By Ariel Le Bourdonnec and Lindsay Keenan
This year has already been marked by numerous extreme weather events of record intensity, with the tragic loss of life from the Pakistan floods just the latest example. We all know that climate change – driven by the continued expansion of fossil fuel production, in defiance of all scientific advice – is making these events more common and severe.
Insurance companies know this better than most. After all, they provide cover not only for homes and businesses affected by climate disasters, but also for the operations of the fossil fuel companies driving the climate crisis.
So you would have thought that climate would be a key focus at the annual Rendez-Vous de Septembre — the largest insurance conference in the world — held this week in Monte Carlo.
Not so. In fact, the public programme includes just one session mentioning climate change – which asks the assembled audience of insurance executives, “Is it time to decarbonize your balance sheet? Start with your assets for a better climate impact.”
That’s right. One third of Pakistan is currently underwater. And the people insuring climate-wrecking fossil fuels are gathering in luxurious hotels on the French Riviera, asking whether it might be time to start thinking about decarbonisation.
The call to “start with your assets” is telling.
Insurance companies’ core business is underwriting – the provision of insurance to people and businesses. As a secondary function, they invest these assets in the stock market and other financial products.
Underwriting is the function most crucial to fossil fuel expansion. There are millions of investors eager to snap up corporate shares, but very few organisations with the capacity to underwrite a project as complex or risky as a new coal plant.
As such, action on underwriting could be many times more powerful than “starting with your assets”. Yet the Monte Carlo agenda continues to push the opposite message to cover for an industry addicted to lucrative fossil fuel premiums.
As Aviva chief executive Amanda Blanc said over 18 months ago: “The underwriting needs to catch up with the investments.”
“We can’t be saying we want to take the premium but we’re not going to invest in these organisations. That would just be incoherent.”
Few of the insurers gathered at the conference have resolved this incoherence. While most European insurers have adopted restrictions on coal, albeit with varying levels of ambition, only a handful have committed to restrict underwriting for new oil and gas projects. Allianz, Swiss Re and Hannover Re are among them.
Many major European insurers, notably Munich Re, SCOR and Lloyd’s of London – despite all belonging to the so-called Net Zero Insurance Alliance – continue to support oil and gas expansion, however. This flies in the face of warnings from the International Energy Agency (IEA), which has made clear that there is no room for new oil or gas in a 1.5C future.
Some insurers are even going backwards on coal commitments. Lloyd’s of London, the world’s largest insurance market, announced in December 2020 that agents would be “asked to no longer provide new insurance cover for thermal coal-fired power plants, thermal coal mines, oil sands, or new Arctic energy exploration activities from 1 January 2022.” But by May 2021 it had backtracked, announcing that this was merely an “ambition” rather than a mandatory requirement.
Climate science leaves no room for optional ambitions. We have less than three years to reverse the current trend of rising emissions and begin the steep decline needed to avert climate disaster far beyond what we are already experiencing. There are already sufficient reserves to wean the global economy off oil and gas. As such, the expansion of fossil fuel production must end immediately if we are to have any chance of keeping warming within liveable limits.
Insurers have a uniquely decisive role to play in this. The relatively small group of executives gathered in Monte Carlo this week can decide if new coal mines, oil wells and gas pipelines will be built, or whether the companies planning them will have to redirect their business to the clean energy transition.
This is an enormous responsibility, but one that the key risk managers of society are equipped to face. If insurers do not step up and take the hard decisions to forego fossil fuel premiums, the disasters we’ve seen this year will pale in comparison with the devastation to come.
Today, Monte Carlo may feel a world removed from the floods in Pakistan. But on our current trajectory, not even the glamorous surroundings of the conference will be safe from the effects of climate breakdown. Where will they rendez-vous then?
Ariel Le Bourdonnec is a campaigner focused on the insurance sector at Reclaim Finance, which seeks to create a more climate-friendly financial system. Lindsay Keenan is European coordinator of the Insure Our Future, a global campaign that aims to hold the insurance industry accountable for its role in the climate crisis.