Insurance Act changes may help Alberta as insurers retreat from oil and gas
Major insurers continue to announce they’ll cease issuing coverage to the oil and gas industry, which remains economically critical to Alberta and other Canadian provinces – and is poised to experience a demand boost as Europe seeks alternatives to Russian energy products.
On Apr. 29, Allianz said it would stop investing in or underwriting new single-site and standalone oil and selected gas risks as of next Jan. 1, and not renew existing contracts after July 2023. The exclusions will apply to exploration and development of new oil and gas fields, including oil sands and extra-heavy oil, and more.
Allianz’s news follows similar statements from others, including a Mar. 1 announcement in which AIG “committed to no longer invest in or provide insurance for construction of any new coal-fired power plants, thermal coal mines or oil sands.”
What’s more, Aspen Insurance (Lloyd’s of London syndicate) said on Apr. 21 that it would cut ties with Trans Mountain, following Munich Re, Zurich Insurance Group, Argo Group and others in the face of public pressure.
In that light, Alberta’s pending Bill 16 to modify its Insurance Act and Captive Insurance Companies Act could be a boon for Canada’s oil and gas sector.
“The need for insurance for particularly the energy sector can’t be overstated…Catastrophic incidents…have occurred across the world with regard to producers of energy,” said Alberta Legislative Assembly member Joe Ceci during an Apr. 27 reading of the bill. “Catastrophic events need to be backstopped with appropriate insurance through those companies. The industry needs the ability to access that insurance.”
Among other things, Bill 16 would address high regulatory charges tied to the purchase of unlicensed insurance in Alberta. Currently those charges stand at 50% but would drop to 10% if the bill becomes law. Likewise, a 50% financial penalty for late payment of charges and taxes on unlicensed insurance would drop from 50% to 10%.
Getting a handle on those high charges was seen as a motivator for the tabling of Bill 76 (now the Captive Insurance Companies Act ) during Alberta’s 2021 legislative session. Currently awaiting proclamation, Bill 76 will allow captive insurance companies to set up and domicile in Alberta to create options beyond unlicensed insurance for companies that have difficulty finding coverage.
Bill 16 now addresses those unlicensed insurance charges directly and also builds on Bill 76 with a ‘redomestication’ provision that would let foreign captives relocate to Alberta.
Bill 16 would also add new reinsurance provisions to let provincially licensed insurance companies focus solely on reinsurance and to enter into limited partnerships to raise capital.
And it would harmonize the province’s Insurance Act with new regulatory standards and comparable federal legislation and change improper references to other provisions of the Act to remove now-unnecessary requirements and sections.
Feature image by iStock.com/dan_prat
