EHS Administration, Regulatory Developments

Changing Underwriting Standards for Oil and Gas Projects

Last month, insurance giant Chubb Limited announced it will require evidence-based reduction of methane emissions from companies seeking underwriting for oil and gas extraction projects. It also announced it won’t provide insurance coverage for oil and gas projects in government-protected conservation areas in the World Database on Protected Areas that don’t allow for sustainable use.

“The methane-related underwriting criteria that Chubb has adopted – the first of their kind in our industry – are focused on the balance between the need to transition to a low-carbon economy and society’s need for energy security,” said Evan G. Greenberg, chairman and CEO of Chubb, in the company’s news release.  “As a company, we are accelerating and expanding our climate-related initiatives without committing to sweeping net-zero pledges for which, in our judgment, there is not a viable path to achieve. We will continue to pursue in earnest a responsible, realistic and science-based approach. Implementing these underwriting criteria encourages oil and gas producers to adopt technologies to reduce GHG emissions in extraction. We know that many of our clients in the industry are already committed to limiting methane emissions and we will work to expand those commitments.”

Methane emissions underwriting standards

Chubb’s new standards for insurance coverage on oil and gas extraction projects include:

  • Clients must implement evidence-based plans to manage methane emissions, including, at a minimum, implementing programs for leak detection and repair and the elimination of nonemergency venting.
  • Clients must adopt one or more measures that have been demonstrated to reduce emissions from flaring.

These criteria became effective as of March 22, 2023, the date of the insurance company’s announcement. Existing clients have been provided with a set period of time to develop an action plan based on their individual risk characteristics.  Chubb also announced the creation of a customer resource center to support oil and gas insureds in identifying and adopting methane emissions reduction technologies.

Protected conservation areas underwriting standards

Also effective as of the March 22, 2023, announcement date, Chubb will no longer underwrite oil and gas extraction projects in protected areas designated by state, provincial, or national governments. Chubb’s policy applies to conservation areas covered by International Union for the Conservation of Nature (IUCN) management categories I–V in the World Database on Protected Areas, which includes nature reserves, wilderness areas, national parks and monuments, habitat or species management areas, and protected landscapes and seascapes.  The sixth IUCN category applies to protected areas that allow sustainable use. By the end of 2023, Chubb will develop and adopt standards for projects in category VI areas in the World Database of Protected Areas, as well as for oil and gas extraction projects in the Arctic, key biodiversity areas, mangrove forests, and global peatlands that aren’t currently listed in the World Database on Protected Areas.

“Our policy on not insuring energy projects in protected areas also reflects our approach to setting clear guidelines to sustain biodiversity and protect nature,” Greenberg added in the news release. “Taken together, our new underwriting criteria, along with our other substantive actions, are grounded in our commitment to lead the industry in the transition while balancing the need for energy security.”

“In 2019, Chubb was the first insurer with significant U.S. operations to limit coal-related underwriting and investment, a policy later extended to oil sands projects underwriting,” the company says in a news release. “More recently, Chubb launched a new climate business unit, Chubb Climate+, which will provide a full spectrum of insurance products and services to businesses engaged in developing or employing new technologies and processes that support the transition to a low-carbon economy. The business unit also provides risk management and resiliency services to help those managing the impact of climate change. In January, the company appointed a new Global Climate Officer to provide insights and leadership for Chubb’s climate activities.”

Some sources report that the updated standards are in response to activists’ protests.

“Last year, around 50 climate activists protested Chubb’s policies on fossil fuel insurance and delivered a petition that the group said had over 50,000 signatories,” says Insurance Business.

As one of the largest property and casualty insurance companies worldwide, Chubb often leads the way for industry changes. It’s safe to assume other insurers will follow suit in requiring these types of standards for oil and gas projects. In order to be proactive, industry is advised to develop and put in place emissions reductions plans, with measures to document progress.

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