Late last year, insurance giant Zurich announced that it would stop offering insurance to mining and power generation companies receiving over 50 percent of their revenue from coal, joining a growing list of global insurers taking steps to distance themselves from coal in the wake of climate change concerns.
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?
In December 2015, the parties in the United Nations Framework Convention on Climate Change reached a new accord, the Paris Agreement – aimed at combatting climate change. The agreement called on all members to reduce emissions of greenhouse gases as quickly as possible, to restrict global warming to two degrees above pre-industrial levels.
Of course, one way this reduction could be achieved would be for organisations to find alternatives to coal burned to generate electricity. 'However, as coal is likely to remain part of the global energy mix for many decades to come, especially from an African perspective, before renewables are fully integrated, global insurers are now playing a role in facilitating a transition to cleaner energy. To do this, they are making changes to their underwriting and investment policies,' says Paul Pryor, Aon's Global Mining Practice leader.
'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,' explains Pryor.
'While only 13 percent 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 adds.
What does this mean for mining companies?
It is important to note that 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.
What's more, the insurers are not revoking their insurance to these companies across the board. Rather, they are simply pulling out of property insurance that is directly related to coal. Insurances that impact people – including liabilities and workers compensation – will not be affected, even for companies generating significant revenue from coal.
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.'
'We have had no indication that the SA insurers will not write such risks, except where they are part of a global insurance group that is party to the Paris Agreement aimed at combatting climate change. However, local insurance conditions are being driven by the reinsurance market behind the local insurers. Apart from a reduction in capacity and an increase in rates being levied, there are still SA markets who remain committed to mining risks including coal mining risks,' Thomas adds.
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.
'At Aon, we have already begun working closely with a handful of our clients who are impacted by these insurance changes, to ensure the impact to their business is minimal. A tangible benefit of working with Aon is that due to the size of our business – and the breadth of our reach – these clients have immediate access to many of the leading mining insurers across the globe, with whom we have existing relationships,' says Paul Pryor.
'As experts in mining insurance, clients are assured of having an expert Aon broker by their side as these market changes unfold,' explains Pryor. 'We will be working to identify what insurances may be withdrawn and put actionable plans in place to close those gaps in cover. A valuable option available to organisations is the Aon Client Treaty (ACT). Any insurance capacity placed into our three major underwriting centres – London, Singapore or Bermuda – will be automatically doubled by the ACT and is an invaluable resource to replace lost insurance.'