Category Archives: Insurance Industry

‘Bad neighbor’ State Farm had at least $30B invested in fossil fuels when it abandoned CA homeowners and climate victims

Like a bad neighbor, State Farm is gone from California

An oil rig silhouetted by a golden sunset.

San Francisco Chronicle, by David Arkush and Carly Fabian, July 12, 2023

State Farm’s decision to stop providing new homeowners insurance policies in California is an indicator of the growing damage caused by climate change. As climate-driven disasters lead to higher losses, insurers like State Farm will raise prices and cut back coverage or even flee.

Far from neutral victims, though, insurers are profiting from both sides of this crisis. They collect premiums and investment profits from fossil fuels while extracting ever more from consumers whom they plan to abandon.

To be clear, there is no question that climate change is disrupting insurance markets. The rising frequency and severity of disasters are driving up the cost of insurance and destroying some insurance markets entirely by rendering areas “uninsurable.”

But there’s more going on here than a simple story of climate disasters disrupting the math of insurance.

The root cause of the climate crisis is the rampant burning of fossil fuels. Insurers are critical gatekeepers for the fossil fuel industry, providing the insurance that allows companies to operate. As experts in evaluating risk and extreme weather, insurers knew about climate change early on. But in their pursuit of short-term profits, they didn’t stop underwriting fossil fuels.

Many are still underwriting the most reckless and dangerous parts of that sector, like the expansion of fossil fuels. Some insurers, largely in Europe, have begun restricting their underwriting of fossil fuels, but U.S. insurers are dragging their feet, even as they increasingly abandon homeowners.

Insurers also invest heavily in fossil fuels, unconscionably using their customers’ premiums to profit from businesses that will destroy their homes and, in some cases, even kill them while driving up insurance costs and making many areas uninsurable.

State Farm is a prime example of insurers’ hypocrisy. Rather than suffering financially in California, the company has made substantial profits in the state in recent years, along with other homeowner insurers whose profits in California have been four times the national average, even after accounting for major wildfires. At the same time, the latest data shows State Farm alone had $30 billion invested in fossil fuels and the industry overall had over $500 billion.

The crisis has also been a boon for industry lobbyists who have seized it as an opportunity to bully states and bilk customers. When State Farm announced its decision to stop offering new California homeowners’ policies, the industry’s primary lobbying group, the American Property Casualty Insurance Association, claimed insurers must be allowed to use secret models to set profitable rates. The industry has long wanted those models because they make it harder to catch insurers overcharging for policies. Rather than work on a transparent approach to modeling climate impacts, the industry is pushing a consumer protection rollback it has sought for decades.

The industry playbook appears to be this: Profit as long as possible from fossil fuels. Stick customers with not just direct climate harms, but also higher premiums, while delayingdenying and low-balling claims. Bully regulators for giveaways. Then leave.

Some neighbors. 

Although the industry isn’t putting forward serious solutions, there are steps insurance regulators and legislators can take. In an emergency, the first step is to stop the harm. California can start by requiring insurers to align their underwriting and investments with science-based climate targets to stop insurers from contributing to this crisis.

Regulators can also explore transparent solutions for pricing climate-related risk and consider developing public solutions to provide reinsurance, which is essentially insurance for insurance companies. Public reinsurance programs would facilitate reimbursements for claims above a high dollar amount to insurers that expand their coverage, allocating risks in a way that creates stability for insurers and a stronger safety net for the public.

As insurers leave vulnerable areas, and unregulated reinsurance prices soar, a public backstop for the highest losses would provide more certainty for insurers who want to offer coverage in vulnerable areas while creating a stronger safety net for consumers.

After each disaster and withdrawal, industry trade groups will push for their wish list — with no promise to stay, even if they get everything on it. It’s time for the public and regulators to advance real solutions.

David Arkush is the director and Carly Fabian is the policy advocate for Public Citizen’s Climate Program.

[Note from BenIndy Contributor Nathalie Christian: The sections bolded above reflect my added emphasis.]

Rightwing Canadian Thinktank: Bakken crude is safe, consumers will pay for unneeded regulation

Repost from The Waterloo Record, Kitchener, Ontario, Canada [Editor: It is instructive – although distressing – to take note of current talking points of the right-wing Canadian Fraser Institute.  – RS]

Consumers are the losers in rush to regulate oil by rail

Opinion, by Kenneth P. Green

In the wake of the 2013 Lac-Mégantic oil-by-rail disaster, when a train carrying crude oil from North Dakota’s Bakken field exploded in Quebec, some people began to characterize Bakken crude oil as “uniquely flammable,” implying that new rail car standards might be required to move the material.Indeed, the supposed uniquely flammable characteristics of Bakken crude was ultimately cited as a central reason for the recent Department of Transportation proposal to tighten railcar standards in the U.S., which Canada will almost certainly have to match given the integrated nature of the North American rail system.

