LONDON, June 17 (Reuters) – Major reinsurers have already pulled back from providing bespoke cover for coal projects as part of efforts to meet global climate change commitments, but now comes the hard part – finding ways to exclude coal from bulk-buy contracts, known as “treaty” reinsurance.
Reinsurance companies help to share the burden of insurance risks by underwriting frontline insurers. Any restrictions they impose will have a knock-on impact on insurance policies on offer to companies.
Most reinsurers have stepped back from offering insurers bespoke or direct cover for coal projects, but many still underwrite the industry through treaty reinsurance, where hundreds of insurers’ policies are bundled together.
The process of unbundling treaty reinsurance to search for coal exposure is tough, yet pressure is building on the industry from investors and regulators to do more to reflect the growing risks of climate change in how they underwrite. Swiss Re is already doing this.
If more reinsurers do cut back this cover, specialist commercial insurers such as those operating in the Lloyd’s of London market will feel the impact, as will suppliers to the coal industry or those businesses which derive even a small portion of their revenues from coal.
“The first consequence is insurance is harder to get, the second consequence is it’s expensive, the third consequence is there are all sorts of caveats on it and at the extreme you might not be offered it”, said Paul Merrey, insurance partner at KPMG.
A rail contractor to Adani Enterprises’ giant Australian coal project last month, for example, asked the Australian government for help to obtain insurance that it was not able to secure from the market.
Five of the world’s six largest reinsurers – Swiss Re, Munich Re, Hannover Re, SCOR and Lloyd’s of London – have already scaled back bespoke coverage for coal projects. But only Swiss Re, in a statement in March, has said it will go further and tighten its treaty reinsurance stance.
Munich Re and Hannover Re told Reuters they are working with their insurance clients to cut their own exposure further.
“We want to keep the dialogue and push for change together,” said Jean-Jacques Henchoz, chief executive of Hannover Re, though he added that: “It’s not happening in a couple of weeks, it’s taking a bit of time.”
Munich Re and Hannover Re said they were working out how to assess what was inside their treaty reinsurance books.ч