climate risk to their investments”.

Munich Re Board member Torsten Jeworrek suggested that insurers “need to realign their risk management and underwriting strategies” to address escalating climate risks. Such a realignment needs to bring underwriting strategies in line with the goals of the Paris Agreement.

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Got a news story or campaign action you want us to share? Email Peter Bosshard and we’ll look at including it in our next newsletter. 

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