There’s no question we must carefully consider the safety of how we move oil, whether by pipeline, rail, roadway or barge. But we should make those judgments based on data, not on emotion or hunches. We also need to consider the costs that such decisions might impose on consumers of oil and derivative products and services. And a recent study of Bakken crude commissioned by the North Dakota Petroleum Council reveals that Bakken crude is just regular crude oil that can be safely transported in existing rail cars.

The study sampled Bakken crude at 15 well sites across the Bakken formation, and at seven rail terminals, testing the oil for a broad range of physical characteristics.

To summarize the findings in plain language: Bakken crude is comparable to light sweet crude oil when it comes to its relative weight as compared to water, and it has very low levels of sulphur and corrosive acidic components. The vapour pressure of Bakken oil (a measure of how much outward pressure that Bakken oil would exert on a container such as a rail car) was found to be within a few pounds per square inch of other light sweet crude oils.

The flash point of Bakken oil (that’s the lowest temperature at which the oil could vaporize enough to ignite in air) was found to be below 73 degrees Fahrenheit, similar to other light sweet crudes. The initial boiling point (that’s the temperature at which bubbles form in a heated liquid) was found to be between 95 F and 100 F, which is also in the normal range for light sweet crude oil; and Bakken crude didn’t have unusually high concentrations of very light (and particularly flammable) hydrocarbons (known as “light ends”).

And, contrary to suggestions that there might have been additions to Bakken crude that would make it uniquely flammable, the study found no evidence that Bakken crude was “spiked” with more flammable natural gas liquids prior to being shipped by rail.

Finally, the report notes that: “… Bakken crude oil meets all specifications for transport using existing DOT-111 tank cars.” This conclusion is consistent with the recent American Fuel & Petrochemical Manufacturers Bakken Report, which stated: “Bakken crude oil does not pose risks significantly different from other crude oils or other flammable liquids authorized for rail transport. While Bakken and other crude oils have been classified as flammable liquids, the report noted Bakken crude poses a lower risk than other flammable liquids authorized for transport by rail in the same specification tank cars.”

The “uniquely flammable” narrative has driven the ongoing process to develop new rail-safety regulations, and new standards have been proposed in the U.S.

Retrofitting existing rail cars to meet the new standards is estimated to cost between $30,000 US and $40,000 US, and industry estimates suggest there are about 78,000 cars that need to be retrofit, at a total cost of $2.3 billion US to $3.1 billion US. Complying with the new regulations will increase costs of oil transport and, thus, the cost of oil, gasoline, derivative products and services provided through the use of those products for everyday consumers. It will also slow the trend of the shift to rail, at least in the short term, until retrofits can be worked through the system.

Some have suggested that the new standards might engender savings through reduced insurance rates, though this seems unlikely. In the wake of the Lac-Mégantic derailment, the United States Pipeline and Hazardous Materials Safety Administration effectively concluded that current insurance coverage levels were not simply low, they were drastically too low to cover potential costs of an accident. If anything, there will be still higher insurance rates issued to cover the more expensive cars, further reducing the economic viability of moving large quantities of oil by rail.

Adding to the complexity, there may not be sufficient resources in the rail-insurance sector to step up to the plate and offer more comprehensive coverage.

We may or may not be safer as a result of the proposed tank-car regulations, but it may be that the “uniquely flammable” narrative of Bakken crude has led us to focus on the wrong problem by tackling the material aspect of things before we’ve tackled the insurance side of the equation. Most likely, an integrated process tying both factors together would have yielded a superior outcome.

Kenneth P. Green is the senior director of natural resource studies at the Fraser Institute, an independent, right-of-centre think-tank.

Ca-ching: Oil-by-rail surge to benefit three commercial sectors

Repost from Benzinga
[Editor: Quick & dirty on the 3 sectors: Freight Car Designers And Refitters, Insurance Providers, and Emergency Services And Safety Training.  UNLESS … if we stop crude by rail in its tracks, the only CA-CHING will be in the alternative energy fields.  – RS] 

3 Sectors Expected To Benefit From The Oil-By-Rail Surge

Bruce Kennedy, Benzinga Staff Writer, August 11, 2014

It’s been just over a year since a freight train carrying crude oil from the Bakken shale fields in North Dakota derailed and exploded in a Quebec town near the U.S.-Canadian border, killing 47 people.

