No insurance for coal projects: Insurance industry leaders decline insuring new coal projects

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  Quantumrun Foresight
• March 27, 2022

Insight summary

A significant shift is underway as major insurance providers withdraw support for the coal industry, reflecting a growing focus on environmental sustainability and alignment with global climate goals. This move is likely to accelerate the decline of the global coal industry, leading to increased operating costs for coal companies and a potential boost for renewable energy. The long-term implications extend to various sectors, including labor, technology, and government policy, signaling a broader cultural change towards environmental responsibility.

No insurance for coal projects context 

Over 15 insurance providers with combined assets of USD $8.9 trillion, making up almost 37 percent of the global insurance market, have begun withdrawing their support for the coal industry. This follows 10 insurance firms withdrawing the coverage offered to coal companies and coal power plant operators in 2019, doubling the number of firms who had done so by the end of that year. The decision by these companies reflects a growing awareness of the environmental impact of coal and a shift in investment strategies.

Numerous insurance companies have gradually moved to end their support for the coal industry to align with the United Nation's Sustainable Development Goals (SDGs) and show their support for the Paris Agreement on climate. The rise in global temperatures and the increasing frequency of floods, wildfires, and hurricanes has led to claims rising across the international insurance sector. This trend in climate-related disasters has prompted a reevaluation of risk and a shift in focus towards more sustainable energy sources. 

With coal being the single largest contributor to global carbon emissions, and by association climate change, the insurance industry along with numerous financial service providers have deemed the coal industry as unsustainable. The withdrawal of support for coal is not merely a symbolic gesture but a practical business decision. By distancing themselves from an industry that may need to face significant regulatory changes and public scrutiny, these companies are positioning themselves for a future where environmental responsibility is paramount.

Disruptive impact

The insurance industry at large gradually ending its support of the coal industry will likely accelerate the decline of the global coal industry and the companies operating within it, as these companies will be unable to operate power plants and mines without insurance cover. Whatever future insurance policies coal plant operators can attain will likely be at prohibitive rates due to the lack of options available, which may increase operating costs for coal companies and miners, further reducing its competitiveness against renewables, and ultimately leading to future workforce downsizing. This trend may need to prompt governments and organizations to develop transition plans for workers in the coal industry, focusing on retraining and education to prepare them for new opportunities in emerging sectors. 

As the coal industry declines and the growth of its power generation efforts ceases, renewable energy companies may receive more funding from investors. Insurance companies can also design new policies and coverage packages for the renewable energy industry, which industry players may see as the revenue source to replace past profits from the coal industry. This shift in focus towards renewable energy not only aligns with global sustainability goals but also opens up new markets and opportunities for growth within the insurance sector itself. By offering specialized products tailored to the unique needs of renewable energy companies, insurers may be able to foster growth in a sector that is vital for the future of energy production.

The long-term impact of this trend extends beyond the immediate industries involved. By accelerating the decline of coal and promoting the growth of renewable energy, the insurance industry's shift in policy may contribute to a broader cultural change towards environmental responsibility. This trend can enhance productivity in the energy sector, reduce carbon emissions, and contribute to a cleaner, more sustainable future for everyone.

Implications of no insurance for coal projects

Wider implications of no insurance for coal projects may include:

• Existing coal companies having to insure themselves, increasing their operating costs, leading to potential price hikes for consumers and a more challenging environment for smaller coal businesses to survive.
• Coal companies, power operators, and miners closing down as banks and insurers refuse to finance new loans and provide insurance options, resulting in job losses in specific regions and a need for targeted government intervention to support affected communities.
• The renewable energy industry growing exponentially over the next 20 years as the investment previously directed towards coal transitions to supporting the renewable energy industry, fostering technological advancements in clean energy and creating new employment opportunities.
• A shift in educational and vocational training programs to support workers transitioning from the coal industry to renewable energy sectors, leading to a more adaptable and skilled workforce.
• Governments reevaluating energy policies and regulations to align with the changing landscape of energy production, leading to new legislation that supports renewable energy and discourages fossil fuel use.
• Financial institutions developing new investment products and services tailored to renewable energy projects, leading to more accessible financing for small and medium-sized enterprises in the clean energy sector.
• Consumers becoming more conscious of energy sources and demanding cleaner options, leading to increased adoption of renewable energy in residential areas and a potential decrease in energy costs in the long term.
• The development of new technologies in energy storage and distribution to accommodate the growth of renewable energy, leading to more efficient energy use and greater energy security for nations investing in renewable sources.

Questions to consider

• Do you think renewable energy such as wind and solar power can effectively serve the world's increasing energy demands if all forms of coal-driven power generation cease in the future?
• In addition to solar and wind energy, what other forms of energy could replace the energy supply gap if coal-generated power ceases to exist in the future?