My dad loves to say “Everyone talks about the weather, but no one does anything about it.” But in the age of climate change, this doesn’t seem true anymore. Hardly a week passes without a reminder that the planet is changing drastically. Of all the people talking about doing something, you would expect the insurance industry to be among the loudest.
But sadly, insurers are tongue-tied. I should know: I spent much of my career in the insurance industry and had the opportunity to sit on climate change committees within two of the largest property and casualty insurers in the U.S.
During that time, the companies I worked for struggled with the growing impact of severe weather on profits and, at the same time, with the potential liability of their policyholders — namely, the fossil fuel companies that contribute to climate change. It was a lose/lose scenario that seemed to paralyze my employers and block them from devising a new approach.
In considering how the insurance industry can get unstuck in the age of climate change, we should start by talking about the weather.
While it is tempting to focus on outlier events like Hurricane Katrina and Superstorm Sandy, what really should worry insurers is the increase in the frequency and severity of storms. According to Insurance Information Institute, since 1980, yearly weather-related loss events have doubled in the United States. Seven of the eight highest annual insured losses have occurred since 2004.
You would think that more severe weather events would have insurers up in arms. But, ironically, insurers are among the most significant enablers of climate change, by continuing to insure and invest in fossil fuel companies and projects. The vast majority of American insurers lag behind many of their European competitors by insuring coal projects and dirty tar sands projects with abandon. Meanwhile, according to the most recent available data, the 40 largest U.S. life, health and property/casualty insurers held a combined $450 billion in fossil fuel investments — investments, it’s worth noting, that have tanked since the coronavirus pandemic began.
Insurance makes a deliberate choice to subsidize the fossil-fuel industry by covering its expenses for climate damage. Until premiums paid by fossil fuel companies fully incorporate the cost of climate change impacts, insurers put their shareholders and their customers at financial risk. And they remain complicit in the fossil fuel industry’s destruction of the planet.
So how do insurers get unstuck? They can start by changing portfolio investment criteria to prioritize sustainability and environmental, social, governance principles. Insurers should transition their investments away from fossil fuels and build portfolios that won’t increase the frequency and severity of weather related damage. This might not happen overnight, but it needs to begin.
To get insurers there, consumers must demand change.
They can begin by researching their own insurers’ investment portfolios to understand relationship to fossil fuels and patronize only those insurers who have committed to divesting from fossil fuels and that have well developed sustainability and divestment plans. Shareholders can also demand companies stop insuring and investing in the fossil fuel industry and instead align their business operations, underwriting and portfolios with science-based targets limiting average global temperature rise to 1.5 degrees Celsius.
Money talks, and we are the ones who write the checks. It’s up to all of us to help insurers see that the time has come to adopt a long-term investment strategy that reflects the risk of loss caused by climate change.