That accident, along with several others in its wake, drew attention to the enormous increase in shale oil now being transported from North Dakota and Canada by rail – and the vulnerabilities of that form of transport.

“More crude oil is being shipped by rail than ever before, with much of it being transported out of North Dakota’s Bakken Shale Formation,” Department of Transportation Secretary Anthony Fox pointed out in a press conference last month. “In 2008, producers shipped 9,500 rail-carloads of oil in the U.S.; by just last year, that number skyrocketed to 415,000 rail-carloads — a jump of more than 4,300 percent.”

At that same press conference, Fox announced a rule-making proposal to improve the safe transportation of large quantities of flammable materials by rail – crude oil and ethanol in particular.

The increase in oil being transported by rail, as well as the new safety measures, might also be a windfall for companies in some related fields.

Freight Car Designers And Refitters

The proposed new safety rules for oil freight cars means a potential bonanza for firms like The Greenbrier Companies (NYSE: GBX). The Oregon-based group is a leading manufacturer and marketer of railroad freight car equipment in both North America and Europe.

Along with retro-fitting existing oil rail cars, Greenbrier is also designing a new genreration “Tank Car of the Future,”  with a thicker tank and bigger welds to ensure greater safety.

The new design, according to the Rigzone oil and gas industry web site, is “intended to meet anticipated new industry and government standards for tank cars transporting certain hazardous material.”

Insurance Providers

The Wall Street Journal reports that most, big North American railroads usually carry about $1.5 billion in liability insurance – but notes that accidents like last year’s deadly derailment and explosion in Lac-Mégantic, Quebec, can end up costing billions of dollars more in cost, especially if that accident happens in a populated area.

“Even if it happens outside of town, the massive damage to property and the environment — you’re stymied when you have these kind of crude oil fires burning hot and big for days,” Karen Darch, president of Barrington, Illinois, told the newspaper.

This could lead to an increase in the need for insurance.

“With experts predicting that oil spill derailments may increase in frequency over the next decade, the insurance industry must be prepared to address this new coverage threat,” says the law industry tracker web site Law360 earlier this year, “including the coverage issues and potential exposure which may arise from these disasters.”

Emergency Services And Safety Training

Earlier this year, Minnesota’s state legislature passed an oil transport law. The measure, reportedly worth more than $6 million, took fees generated in part from oil and railroad companies and put that funding towards tanker and pipeline disaster training, as well as more state transportation safety inspectors.

As former National Transportation Safety Board Chairwoman Deborah Hersman pointed out in a letter written this past January to the head of the Federal Railroad Administration, there is no mandate for the railroads to come up with comprehensive disaster response plans for oil train derailments

This means the rail carriers “have effectively placed the burden of remediating the environmental consequences of an accident on local communities along their routes,” the letter said.

According to the Association of American Railroads, the industry is providing $5 million to develop and fund specialized training for first responders handling a crude-by-rail accident, as well as developing “an inventory of emergency response resources and equipment for responding to the release of large amounts of crude oil along routes over which trains with 20 or more cars of crude oil operate.”

DOT: Rail insurance inadequate for oil train accidents

Repost from Politico
[Editor: Significant quote: “For ‘higher-consequence events’ — such as the one in Lac-Mégantic — ‘it appears that no amount of coverage is adequate,’ the analysis says. That’s because the maximum amount of coverage available on the market is $1 billion per carrier, per incident….’You should know the railroads are used to running bare — without adequate insurance,’ said Fred Millar, an independent rail consultant who has criticized the government’s oversight of oil trains.”  – RS]

DOT: Rail insurance inadequate for oil train accidents

By Kathryn A. Wolfe | 8/6/14
Several CSX tanker cars carrying crude oil in flames after derailing in downtown Lynchburg, Va. | AP Photo
The maximum amount of coverage available is $1 billion per carrier, per incident. | AP Photo

Most freight railroad insurance policies couldn’t begin to cover damage from a moderate oil train accident, much less a major disaster. And the Department of Transportation’s own database of oil train incidents is flawed because some railroads and shippers provide incomplete information that far understates property damage.

Those conclusions come from a DOT analysis of its own rule proposed to address the series of troubling derailments across North America as shipments of oil by rail surge.

