The federal Crown corporation responsible for the Trans Mountain pipeline is diverting attention from its own shoddy safety culture by blaming campaigners for its rising insurance premiums, while trying to conceal information on its operations that properly belongs in the public domain, two insurance industry veterans have told The Energy Mix.
The criticisms emerged after Trans Mountain Corporation asked the Canada Energy Regulator (CER) to allow it to keep the names of its insurers private, for fear that climate, energy, and Indigenous rights campaigners would target them to refuse coverage for the controversial pipeline. Trans Mountain acknowledged it “incurred higher costs last year due to dwindling insurance options,” Reuters reported late last month.
“Trans Mountain has already observed increasing reluctance from insurance companies to offer insurance coverage for the pipeline and to do so at a reasonable price,” the company said in a filing with the CER.
But Trans Mountain’s bid to connect the dots from its own insurance woes to a mounting global campaign against fossil insurance isn’t passing the sniff test with Canadian insurance specialists Robyn Allan and Angus Ross, The Mix has learned.
On top of a general tightening of insurance markets driven partly by climate risk, “a 68-year-old pipeline is a huge insurance risk,” and “it’s only getting older every year,” said Allan, an independent economist and former president and CEO of the Insurance Corporation of British Columbia who now routinely appears as an expert witness at pipeline hearings.
After a series of workplace accidents forced the company to shut down construction operations for a couple of months of retraining, she added, “you’ve got this situation where Trans Mountain is showing that they’re a huge safety risk, and any insurer would be worried about that.”
Not long after the company ended its “safety stand-down”, workers were photographed violating COVID-19 protocols along the Trans Mountain expansion project route, Burnaby Now reported last week.
Beyond pipeline and workplace safety issues, insurers and the public are entitled to at least some of the information the company is asking the CER’s permission to withhold, said Ross, a mostly retired reinsurance executive and former member of the National Round Table on the Environment and the Economy. While Trans Mountain is within its rights to hold back proprietary contractual details that “would normally be considered private commercial activities,” he said, “I think it will probably be in the public interest to put those names out there,” because businesses and investors will want the information.
“So many companies now are looking at their investments, and they want to divest themselves of companies which are supporting companies that aren’t helping the climate,” Ross told The Mix. “Trans Mountain will not be helping the climate. So if a public company decides to issue insurance policies on pipelines, funds which are really ESG-conscious are not going to have money invested in those companies.”
And that, in turn, translates into a duty on CER’s part to get it right in its ruling on Trans Mountain’s secrecy attempt. “If the government supports Trans Mountain, that knowledge is being hidden, but at the same time it appears on the portfolios of those ESG-concerned investors, investment groups, mutual funds, isn’t that putting a false face forward?” he asked. “Because it will have an impact on investment decisions.”
Regulator Invites Public Comment
Trans Mountain’s bid to conceal its insurers’ identities was back in the news this week after the CER issued its response to the initial submission. The company had asked for a decision by March 15. But in a letter March 8, Commission Secretary Jean-Denis Charlebois advised Trans Mountain Associate General Counsel Kevin Trasher it would solicit further input on the request, after receiving objections from Allan and B.C.-based campaigners at Stand.earth. Public comments close March 22, and the company must respond by March 25.
In her four-page missive to the federal regulator, Allan said the Trans Mountain is focusing on public opposition to pipeline construction while ducking a much bigger issue.
“Trans Mountain’s argument is specious—it might have the appearance of potential plausibility but falls apart when an understanding of Trans Mountain’s safety risk, insurance underwriting practices, and industry trends is brought into the discussion,” she wrote. She pointed to a June 2020 spill from the existing pipeline, and two workplace accidents that left one worker dead and another one critically injured, all of which “would have a significant impact on future insurance programs”.
The federally-owned pipeliner “would have the Regulator believe that a 68-year-old pipeline operated by a company with a self-disclosed lack of safety culture and recently severed from the corporate support of one of the largest pipeline operators in North America has no impact on insurance availability or cost,” she added. And ironically, “by asserting that targeted public pressure, and only targeted public pressure, is what determines if, and at what price, coverage will be offered, Trans Mountain misrepresents the insurance industry. It is likely that Trans Mountain has done more to turn insurers off providing coverage” with a letter that “represents its insurers as malleable and unprofessional.”
All of which means that “granting Trans Mountain’s request will do nothing to increase the number of insurers willing to provide coverage or reduce premiums, however, it will erode the public’s trust in the CER,” Allan said. “The CER should be aware that it is not in the public interest for the credibility of the Regulator to be undermined by supporting Trans Mountain’s self-serving request to avoid transparency and accountability.”
In an email to The Energy Mix, a Trans Mountain spokesperson said only that the company “is asking the CER to treat the names of our insurers as commercially sensitive information to ensure that we have the ability to maintain reasonably priced insurance.” She did not respond to a follow-up requesting comment on the concerns about the safety of a 68-year-old pipeline, the company’s own safety culture, or the flags those issues might raise for insurers.
In a phone interview Wednesday, Sven Biggs, Stand’s Canadian Oil and Gas Program Director, said he wasn’t surprised to see Trans Mountain using his organization as a screen. “This company has a long track record of making mistakes and causing difficulties for itself in the regulatory process, then blaming its critics if it can’t seem to get its filings in on time or follow local bylaws, all sorts of examples of this kind of behaviour.”
