Shifting away from protection for coal users will have long-term benefits for insurers

Insurers are providing cover less frequently for energy providers that remain committed to the use of coal, in an effort to help reduce climate change and force the energy industry to embrace renewables. Doing so may seem counterintuitive as insurers stand to lose business, however the long-term benefits could be considerable.

Chubb has recently announced a new ban on coal-related underwriting and investment. The insurer will no longer provide insurance or investments to companies that operate coal-fired plants, or to firms for which coal mining generates more than 30% of revenue.

It is not the first insurer to take such steps. AXA is extending its climate change policy to its recently acquired XL division, while other European insurers are also taking action. The move by AXA is expected to drive a €100m ($112.16m) loss in revenue, mainly in 2020. However, it will undoubtedly improve public perception of an insurance industry that has historically borne a fractious relationship with consumers for its typically money-first approach.

On the surface, distancing itself from coal may have a significantly negative impact on the insurance industry given the loss of business. However, in addition to the possible progress in consumer perception, the industry may in fact enjoy a considerable financial benefit in the longer term as a result of any anti-coal stance. With climate change potentially causing the increased frequency of extreme weather events and rising sea levels, ceasing protection for fossil fuel-based energy providers may also enable the industry to protect its future interests before it is too late.

According to Moody’s, there has been no meaningful loss of business for the handful of providers that have taken such action, indicating that insurers could benefit from reduced exposure to potential environmental liability risks.