The department issued the analysis Aug. 1, the same day it published its proposed oil train safety rule that is meant to create what Transportation Secretary Anthony Foxx calls a “New World Order” in oil trains regulations, including by requiring sturdier tank cars, tightened speed limits and improved brakes for the trains carrying an ever-greater amount of crude oil through communities from Southern California to Albany, N.Y.

The rule would not expressly address the insurance issue, except to cite the general liability landscape as part of the need for the rule, which seeks to prevent the worst disasters from happening and mitigate damages from those that do.

Gaps in insurance coverage became an issue after the July 2013 disaster in Lac-Mégantic, Quebec, which occurred when a train that had been left unattended careened down an incline, derailed and charred much of the downtown area, killing 47 people. The damages from that wreck could stretch into the billions of dollars, but the railroad responsible for the derailment carried only $25 million of insurance and wound up declaring bankruptcy.

DOT’s analysis says most of the largest railroads commonly carry around $25 million in insurance, though that can rise to as much as $50 million for trains hauling certain kinds of hazardous chemicals. Smaller railroads — such as the one in the Lac-Mégantic disaster — often carry much less than that.

But the agency’s Pipeline and Hazardous Materials Safety Administration estimated that the average derailment that spills crude oil will mean $25 million in total costs — bumping up against most of even the largest railroads’ current insurance limits.

For “higher-consequence events” — such as the one in Lac-Mégantic — “it appears that no amount of coverage is adequate,” the analysis says. That’s because the maximum amount of coverage available on the market is $1 billion per carrier, per incident.

“You should know the railroads are used to running bare — without adequate insurance,” said Fred Millar, an independent rail consultant who has criticized the government’s oversight of oil trains. “And the situation that is described in the [analysis] from Lac-Mégantic is only just the tip of the iceberg. The railroads basically know that they have cargoes that can cause massive, enormously greater death and destruction than what happened in Lac-Mégantic.”

Devorah Ancel, an attorney for the Sierra Club, said insurance coverage “needs to catch up with the heightened risk that is part of this industry now,” because otherwise “taxpayers end up covering it.”

The Association of American Railroads declined to comment, saying the group is still reviewing the pending rule and its supporting documents, including the regulatory analysis, and the American Petroleum Institute said it would file its comments as part of the public comment period.

“We are working closely with regulators and the rail industry in a comprehensive effort to enhance safety through accident prevention, mitigation and response,” API said.

But railroads know they’re underinsured and have groused about the status quo, particularly considering the fact that energy companies that ship oil and ethanol largely do not bear any liability for an incident once their product is loaded onto a train. And under “common carrier” regulations, railroads cannot refuse a shipment any kind of material assuming it meets proper regulations.

Warren Buffett’s BNSF railroad, the pioneer in the oil train industry, has been requesting that railroads get some of the same protections now afforded to the nuclear power industry, using the Price-Anderson Act as a model. That law requires power companies to contribute to an insurance fund that would be used in the event of an accident, and it also partially indemnifies the nuclear power industry.

The DOT analysis also points to a systemic weakness in the way the federal government collects data on derailments of crude oil and ethanol trains. In the section dealing with the probability of major rail accidents, the analysis observes that it’s “impossible to isolate the derailment rate of only crude oil and ethanol trains” due to “limitations in the reported data.”

That’s because PHMSA requires an incident report to be filed only if the incident led to the release of a hazardous material — so derailments that did not result in a spill aren’t included. As a result, even some dramatic accidents aren’t included in the database — for instance, one earlier this year that resulted in a crude oil train dangling over Philadelphia’s Schuylkill River.

Separately, DOT’s Federal Railroad Administration maintains data on derailments, including how much hazardous material was released — but doesn’t identify what type of substance it was. “As a result, it is impossible to use FRA data to identify crude and ethanol derailments,” the department said.

And the data that is reported, particularly to PHMSA, is often inaccurate, largely because it is self-reported by railroads or shippers, according to the analysis. And these self-reports often underestimate the damages done in spill incidents.

According to the analysis, damage information reported to PHMSA is typically “only the most basic costs” such as the value of spilled petroleum and damage to tracks and cars.

“PHMSA believes that response costs and basic cleanup costs, when they are reported, do not represent the full costs of an accident of the response,” the report said.

Underreporting damages, particularly for environmental cleanup costs, ends up hiding the true impact of a spill from policymakers, Sierra Club’s Ancel said. She hopes the pending rule will address the issue.

“It is extremely important that the industry is required to adequately report — and there should be some sort of mechanism in the rule where the agency has inspectors that are ensuring that they are,” she said. “So not only should the industry be on the hook for reporting, but the agency needs to be able to have the resources to ensure that they are.”