Admittedly, the issue is a highly controversial one. Namely, Australia’s Carmichael coal mine project, owned by the Adani Group, which has become a cause célèbre among anti-coal activists in a similar way as, say, the Niger Delta was a decade ago for oil giant Shell.
The construction of the mine has been subject to delays amid fierce opposition to the project but it is finally close to completion and due to begin exporting coal later this year. It remains to be seen who will provide the essential insurance as the mine begins operations, however, with Marsh – which placed the construction policy years ago – ruling out advising on its operational cover after receiving heavy criticism from campaigners. As of the start of 2022, 42 insurers had ruled out providing operational cover, according to activist group Market Forces.
That became 43 last week when Convex – after months of silence on the issue – finally confirmed it would decline to provide construction or operational coverage.
Convex had recently found itself targeted because of its reluctance to be browbeaten into making its stance public.
If Catlin spoke at an event, activists would park a van and screen outside the venue criticising the company’s stance.
Two days before Christmas, an ecological Santa Claus even took time out from making plastic toys to turn up at Convex’s Bermuda headquarters with a bag of coal to shame the firm.
It is unclear why Convex recently changed its position. It could simply be the firm determined the hassle is not worth the stance (no doubt a factor for some of its peers).
Perhaps it was pressure from elsewhere – investors maybe, or from within its own ranks or even the academics it will be working with on its forthcoming marine research project, Seascape. Or, perhaps most likely, a combination of all of the above.
However, one outcome is that it will embolden activists who plan and participate in the kind of public shaming stunts that Convex has endured.
They, quite correctly, will conclude the tactics work and are likely to double down on those (re)insurers that are regarded as still not playing ball. Lloyd’s – which is a marketplace not a company and therefore not able to mandate strategic changes in the way Catlin can – is no doubt steeling itself for more protests on Lime Street (perhaps once the winter weather improves).
The ESG Insurer appreciates the backlash against opening new coal mines when many of the world’s wealthiest nations have committed to transitioning to renewables as part of the battle to arrest climate change. Convex is one of several carriers to have now ruled out providing insurance for any new thermal coal mine.
But there are equally social consequences that would occur if the global P&C insurance machine was to suddenly withdraw coverage for all coal-related sectors.
Parts of the global economy would likely shudder to a halt. Factories would close, furnaces would stop burning, energy prices would spike and millions would be unemployed. The outcome: living standards would plummet and civil unrest would ensue.
These factors mean the issue is more nuanced than simply “fossil fuels bad, renewables good”, at least in the short term.
The fact remains that the global economy depends on coal, as well as oil and gas, and will do so for some time to come. The industry has a vital role to play in helping reduce this dependence by facilitating the transition away from fossil fuels.
Insurance has long been an enabler for positive change. Over the years, our industry has been responsible for many sensible loss mitigation initiatives – fire doors, sprinklers and extinguishers for example, even the early fire services themselves. (Re)insurance entrepreneur Neil Eckert is another example. He has long been a passionate advocate for the environment and also how finance can be a tool for change, such as carbon emission trading.
And the industry can do the same with its clients in the energy and other climate-exposed industries by encouraging better practices around emissions and insisting on new policies and strategies around transition. It is an exciting opportunity for global P&C carriers. It is also one that activists should seize upon. Combining their energy and passion with the strategic role the industry occupies could be a force for even greater collaboration and positive change.
Public shaming, by contrast, may also deliver change but can ultimately backfire and cause resentment. In the UK, for example, the actions of some militant activists in blocking roads, stopping newspapers being printed or even (bizarrely) trains from running also saw some sympathy ebb away last year.
Glasgow’s COP26 event did not appear to “cut through” to the tax-paying British public in the way political leaders may have hoped. The rising cost of heating their homes or the tank of petrol is, however.
The tactics of shaming can also lead to an unwelcome lack of transparency as companies – quite naturally – do their best to avoid being exposed. Indeed, we wonder whether this may occur with the Adani mine insurance coverage.
After all, if Western P&C insurers rule out coverage then presumably the Adani operational cover will go into a captive and then be reinsured into more opaque and willing markets such as China (which are also likely to be the ultimate destination of the Adani-produced coal).
But will the risk stay entirely on the balance sheet of Chinese P&C insurers or will it then get repackaged and placed into the retro markets in Bermuda, London and Europe?
The ESG Insurer does not have a crystal ball but the latter seems a plausible scenario. Some of these same (re)insurers will have made a commitment not to write Adani or new coal projects as insurance but will find themselves providing twice-removed retro coverage which includes the same risk.
To avoid this absurd outcome, it would be better all round if activists and insurers could collaborate together rather than in adversity. Mother Nature would surely approve of such a stance…
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