An underestimated coal risk
Insurers, it might be assumed, are well positioned to assess risks, particularly when they threaten the entire planet. While most of the 6,600 coal power units under operation must cease operating by 2030 in EU and OECD countries, and by 2040 at the latest worldwide to be on track with a 1.5°C target, 437 companies are still planning new coal projects, including more than 1,000 new coal-fired power plants in 40 countries across the world. If built, these would amount to 25% of the world’s coal-fired electricity generation capacity and undermine our chances of staying below 1.5°C. Yet, Lloyd’s of London is clearly underestimating the climate risk posed by the coal industry given the insurance market place still has not committed to fully phase out coal and has left gaping holes in its current policy.
Lloyd’s can still insure coal projects
Ten major European insurers already abide by the “no new coal projects” principle but Lloyd’s is not among them – in fact, quite the opposite. Lloyd’s of Londons allows new insurance cover for coal plants and thermal coal mines up to January 2022. This delay gives insurance companies and syndicates active in the Lloyd’s of London market enough time to provide the essential support coal companies need to kickstart new projects.
Consequently, Lloyd’s syndicates can potentially provide insurance coverage to the Whitehaven coal mine in England, and Adani’s Carmichael project in Australia. Adani’s project will help open up a massive new thermal coal basin, threatening the Great Barrier Reef, endangered species habitat and local water supplies. It is also contested by the Traditional Owners of the land. So far, twenty-six of Lloyd’s insurers have committed not to insure the project, but other Lloyd’s syndicates, such as Ark, Markel, Hamilton Group, Lancashire, and WR Berkley have so far remained silent on Adani.
There are two other blatant gaps in Lloyd’s coal policy:
- it does not cover coal transport infrastructure, despite the fact that such infrastructure can play a crucial part in the development of new coal mines. This is the case for Adani’s Carmichael project, which includes as key components a railway and an export terminal;
- it does not exclude coal developers despite clear scientific evidence that achieving the Paris Climate Agreement goals means no new coal.
The UK has been one of the strongest advocates for exiting the coal sector. Yet, its main corporate insurer, Lloyd’s of London, is on its way to becoming the insurance market of the last resort for dirty coal companies. Indeed, a growing number of insurers, including AXA, Allianz and Zurich, have adopted immediate strong exclusion thresholds to stop covering the risks of most coal companies. While Lloyd’s has committed to phasing out its insurance coverage to companies deriving more than 30% of revenue from thermal coal by 2030, this threshold remains way too high and the timeline way too slow. Lloyd’s is clearly not committed to quitting coal any time soon.
With COP26 in Glasgow looming and growing pressure from civil society, Lloyd’s should plan for an effective and complete coal phase out by 2030 in EU and OECD countries and 2040 elsewhere, adopt stringent exclusion thresholds at the corporate level, exclude all coal developers and commit to stop re/insurance coverage for any new coal project or coal developers.