Pressure group lambasts Lloyd’s insurers over fossil fuel continuation
Despite promises to the contrary, a new study shows Lloyd’s insurers are still wedded to underwriting and investments in fossil fuels.
Andrew Putwainposted on Monday, November 13, 2023
A new paper released last week revealed that insurers have withdrawn cover for climate risks while simultaneously backing increased fossil fuel production and continuing investments in extractive industries.
“[The] industry must act to support 1.5°C climate target after 50 years of failure,” said the authors of the paper, Insure Our Future (IoF), which highlighted that August 2023 was the fiftieth anniversary of Munich Re publishing a paper on climate change and fossil fuels – the first recorded instance of an insurer publicly warning about this crisis.
IoF said that many organisations were wedded to investment in and underwriting of fossil fuels despite simultaneous efforts to adhere to decarbonisation and net zero investment strategies.
Insurance hooked on fossil fuels?
The paper said that the industry was not living up to its promises of walking back financial commitments in both investments and underwriting.
“Insurers on the Lloyd’s of London market collectively are the world’s biggest fossil fuel
underwriters with an estimated $1.6-$2.2 billion in annual premiums."
Fossil fuel insurance earned the industry around $21.25 billion in 2022, according to research commissioned for the report from Insuramore, an insurance intelligence company, said IoF. “Insurers on the Lloyd’s of London market collectively are the world’s biggest fossil fuel underwriters with an estimated $1.6-$2.2 billion in annual premiums. The top ten individual insurers include AEGIS, Chubb, Allianz, AXA, Fairfax Financial, Zurich, W. R. Berkley and AIG,” the report added.
The Top 10 fossil fuel insurers in 2022 (in USD), according to Insuramore estimates, were:
- People’s Insurance Company of China (PICC)
- Fairfax Financial
- R. Berkley
Of these ten, the top three represent Bermudian-domiciled companies, as well as Chinese and Russian insurers. Three were American, with the remaining four European and Canadian.
For investments, the results varied – four European firms were at the ‘top’: SCOR, Generali, Swiss Re, Hannover Re, and Bermuda-domiciled AXIS at fifth.
At the bottom were five companies at joint 26th place that have not taken any steps to divest from coal, oil and gas companies: Berkshire Hathaway and Starr from the US, PICC, Sinosure, and Bermudian Everest Re. All scored zero in the ranking by IoF.
In what, exactly, these insurers had invested was not mentioned – and whether their strategy was engagement (a tactic many insurers employ to influence fossil fuel company business plans) instead of divestment was similarly unclear. As part of the paper, IoF listed among its goals that insurers “immediately divest all assets, including assets managed for third parties, from coal, oil, and gas companies that are not aligned with a credible 1.5ºC pathway” – a directive in opposition to any engagement process.
“If an engagement strategy is not linked with consequences, the investees
will understand that the strategy is not serious.”
When asked by Insurance Investor whether engagement strategies should be taken into consideration of the insurer’s score, IoF’s Peter Bosshard, Global Coordinator, said they “support the engagement of companies which insurers invest in and underwrite as long as the process is linked to clear expectations, timelines, and an escalation strategy.”
He added that “if an engagement strategy is not linked with consequences, if the expectations are not met after a defined period (usually two years), the investees will understand that the strategy is not serious but meant to greenwash a business-as-usual approach.”
IoF also said that “many companies’ restrictions continue to contain large loopholes, particularly on oil and gas. Of the 30 insurers assessed in the report, only Aviva, Generali, Allianz, Hannover Re, Munich Re, and Talanx have ceased underwriting any new oil and gas extraction projects without major exceptions.
“Almost no insurers have ended cover for new midstream and downstream gas infrastructure such as liquefied fossil gas (LNG) terminals and gas power plants, which are locking in increased extraction for decades to come,” it said. “Only Hannover Re will no longer insure new midstream infrastructure benefitting new oil and gas production.”
Of the 30 insurers assessed, 25 have coal divestment policies – up from last year’s 23, said IoF – and 20 insurers, up from 19 in 2022, have divested from at least some oil and gas assets. “Coal divestment policies are typically stronger than oil and gas divestment policies, with average scores of 4.6 and 1.9 out of 10 respectively,” said IoF.
