Academic study links underwriting restrictions with reduction in US coal mine output

By Rebecca Delaney

July 10 - (The Insurer) - A recent analysis conducted by the University of Zurich has indicated that there is a statistical relationship between insurers that adopt coal underwriting restrictions and a reduction in the number of insured U.S. coal mines.

The study, which was conducted by Olimpia Carradori, Felix von Meyerinck and Zacharias Sautner, examined how coal underwriting policies are implemented by a sample of insurers, and whether these policies influence the operations of U.S. coal mines.

The working paper acknowledged that empirical analysis of the implications of fossil fuel underwriting policies is difficult, as these are often recently implemented and lack a standardised format.

Systemic assessment is further complicated as insurance contracts for carbon-intensive projects are not publicly disclosed, which makes it difficult to evaluate whether underwriting restrictions are implemented in line with public commitments.

The research is based on standardised scorecards from climate campaign group Insure Our Future, as well as insurance certificates for U.S. coal mines obtained via Freedom of Information Act requests.

This produced a dataset of 9,745 insurance policies from 46 insurance groups across 456 coal mines insured between Q1 2014 and Q2 2024.

Around 37% of the policies covered commercial and general liability, with 30% covering umbrella/excess liability. Automobile liability and workers’ compensation/employers’ liability accounted for 17% and 16% of policies respectively.

Fifteen of the sample insurers were included in Insure Our Future’s most recent scorecard, of which 11 were found to have introduced a coal underwriting policy during the sample period.

The authors noted that while coal underwriting policies have become more common since 2017, they remain “highly heterogeneous”.

For example, some restrictions specifically refer to new coal mines and power plants, with fewer policies explicitly excluding providing insurance coverage to companies developing new coal projects.

Timelines to phase out coal underwriting vary between jurisdictions, with OECD countries and Europe generally aiming for 2030, with plans to phase out coal insurance globally by 2040.

The study noted that, compared to European counterparts, U.S. insurers are between 48% and 52% less likely to adopt a coal policy, while Asian insurers are 38% to 47% less likely.

Unlisted insurers are also 32% less likely, underlining the role of reputation and transparency in driving policy adoption.

Coal mines obtain coverage through multiple insurers, allowing for a comparison of how different insurers adjust coverage for the same mine around their respective policy adoptions.

The research found that relationships between U.S. coal mines and insurers are “significantly more likely” to be inactive from the first quarter after the adoption of a coal underwriting policy.

This likelihood increases from 8.4 percentage points in the first quarter to 18.3 percentage points by the fourth quarter, which the authors said supports a causal interpretation that policies reduce insurers’ willingness to maintain coverage for U.S. coal mines.

At the insurer level, these findings aggregate to reductions of the total number of insured mines by 16% (around 3.3 mines) and insured coal volumes by 56% (around 3.3 million short tons).

“These averages, however, mask important heterogeneity: not all policy-adopting insurers reduce coverage, and some even increase the number of mines they insure,” the paper warned.

“Nonetheless, the aggregate pattern is consistent with a meaningful reduction in coal coverage following policy adoptions.”

The study also used mine-level data from the Mine Safety and Health Administration to determine if underwriting policies affect the production, employment, and operational status of insured U.S. coal mines.

Regardless of cause, non-renewal of insurance coverage is associated with a higher likelihood of mine abandonment and reductions in coal output and employment.

MSHA data indicated that U.S. coal mines are 3.6 percentage points more likely to be abandoned in the quarters following policy adoption (about 33% relative to the sample mean).

Post-policy adoption declines in production are estimated at about 8% (equivalent to around 0.024 short tons), and 15% in employment (around 10 employees). These effects are more pronounced for mines that rely heavily on fewer insurers.

“Overall, the results suggest that reductions in insurance coverage can meaningfully constrain coal mining activity,” the study said.