Ironically, though, Trans Mountain’s attempt at distraction may end up bringing new support to the organizations working to hold it to account. “It’s only been two weeks since Trans Mountain admitted that our campaign targeting its insurers was making it harder to finish this dangerous tar sands pipeline,” Biggs wrote in a fundraising email yesterday. “Already, this community has hammered the inboxes of insurance company CEOs with over 54,000 individual emails.”
In his own submission to the CER, Biggs said anyone in the business of underwriting risk has another major reason to be concerned about Trans Mountain.
“The move away from projects like Trans Mountain is driven by the bottom lines of the insurance industry, who are increasingly aware of the existential threat that climate change poses to their business model,” Biggs wrote. With climate chaos already driving severe losses across the industry, it’s “logical that many insurance companies are reconsidering their business connections through the lens of climate change and choosing to cut ties with companies and projects that increase the extraction of the most carbon-intensive fossil fuels.”
So far, 19 major insurance or reinsurance companies have limited or ended their coverage for coal and/or tar sands/oil sands projects, he added.
Ross brought Biggs’ point home to the province that is hoping for the greatest benefit from the Trans Mountain project.
“What Alberta, in particular among the Canadian provinces, has to recognize is the real threat that comes from climate change continuing pretty much along the path it’s going on now,” he warned. The two glacier-fed lakes that provide water for the Bow and South Saskatchewan Rivers, Bow Lake and Peyto Lake, “are seeing massive glacier reduction, and within probably 70, 80 years, it’s highly likely those glaciers will be gone. Peyto Lake and Bow Lake will dry up or be massively reduced, and the Bow River will no longer exist. They’ve got to look at the economic consequences of that happening.”
Insurers Confront Climate Risk
As The Mix reported two weeks ago, Trans Mountain’s original secrecy request landed just days before the insurance industry’s “leading international think tank” released a new task force study on climate risk assessment. “For both [property & casualty] and life re/insurers, climate change poses different levels of physical and transition risks to both sides of the balance sheet, liabilities and assets,” the Geneva Association advised in a release. A senior executive with the association pointed to climate risks that are already a matter of deep concern for the industry.
“In 2020 alone, the world witnessed massive wildfires in California and Australia, historic floods in China and a record hurricane season in the Atlantic,” said Managing Director Jad Ariss. “The societal impacts of climate change have become ubiquitous, and individuals and institutions must fully commit now to confronting the climate crisis.”
With the task force now starting work on two follow-up reports, project leader and coordinating author Maryam Golnaraghi said insurers everywhere will have to “engage in a robust dialogue on climate change risk across the organization” across two time frames: 2020-2030, and 2030-2050. “What is absolutely key is to first define decision-relevant questions with a comprehensive view of the balance sheet, then develop [customized] analytics,” she told The Mix by email. “Not vice versa.”
That recommendation applied mostly to the risk of natural catastrophes, not the safety risks attached to an aging megaproject like Trans Mountain. But “re/insurers, as risk managers and investors, play an important role in understanding the risks associated with climate change and educating stakeholders (customers, policy-makers, regulators, financial sector) on how climate change will impact society,” she wrote. “This will provide a unique opportunity to work together to find solutions to reduce or prevent risks.”
Asked whether there are categories of infrastructure so inherently risky that they won’t be able to avoid higher insurance premiums, Golnaraghi said future research will focus on “resilient infrastructure systems”. She added that a past Geneva Association research brief addressed a series of issues, including access to reliable data across the entire life cycle for a piece of infrastructure.
“Data is critical for assessing and pricing risks, identifying sensitive ecosystems, evaluating the overall resilience of infrastructure projects, anticipating failures, and conducting proactive maintenance and preventive retrofits,” she wrote.
The Conversations are Happening
Neither the Geneva Association nor the Insurance Bureau of Canada agreed to comment on Trans Mountain’s secrecy request to the Canada Energy Regulator, nor on the added climate risk a fossil infrastructure project represents for every other asset an insurance company underwrites. But Allan said those conversations are going on behind the scenes.
“Just generally, the fact that we have serious financial difficulties related to climate change is not a surprise to anyone, and my experience has been that business will often understand these risks a lot more fully than they will publicly let on,” she told The Mix. “From the point of view of business strategy, given that we know these risks exist, underwriters will want to get out from under them.” But “once the financial challenges have been mitigated for these companies, I expect they’ll become much more transparent about how big this problem is.”
Former Bank of Canada Governor Mark Carney “got huge backlash” when he first went public about stranded asset risk in the financial sector, Allan added. “But we all know it’s there, it’s happening, and the financial costs are already starting to be obvious,” in spite of “this game of pretending the problem isn’t as big as it is.” That reality—and the fact that the general public and consumers are “frankly the last people to understand it”—point back to the reason for advocacy groups to publicize the issue, and for regulators not to block their efforts.
It “just goes back to my point about how important it is that responsible Canadians are able to voice their concerns publicly without being demonized,” she said. “Even if you go back to the tenets of competition within a capitalist framework, access to reliable and accurate information is fundamental to the sound working of a market.”
Ultimately, “if the regulator accepts Trans Mountain’s request, they’re complicit in enabling Trans Mountain’s risky behaviour, and that’s not in anyone’s interest, including Trans Mountain’s.”