The Insurance Industry Has A Climate Problem

THE PROBLEM  

Deadly flooding, devastating wildfires, and catastrophic storms are showing once again that climate change is already here, and we are vastly unprepared. The insurance industry is no exception. Despite being particularly vulnerable to climate change, insurers have resisted addressing the risks they face. A 2020 survey of insurance executives found that 75% believed their companies were exposed to risk from climate change and that they were underprepared for them.

What many people don’t realize is that the insurance industry also contributes to climate change in two key ways:

1. Underwriting: Insurance carriers are providing the coverage to build and operate polluting, carbon-intensive projects like coal plants, gas pipelines, and tar sands mines. Once built, this infrastructure locks us into dirty, expensive energy that accelerates climate change, harms public health, and in many cases, violates Indigenous land rights.

2. Investments: Insurance companies are big institutional investors, investing client premiums into various assets, including fossil fuel companies. As of 2019, the U.S. insurance industry had $582 billion invested in coal, oil, and gas utilities and other fossil fuel activities—an increase of $63 billion from 2018.

Insurance represents a key lever in fighting climate change. The findings from the UN’s latest report on climate science show that we have limited time left to avoid the most dire impacts of the climate crisis. Taking climate science seriously means understanding that insuring and investing in greenhouse gas emissions is actually contributing to the climate crisis. When insurance companies provide coverage for new and existing sources of emissions, they increase the likelihood and magnitude of climate impacts. The insurance industry has a unique opportunity to accelerate the global transition away from fossil fuels. Rather than provide a lifeline to this climate-wrecking sector, insurers could rapidly phase out their financial support for it.

We are asking insurance professionals across the industry to call on insurers to stop enabling climate harm and start insuring our future. Will you join us?

THE SOLUTION

There are two clear steps that any energy underwriter should take to align its business with the Paris Climate Accord and the recommendations from the global scientific community:

1. Stop underwriting coal, oil, and gas projects and companies.

2. Divest from fossil fuel companies.

While most European insurers have ended or limited coal coverage, many major U.S. property and casualty insurers—including AIG, Berkshire Hathaway, and Travelers—have no restrictions on their support for fossil fuels. The Insure Our Future’s 2021 Scorecard on Insurance and Fossil Fuels found that over 30 insurers around the world have already taken first steps to restrict fossil fuel underwriting and investments.

Insurance companies’ retreat from coal is already having a tangible impact on the sector—making it harder and costlier for coal projects to secure the insurance they need to operate. Coal companies face rate increases up to 40% and existing projects are struggling to obtain insurance.

THE OPPORTUNITY

Companies are facing more and more pressure to act on their employees’ social and environmental concerns. In the words of Kasper Hulthin, co-founder of employee feedback firm Peakon: “Companies need to be receptive because employees are increasingly taking jobs based on whether their personal values align with those of their employer.” As an insurance industry employee, you have several key opportunities to encourage your company to become a climate leader:

The insurance industry needs to recruit and retain talent. The U.S. insurance industry is facing a recruitment challenge, as an estimated 50% of its current workforce will retire by 2028. And the industry is struggling to appeal to the younger potential employees that it badly needs. Current employees can push their employers to address climate change by expressing dissatisfaction with weak or nonexistent climate policies.

Insurance professionals are already speaking out about the need for the industry to do more to address climate change. There is a growing group of insurance professionals who are raising their voices, across different types of positions, seniority, and companies in the industry. Some are organizing their colleagues in their workplaces, and others are publicly sharing their perspectives. You can read opinion pieces on this topic from a current employee, a former employee, and a risk management student.