The report stressed that insurers’ efforts to divest their investment portfolios and underwriting activities from oil and gas were far slower than similar efforts to move away from coal. The report gave Allianz 10/10 in its scorecard for restrictions on coal, followed by AXA, Swiss Re, and Generali.
“If insurance companies took climate science seriously, they would align their underwriting
and investment strategies and end all support for increased fossil fuel production."
“Far fewer insurers have introduced policies on oil and gas [than coal], and restrictions are much more limited than on coal,” said IoF. “Companies with a 19.6% share of the commercial property and casualty market and 46.7% share of the reinsurance market have taken action, up from 15.4% and 43.4%, according to Insuramore.”
“If insurance companies took climate science seriously, they would fully align their underwriting and investment strategies with a credible 1.5°C pathway and end all support for increased fossil fuel production,” said Bosshard. “They would be suing fossil fuel companies, to make polluters pay for the growing costs of climate disasters and keep insurance affordable for climate-affected communities.”
Wider industry goals
With the next instance of COP due to start in a few weeks – and controversy around promises of net zero emissions versus political realities – many eyes are on the environmental concerns, and what they mean for insurance businesses.
It’s been a tough year for insurers and the PR surrounding their fossil fuel links, with repeated controversies about the dropout rate of members of the Net Zero Insurance Alliance. The publicity around those departures saw big names in the industry, such as former Lloyd’s CEO Dame Inga Beale, speaking of their dismay at the departures.
Beale, who has spoken on her belief in Net Zero causes, was quoted at the International Conference for Actuaries in Sydney in late May: “The insurance sector cannot back away from their responsibility to try and meet those Paris Agreement climate targets.”
In July, the United Nations Environmental Programme (UNEP) said that NZIA members no longer had any obligation to set or publish targets. Bosshard said at the time that the decision by UNEP would “reduce the NZIA to another industry talk-shop and an empty shell”.
Insurers’ outlook on climate change not pretty
“Insurers are now seeking to limit their future losses from climate risks,” said the paper, specifying that capital for reinsurance fell by 20-25% in 2022. This, “together with growing financial risk, caused a spike in premiums”, it said, according to a briefing on natural catastrophes by the Swiss Re Institute.
“Insurers are now seeking to limit their future losses from climate risks.”
“Major companies have reduced cover or left the property market altogether, including AIG Re, AXIS Capital, AXA XL, Everest Re and SCOR,” the IoF paper said. “In the past year, primary insurers that accounted for more than two fifths of California’s home insurance market have pulled out following years of escalating climate disasters. They include State Farm, Allstate, Chubb, Tokio Marine, AIG and Berkshire Hathaway’s AmGUARD.”
These organisations added to this the recent trend of companies that have stopped insuring homes in certain markets. The controversy over the summer of insurers pulling out of Florida, Louisiana, and in parts of Australia, “leaving homeowners highly vulnerable and with significantly reduced property values”.
In January 2023, Aileen Mathieson, Group Chief Investment Officer at Aspen, highlighted at Insurance Investor Live Europe that the extremes of catastrophe (cat) risk losses were increasing and more cash on hand for insurers was needed to be able to adequately respond. “The past six years have been worse for P&C insurers [for cat losses],” she said.
Mathieson added that if extreme cat risk losses continued there could be a need to rethink where insurers can operate and to what extent – which would mean more vulnerable communities could be left underinsured.
Some of these firms, however, have different views on the matter.
Everest Re, for instance, was highlighted as an oil and gas ‘insurer of last resort’, which was part of the reason it was put last in the ranking. IoF accused these insurers of not doing business in areas most affected by climate change.
“Insurance companies are reducing their exposure to risks to protect their own bottom line,
and it is cynical for them to argue that they do so in the interest of climate action."
However, in its proxy voting statement from April 2023, Everest Re specified that “we have reduced our capacity and exposure to regions more susceptible to increased severity of climate change, thereby, proactively helping to curb the expansion of human activity into environmentally sensitive locations.” This was part of its section on ‘Influencing Societal Behaviour to Mitigate Climate Change Risk.’
Bosshard called this a “creative effort at bending reality”. “Insurance companies are reducing their exposure to climate risks to protect their own bottom line, and it is cynical for them to argue that they do so in the interest of climate action,” he said.
The scorecard highlights the need for more consistency and transparency from insurers in order to win the hearts and minds of the general public and ease concerns over their actions, whilst also reducing reputational risk.