This article originally was published by Climate & Capital Media and is reprinted with permission.
The climate crisis is increasing the frequency, severity and unpredictability of extreme weather, increasing claims and making it harder to predict risk. As premiums are driven up, more customers are dropping out of the insurance market — and insurers’ customer bases are shrinking.
Nowhere is this being felt more than in Australia, where the impacts of extreme weather, drought and bushfires are reaching Biblical levels. Over the last 10 years, the average home insurance premium in northern Australia has risen by 178 percent, according to the Australian Competition and Consumer Commission (ACCC). The commission also found that increasing insurance premiums are forcing 20 percent of people in cyclone-hit northern Australia to go without home insurance (compared with 11 percent elsewhere). This was caused by "industry losses rather than price gouging," according to the ACCC.
Nowhere is this being felt more than in Australia, where the impacts of extreme weather, drought and bushfires are reaching Biblical levels.
Even more concerning, a study of climate risk to property in Australia found that "uninsurable red zones" (places where insurers either refuse underwriting or charge more than 1 percent of the property price in annual premiums) are spreading as global warming worsens. This is happening across Australia, with three-quarters of uninsurable properties in the most populated urban centers.
Many parts of the world are facing similar insurance challenges. In November, California, for the second year in a row, prohibited insurance companies from canceling or refusing to renew insurance policies for millions of households in or near areas hit by wildfires. Recent winter storms in Texas could lead to insured losses of $18 billion, six times the yearly average, according to State Farm Mutual.
The irony is that the insurance industry is a key pillar of the coal, oil and gas industries — those most responsible for creating the climate crisis. Without insurance, many fossil fuel companies would find it very difficult to operate their mines, power plants and oil and gas fields, or build new ones. According to the Insure Our Future campaign, insurers are also the second largest group of institutional investors after pension funds, with the largest U.S. and European insurers investing close to $600 billion in fossil fuels.
So despite some insurance companies warning about climate change since the 1970s, the insurance industry has continued to assist fossil fuel companies in their undermining of efforts to slow and stop global warming.
This, however, is starting to change due to pressure from climate activists, communities at the frontlines of both climate change and fossil fuel burning and extraction, and insurers’ own staff. These campaigns are convincing insurers to act in their own (as well as everyone else’s) interest and begin to phase out insuring coal, oil and gas.
According to Insure Our Future’s 2020 scorecard, since 2017 at least 23 insurers have adopted some restriction on underwriting thermal coal, representing 13 percent of the primary insurance market and 48 percent of the reinsurance market. These statistics are from before Lloyd’s of London, one of the biggest players in energy re/insurance released its first fossil fuel restrictions. In March, SwissRe became the first re/insurer to apply its coal restrictions to its treaty insurance, thereby covering the entirety of its underwriting activities. Insurers also have started to restrict other fossil fuel underwriting, in particular tar sands and Arctic oil, with Suncorp in Australia taking a leading position phasing out all oil and gas extraction underwriting exposure by 2025.
The irony is that the insurance industry is a key pillar of the coal, oil and gas industries — those most responsible for creating the climate crisis.
The insurance industry’s accelerating shift away from thermal coal is having an impact. According to Willis Towers Watson, an insurance broker, coal developers faced a rate increase of up to 40 percent in 2020.
With coal, insurers are going even further and divesting from coal producers. Insure Our Future has counted at least 65 insurers that have introduced coal divestment policies leading them to dump shares in many coal companies.
A lot remains to be done by all insurers to align their business with the climate goals of the Paris Agreement. But some need to do more than others. The Insure Our Future scorecard shows European and Australian insurers are leading the way on fossil fuel policies, with the U.S. and East Asian insurers lagging behind.
The worst of the worst include Berkshire Hathaway and AIG, which scored zeros for both Fossil Fuel Insurance and "Fossil Fuel Divestment," and managed a negative score for "Other Climate Leadership" due to their membership of lobbying organizations that actively fight against action to address the climate crisis.
Perhaps the most remarkable example of changing insurer attitudes is the story of the Adani Carmichael (now rebadged as Bravus Mining and Resources) coal project in the Galilee Basin of Queensland, Australia. This project represents the exact opposite of what needs to happen to mitigate the climate crisis. It is a massive greenfield thermal coal mine in a greenfield thermal coal basin. The construction and successful operation of this mine will pave the way for at least six more thermal coal mines in an area currently not being mined for coal and allow for ongoing coal extraction for decades to come.
It has been estimated that burning all of the coal in the Galilee Basin would produce a total of 20-30 gigatonnes of CO2 emissions (GtCO2), which is 5 percent to 7 percent of the entire remaining carbon budget for the Paris Agreement’s 1.5 degrees Celsius limit (420 GtCO2).
With coal, insurers are going even further and divesting from coal producers.
The Adani Carmichael coal project could set off a carbon bomb of global significance. This is why it has generated one of the biggest environmental campaigns in Australia’s history, which has delayed the project by at least seven years.
The #StopAdani campaign counts 32 insurance companies among 95 major global corporations that have publicly ruled out participating in the Carmichael coal mine and its related infrastructure. Association with the Adani Carmichael project has become toxic for corporate reputations. This can be seen in how insurers of the project respond when outed publicly.
In October 2019, Axis Capital and Canopius were revealed to be negotiating with Adani in the Lloyd’s of London market. Within a few days, both had pulled out. In mid-2020, a leak from Adani’s insurance broker Marsh revealed several insurers that had previously or were insuring the Carmichael project. Within 48 hours, Liberty Mutual, HDI Global and AXA had distanced themselves, with the fourth and final insurer exposed — Aspen — committing not to renew insurance a week later.
Adani Carmichael is insured via the Lloyd’s of London marketplace. However, with three of its current Lloyd’s insurers (Aspen, Brit and Apollo) committed to not renewing coverage, Lloyd’s new thermal coal restrictions, and hold-out insurers still under pressure, it is likely Adani soon will be forced to look for insurance elsewhere or face the prospect of having no coverage for its myriad risks. With every single one of its insurers withdrawing when hit with public pressure, it is difficult to see how Adani can insure its coal mine and rail operations for the decades it intends to run them.
Adani Carmichael could become the first fossil fuel project stopped due to a lack of insurance coverage. If that is the case, with the insurance industry finally, belatedly, waking up to the existential threat the climate crisis presents, it probably won’t be the last.
