Power companies face climate change insurance backlash

Traditional power and energy companies face significant disruption to their business in 2019, with risks ranging from withdrawal of insurance cover as carriers help tackle climate change, to the threat of cyberattacks, according to Willis Towers Watson in its latest market review. Risk managers at renewable energy companies also have a lot on their plate, with insurers cautious about covering risks from the use of new technology, the broker adds. Several large insurance companies have made a stand against providing insurance for coal-based energy companies, in line with climate change principles set within their own environmental, social and corporate governance polices to support the Paris Agreement. By mid-2018, half of the global reinsurance market had reported divestment in some, or all, coal assets, following a pledge by Hannover Re, Swiss Re, Munich Re, SCOR, Lloyd’s, Generali and Markel Corporation. Seen as an extension of coal divestment policies common among many European insurers, Allianz went a step further. In May 2018, it committed to cease insuring coal-fired power plants and coalmines with immediate effect and phasing out all coal risks by 2040. Other companies, including AXA and SCOR, had already pledged not to insure any new coal-based projects. Companies including Zurich and Swiss Re have imposed a threshold, and will only insure companies that derive the majority of revenues from non-coal power generation sources. Willis says independent and small coal operators, which have less room for diversification, will be most affected by withdrawal of insurance cover. “The insurability of a coal plant could be determined not on its own qualities or environmental impact, but by whether or not it is part of a mixed portfolio with other types of fossil fuels or renewable energy plants,” the Willis report states. It notes that withdrawal of cover, or limits on coal revenue-producing companies, has been restricted to European carriers to date. The Lloyd’s crackdown on syndicate performance has also squeezed power and energy buyers’ choice, setting the tone for a more “rigorous global insurance market environment in 2019”, notes Willis. Power was one of seven underperforming classes of business identified by Lloyd’s in its performance review, following heavy losses in 2017. “It seems quite clear that this development is likely to put a break on individual syndicates’ ability to compete in the market by driving down prices in order to achieve increased premium income streams,” Willis says. The changing attitude from the insurance industry over coal is in line with wider geopolitical concerns about energy production and transitioning to low-carbon energy production. But Willis says geopolitical risks are not restricted to coal-based plants, with renewable energy developers also at the mercy of changes in geopolitical trends and risks. “National governments have the power to change favourable regulatory regimes – for example, by cutting renewables incentives, thereby impacting the developers’ pre-agreed investment,” the report states. The report also warns that with cyberattackers looking to target infrastructure, power generation companies are at real risk. The report notes that renewable energy firms are as much at risk as traditional companies from cyberattack. “For power companies, the challenge of cyber risk begins with understanding the different cyber triggers and each step of the ensuing process that could eventually cause physical and/or financial loss,” the report says. It warns that companies are unsure how to best allocate resources to deliver cyber resilience. Releasing the report, Graham Knight, head of natural resources GB at Willis Towers Watson, said: “As the effects of climate change and geopolitical risk continue to create uncertainty and remain at the top of boardroom agendas, the rapid innovations in technology present both threats and opportunities.” Mr Knight added that the insurance industry must be ready to address such risks. “It is incumbent on the insurance industry to embrace the risks presented by these new developments and provide the appropriate risk advisory and risk transfer/retention solution. It is essential that today’s power and renewable organisations prepare themselves for the turbulence that disruptive change inevitably brings,” he said.

Power companies face climate change insurance backlash

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