The insurance industry as a leverage point for fighting climate change

One of the revelations about fighting climate change that seems to have echoed broadly since started the fossil fuel divestment movement is the degree to which the industry can be suppressed by denying it access to financial services.

That includes denying it the ability to borrow from banks and institutional investors, who are increasingly concerned both about the reputational risk of supporting a world-wrecking industry and the financial risk of contributing to new fossil fuel projects which will need to be shut down to avoid worst-case climate change scenarios.

It also includes the insurance industry. To begin with, they face enormous financial risks from climate change impacts as diverse as rising sea levels, extreme storms, and wildfires. The concept of insurance is that the premiums are reasonable because things won’t go wrong for everyone at the same time; you can get affordable fire insurance, for instance, because in most cases the insurer can be confident that only a small fraction of insured properties will burn each year. That calculation changes when climate change coordinates risks for billions around the world, whether that’s coastal property at risk to rising seas and hurricanes or towns in wildfire zones that now face an existential risk every time there is a bad fire season. With those kinds of risks now evident, it’s unsurprising that the insurance industry is expressing concern and calling for action.

In addition to those insured against climate change risks, insurance is also necessary for fossil fuel project proponents. That leverage point is being made use of by anti-pipeline activists in B.C. who are pushing for insurers to refuse to cover the Trans Mountain pipeline:

Over the course of the week, Indigenous rights and climate activists from Vancouver to Kiribati to Sierra Leone called on Liberty Mutual, Chubb, AIG, W.R. Berkley, Lloyd’s of London, Starr, Stewart Specialty Risk Underwriting, and Marsh to publicly pledge to refrain from doing any future business with the project.

Argo, one of the companies that currently insures Trans Mountain, recently confirmed it will not cover the pipeline or its expansion project, which would carry an extra 590,000 barrels of oil a day from the Alberta oilsands to British Columbia. Since then, two other insurance companies that had previously insured Trans Mountain but are not current insurers, Scor and Lancashire, have cut ties too.

No doubt this will lead to howls from pro-fossil entities, but in the long run blocking these projects has the promise of avoiding massive further investment in unusable energy.

The fossil fuel industry has been able to impose as much harm on the world as it has because there haven’t been mechanisms to make it care about the losses being suffered by others. If that freeloading dynamic changes, the world will have a better chance of avoiding climate catastrophe. Insurers can play an important role in driving the shift.

13 thoughts on “The insurance industry as a leverage point for fighting climate change”

  1. Nearly two dozen environmental and Indigenous organizations have signed an open letter calling on Trans Mountain insurers to drop the pipeline, warning the CEOs of major insurance companies that pressure will continue to mount until they do.

    The letter urges the companies to rule out insuring Trans Mountain, as well as any expansion project for the oilsands, and for the insurance companies to require its clients to obtain free, prior, and informed consent from impacted communities.

    It was directed to the CEOs of AIG, Chubb, Energy Insurance Limited, Liberty Mutual, and Lloyd’s of London syndicates, among others.

  2. TORONTO – A shareholder advocacy group is calling out Canada’s property insurers for their support of the fossil fuel industry while also raising premiums because of climate-related disasters.

    Investors for Paris Compliance says in a report out Wednesday that the seven largest Canadian property and casualty insurance companies collectively invested about $19.5 billion in oil and gas assets last year, with almost three-quarters of that represented by Toronto-Dominion Bank, while some companies also did underwriting for the fossil fuel industry.

    At the same time, the property and casualty (P&C) insurance industry has raised home and mortgage insurance rates by 73 per cent in the 10 years leading up to 2023, or 36 per cent when adjusted for inflation, based on data from Statistics Canada.

    “The P&C industry is really entrenched in a contradiction,” said Kiera Taylor, senior analyst at Investors for Paris.

    “While their business faces an existential threat due to climate change via higher claims and growing uninsurability, they continue to foster those risks via underwriting and investing in fossil fuels.”

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