Insurers Zurich and Chubb Raise Cover for Canada Oil Sands Pipeline: Filings

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Major insurers Zurich and Chubb increased their insurance cover for a Canadian oil sands pipeline over the last year, Canadian regulatory filings show.

The Trans Mountain pipeline, which ships types of crude oil and refined products to British Columbia from Canada’s main oil-producing province of Alberta, is owned by the Canadian government and has become a focus for environmental and indigenous groups who want a planned expansion of the pipeline stopped.

The government bought the pipeline from Kinder Morgan Canada in August 2018 for C$4.5 billion ($3.37 billion). Activists say expanding it will hamper Canada’s commitment to reduce greenhouse gas emissions under the Paris climate agreement.

Insurers, like other financial services companies, are under pressure from environmental campaigners to cut back on providing insurance cover to companies or projects that are connected to fossil fuel industries.

As with the coal industry, the degree of insurance underwriting offered to the tar sands industry by insurance companies is in the spotlight for its higher levels of greenhouse gas emissions than crude oil.

While Lloyd’s of London syndicates remain the biggest insurer to the project, Chubb and Zurich are the biggest listed insurers providing coverage.

The Trans Mountain pipeline’s annual liability insurance contract, dated August 2019 but filed with the Canadian energy regulator on April 30, 2020, shows Zurich was the lead insurer for the pipeline.

The insurance, which provides $508 million of cover, runs to August 2020, the filing showed.

Zurich is the sole insurer for the first $8 million of potential insurance payouts and the company provided a total of $300 million in cover with other insurers, the 2019/20 energy regulatory filing showed.

The filing did not provide a breakdown of Zurich’s contribution.

In 2018/19, the cover with other insurers was $150 million, the regulatory filing for that year showed.

A Zurich spokesman said it had slightly increased its cover but had restructured its participation in the program by moving its capacity to provide cover for higher payout levels, which are less likely to be triggered.

Big insurance contracts are typically covered across multiple providers in layers, with payouts triggered depending on the size of the claim.

Zurich is talking to customers and investee companies with more than 30% exposure to thermal coal, oil sands and oil shales, with the aim to “drive a deeper conversation regarding their credible mid to long-term transition plans,” the Zurich spokesman said.

“Should their plans fall short of our commitment to combating global climate change, Zurich intends to disengage and/or divest from the companies,” the spokesman said in an email, adding the engagement would not exceed a two-year period.

Chubb also increased the cover it provides alongside other insurers to a total of $200 million in 2019/2020, from $15 million of sole exposure the previous year, the two regulatory filings showed.

Chubb did not provide a comment.

Chubb has a policy on coal underwriting which prevents the company from taking on new coal clients, its website said.

Lloyd’s of London is the sole insurer for $50 million of potential insurance payouts in 2019/2020, higher than $25 million the previous year, the regulatory filings showed. Lloyd’s has reduced the cover it provides with other insurers to $410 million for 2019/2020 from $450 million in 2018/19, the regulatory filings also showed.

A Lloyd’s spokesman declined to comment, saying underwriting decisions were made by the market’s syndicate members.

The Lloyd’s insurance market has said it does not have a policy on underwriting carbon-intensive fuels, leaving underwriting decisions to its members.

Lobby Group Pressure

The Trans Mountain project highlights tensions in the financial services sector as it seeks to respond to policymaker calls to aid the globally agreed transition to a low-carbon economy while needing to protect their businesses from the potential hit to profits caused by COVID-19.

Lobby groups such as Unfriend Coal have put pressure on insurers to stop underwriting carbon-intensive fuels like coal and oil sands.

“Any company that claims to care about the climate and human rights cannot insure Trans Mountain while it presses ahead with plans to enable a huge expansion of some of the world’s dirtiest oil,” said Elana Sulakshana, Energy Finance Campaigner at Rainforest Action Network.

Other insurers that have provided cover for the Trans Mountain project this year include AIG, Liberty Mutual and Munich Re unit Temple.

Liberty Mutual declined to comment on the project but said it had a policy on coal underwriting.

“We’re taking many steps that demonstrate our commitment to the shift toward clean energy, and we will continue to improve and build on the progress we’ve made,” a Liberty Mutual spokeswoman said.

AIG said it did not comment on underwriting decisions related to specific projects.

Munich Re declined to comment.

(Additional reporting by Jeff Lewis in Toronto; editing by Jane Merriman)