The days of relying on a standard insurance contract to pick up a large portion of the tab when an adverse event occurs in the coal sector are certainly becoming numbered.
Mutually Captive: Can we reverse coal’s risk vacuum? Adam Battista, Executive Director CRE Insurance Broking
I
n 2023, the cost of insurance and cover options for most participants in the coal industry continued its significant decline.
For those clients who cannot diversify their operations to dilute their thermal coal exposure below the arbitrary 30% threshold, thereby opening themselves up to more insurers to entertain underwriting their businesses, prospects of relief remain bleak.
Mt
Further, against the backdrop of undeniable global demand resulting in increased production in Australia and accelerated consumption in Asia, clients throughout the supply chain are struggling to narrate their ‘coal exit’ strategy to insurers amidst these increasing volumes. The International Energy Agency (IEA) admits these volumes won’t start levelling or tapering until at least 2030.
Global coal consumption, 2021-2023
5000 4500 4000
2500
So, with most in the traditional insurance sector refusing to fulfil their role, what are the solutions? As a key theme of the Queensland Resources Council (QRC) Annual Forum in November 2023, many believe an industry insurance mutual could be the way to go. To recap on part of last year’s BBMC article, an insurance mutual is an organisation owned by its policyholders, where they pool their premiums to insure against specific risks; they share in any profits the mutual may achieve, as well as being at risk to be ‘called upon’ to top-up the mutual if it suffers more losses than it can pay with its existing capital.
What classes of insurance should be underwritten by an industry mutual?
2000 1500 1000 500 China
India 2021
48
Can coal bypass traditional risk transfer?
And while, in principle, this could work for Australia’s coal mining sector, the practicalities present some steep challenges.
3500 3000
0
Despite demand being entirely unaffected, this apparently redundant underwriting position persists for most major insurers when assessing fossil fuels more broadly. This author knows for a fact that the individual technical underwriters who understand what the reality is, on balance, disagree with this dictatorial stance. However, at the behest of ill-informed activists, their executives have gone ‘all-in’ on the first hand of this rushed energy transition and will not willingly wind back their positions.
United States 2022
BBMC Yearbook 2023
2023 (forecast)
EU
Rest of World
Our experience suggests that all classes essentially fall afoul of insurers' anti-coal stance. Property and liability criticality are well known but also consider that motor, mobile plant/ equipment, travel, professional indemnity, directors’ and
