Despite the insurance industry’s original warnings about the climate disaster 50 years ago, insurers are still adding to the issue by funding fossil fuel projects, the Insure Our Future campaign said today in its seventh annual scorecard on insurers’ climate policy.
The majority of insurers maintain their support for projects that will increase oil and gas output, despite the fact that doing so is incompatible with the 1.5°C Paris climate objective set by prominent climate scientists. Insuramore estimates that the fossil fuel insurance sector will bring in $21.25 billion in revenue in 2022.
According to Insuramore’s estimates, insurers at Lloyd’s of London write between $1.6 and $2.2 billion in annual premiums for fossil fuel coverage.
Since 2017, natural disasters have increased insurance claims by an average of $110 billion annually due to floods, storms, wildfires, and droughts. However, insurance companies are becoming increasingly reluctant to cover homes in the highest-risk areas.
In 1973, Munich Re issued the earliest warnings regarding climate change risks after noting that warmer temperatures would have an effect on the ecosystem. Unfortunately, both fossil fuel use and carbon dioxide emissions have been on the rise despite these warnings. Achieving the goal of keeping global warming below 1.5°C is in jeopardy due to the thousands of new fossil fuel projects already under way.
Insurer responses to climate change
The Global Energy Monitor lists a wide variety of coal, oil, and gas extraction projects, coal power stations, LNG import terminals, gas and oil pipelines, and many others that are either planned or already under development.
Insurers are encountering higher financial risks due to climate change. Reinsurance funding dropped by 20–25% in 2022, leading to a surge in rates. Several large insurance companies, including AIG Re, AXIS Capital, AXA XL, Everest Re, and SCOR, have either scaled back their property insurance offerings or completely exited the market.
Over two-fifths of California’s house insurance market has been abandoned due to the withdrawal of key insurers in reaction to rising climate-related risks. Some major insurance companies, including State Farm, Allstate, Chubb, Tokio Marine, AIG, and AmGUARD (owned by Berkshire Hathaway), have pulled out, leaving homeowners more exposed and lowering property prices.
In addition, major insurance companies that have signed up with the Net Zero Insurance Alliance have come under fire for failing to deliver on their promises. When the US threatened anti-trust proceedings, twenty of the alliance’s thirty-one members bolted. The vast majority of companies have not adopted aims to cut their absolute insured emissions by 34%, despite the fact that a small but growing number of companies have published transition plans and net zero targets.
“The insurance sector first issued a warning in 1973 about climate dangers, and these have now become a dismal reality, especially for low-income countries and people that have contributed the least to the climate disaster.” Insurance companies are now abandoning customers affected by climate risks, yet they continue to fuel the climate crisis by underwriting and investing in the expansion of fossil fuels,” Peter Bosshard, worldwide coordinator of Insure Our Future, stated.
“If insurance companies took climate science seriously, they would fully align their underwriting and investment strategies with a credible 1.5°C route and halt any funding for additional fossil fuel extraction. As Bosshard put it, “they would be suing fossil fuel companies to make polluters pay for the rising costs of climate disasters and keep insurance affordable for climate-affected communities.”
A “symbol of the insurance industry’s failure”
In the 2023 Scorecard on Insurance, Fossil Fuels, and the Climate Emergency, compiled by 22 organizations from 12 countries, the climate policies of 30 major insurers are analyzed in depth. This report makes a strong symbolic gesture by not filling the top three spots in its ranking table, which is representative of the inadequate response of insurers to the current climate emergency.
In the review of fossil fuel insurance policies, Allianz leads the rankings for its comprehensive approach, with Generali, Aviva, and Swiss Re following closely behind.
For instance, Allianz is the only company to receive a perfect score of 10/10 for coal insurance, with AXA, Swiss Re, and Generali coming in second, third, and fourth, respectively, indicating the importance of their policies in this area.
Aviva and Generali both have significant exclusions when it comes to insuring oil and gas operations; however, they only score 4.0 out of 10 in this category. These firms, together with the third through seventh-ranked German insurers Allianz, Hanover Re, Talanx, and Munich Re, have essentially stopped writing new policies covering oil and gas production, with a few notable exceptions.
However, not a single one of the 30 insurers has canceled policies for new gas power plants, and only a handful have cut funding for the anticipated increase in LNG terminals.
Insurance firms frequently stress the importance of moving away from fossil fuels. While they claim to support a transition away from fossil fuel extraction, in reality they are OK with merely seeing fossil fuel corporations announce shallow net zero promises, switch from coal to gas production, invest in renewable energy projects, and lower their operating emissions. The scorecard noted that this “does nothing to reduce the climate impact of burning the oil and gas these companies sell,” which accounts for the vast majority of those businesses’ life-cycle emissions.