On February 26, Extinction Rebellion launched co-ordinated protests in London’s “Square Mile” targeting insurers in the Lloyds of London market.
They are collectively the world’s biggest underwriters of fossil fuel projects, clawing in an estimated €1.5-2billion ($1.63-2.7billion) in premiums from Big Oil last year.
Days later, activists blockaded the London offices of Marshall Wace, a hedge fund with significant investments in oil majors such as Chevron, Shell and Equinor.
Without insurance cover, most new oil and gas projects around the world would likely stall or be cancelled. Even those operated by state-owned corporations such as Saudi Aramco are in part reliant upon European and North American insurers to underwrite their investments.
So, is insurance Big Oil’s Achilles Heel?
Extinction Rebellion has latched on to the power of insurance markets and the February into March protest’s core message was: “We (the NGO) are not going to let insurance companies continue to fly under the radar. And there will be reputational damage if they do not agree to stop enabling fossil fuel production.”
It failed even to make a footnote in Aberdeen, where local focus is on mounting environmentalist demands for Equinor to cancel the Rosebank oilfield development West of Shetland.
Extinction Rebellion describes insurers as “the people who could stop the ‘fossil fuel crooks’ in their tracks overnight if they wanted to”.
In the words of London-based former tabloid journalist turned Extinction-Rebellion activist Steve Tooze: “The insurance industries have a kind of superpower and they could make it almost impossible for fossil fuels to continue to operate.”
Which is why so much attention is now being paid to using the insurance industry as possibly the most powerful lever that exists to call Big Oil to account given its massive role in human-induced climate change.
© Supplied by Kath Flannery / DCTNGOs have researched the fossil fuels underwriting market for a number of years and a consortium of 46 have for the past seven years jointly published a global survey called the Insure our Future and its 2023 Scorecard was launched in November.
It concentrates on 30 leading primary insurers and reinsurers, assessing and scoring their policies and practices on insuring and investing in coal, oil and gas.
This report – the only one of its kind – “highlights progress and loopholes, calls out leaders and laggards, and identifies challenges and opportunities for the year ahead”.
Fossil fuels generate a lot of gross direct premium money for insurers – about $21.25billion in 2022, according to London insurance market intelligence consultancy Insuramore, which was commissioned to conduct the required research, these premiums do not include the revenues of captive insurers of fossil fuel companies and the reinsurance market.
The Top 10 individual insurers of fossil fuel projects are the Lloyd’s insurer Aegis, the People’s Insurance Company of China, Russia’s Sogaz, Germany’s Allianz, France’s Axa, Canada’s Fairfax Financial, Switzerland’s Zurich and the US insurers Chubb, W.R. Berkley and AIG.
This latest report found that restrictions on oil and gas are far weaker than on coal. New coal power projects are becoming “effectively uninsurable” outside China because so many insurers have ruled out support.
However, there has been some progress. The UK’s Aviva and Italy’s Generali have put the strongest limits on oil and gas insurance, and along with the German insurers Allianz, Hannover Re, Talanx and Munich Re, have ceased insuring new oil and gas extraction without major exceptions.
As for fossil fuel divestment policies, SCOR retained its top place by a large margin, ahead of Generali, Swiss Re, Zurich, QBE and AXA.
The Scorecard points out that, while many companies do well on their coal divestments, SCOR is the only insurer that will no longer invest in any companies with upstream oil and gas expansion plans.
But none of the 30 insurers ranked in the report have ended cover for new gas power plants, and almost none have ended support for a wave of new LNG terminals.
Now, according to the Scorecard, under public pressure ahead of the 2021 COP26 climate summit in Glasgow, more than 500 financial institutions from around the world pledged to take climate action and joined net zero alliances.
“As part of this process, 31 insurance companies joined the newly founded Net Zero Insurance Alliance (NZIA),” says the report.
“After two years of preparatory work, financial institutions were supposed to start taking action on their net zero commitments this year (2023).
“All members of net zero alliances were expected to publish transition plans documenting their short-, medium- and long-term strategies to reach net zero emissions in June, and the NZIA members committed to publishing targets for reducing their insured emissions in July. Yet these commitments have remained unfulfilled.
“Most members of the NZIA buckled under the political pressure of the fossil fuel lobby in the US and left their net zero alliance this year.
“The departing members promised to keep up their climate commitments but have completely failed to do so.
“No insurers have yet set targets to reduce their insured absolute emissions by at least 34% by 2030, a commitment they made when they joined the NZIA.”
Greenpeace has itself been ferreting around the insurance markets too, notably in the context of the North Sea and especially Norway as it is the largest producer and investor on the North West European Continental Shelf where Equinor is the dominant player.
Norway is less opaque than the UK when it comes to extracting truths. Under its Freedom of Information law, Greenpeace Nordic requested access to the insurance certificates of the 21 oil and gas companies which received expansion permits, including giants like Shell, Equinor and ConocoPhilips. A total of 17 of them provided at least some data.
Based on the information extracted, Greenpeace found that at least 69 insurance firms are underwriting the companies planning to expand oil and gas extraction in the Norwegian sector.
The list of engaged insurers reads like a Who’s Who of the global insurance industry, with five captive insurers involved but also 19 of the 30 companies scored in the Insure our Future Scorecard report.
“The most important underwriter is Lloyd’s of London, with 28 Lloyd’s insurers managing 51 syndicates insuring the oil and gas companies in the North Sea. Large public brands such as AIG, Allianz, AXA, Liberty Mutual, SCOR, Swiss Re, Tokio Marine and Zurich are also involved.”
It is striking that the Scorecard does not delve into how the insurance industry differentiates between how they handle listed companies, versus state-owned versus parastatals (hybrids) like Equinor, though clearly Equinor is extensively covered.
And there is zero mention of Saudi Aramco, the world’s largest petroleum company, a tiny slice of which was offered to the global investors marketplace via a pathfinder IPO launched late 2019 for which 25 banking underwriters were selected, including Citigroup, Credit Suisse, Morgan Stanley, Banco Santander and HSBC.
The IPO was about raising Aramco’s global profile ahead of massive investment in energy futures, with oil and gas underpinning activity. And whilst the Saudis can comfortably fund their lower carbon ambitions, that wasn’t the point.
Traditionally, Aramco insures against risk primarily by self-insuring through its captive insurance subsidiary, Stellar, which provides insurance exclusively to Aramco. Aramco also obtains insurance in certain areas from third-party providers in excess of the coverage provided through Stellar.
There is clearly flux as a result of the IPO, coupled with the prospect of an even larger offering being tabled in the near future, The company clearly recognises that it is exposed.
Insurance is barely covered in the risk section of the 2022 annual report – just a few terse paragraphs. However, there is warning of a need to change as the company faces having to address its inevitably pivotal role in energy transition.
The energy super-giant warns: “There can be no assurance that Aramco can continue to renew its existing levels of coverage on commercially acceptable terms, or at all.
“As a result, it could incur significant losses from uninsured risks or risks for which its insurance does not cover the entire loss. Any such losses could have a material adverse effect on Aramco’s business, financial position and results of operations.”
One wonders how other NOCs are handing such issues.
A closing thought; imagine if AIG, Travelers, Zurich, Allianz, Chubb and Liberty Mutual, who together provide more than 20% of all oil and gas insurance, tomorrow decided to stop handling more than half the underwriting of the industry.
Apparently that really would cripple Big Oil.
Thus the early reference to Achilles Heel.
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