Having seemingly buckled to the green lobby it would be easy to think that the Insurance industry has gone woke, but is there more to it?
Insurers, as with most large corporates, are keen to confirm their green credentials and an example is the recent Aviva/World Wildlife Fund joint statement calling for a ‘net zero future’ in the financial sector. However, the significance of the detail of net zero can be lost and with insurance it means insurers pulling out of covering or investing in fossil fuel risks. Many have already announced they will not insure the proposed Woodhouse colliery in West Cumbria and as many insurers operate globally they are also distancing themselves from the controversial Adani Carmichael mine in Australia.
Lloyds, the world’s largest insurance market, have announced they will stop underwriting new fossil fuel projects in 2022 and pull out of existing projects by 2030. They have also committed to an even tighter timeframe to end investment in most fossil fuels by 2025.
Perhaps insurers are doing ‘the right thing’ and I am too cynical, but my experience of most large corporates is that ethics are secondary to money. They will go along with it when it ‘fits’, but the bottom line is that most are only interested in their bottom line.
Pardon the pun, but if you dig deeper, insurers will be more worried about compliance with recent regulatory requirements relating to financial risks from climate change and the worry that recent (and future) legislation enshrines emission targets into law. Many insurers are applying Climate Harm or Thermal Coal exclusions to their policies given the concern their policyholders involved in fossil fuel could face climate change related claims under environmental legislation. Even with these exclusions they could still face retrospective claims.
It is interesting that fossil fuels have become so stigmatised and almost a ‘moral’ hazard along the lines of the ‘undesirables’ trade list I was given as a young underwriter back in the 1980s on the basis they were deemed ‘dodgy’. These lists still exist although the irony is that now, insurers wouldn’t dare name a ‘dodgy’ trade sector for the fear of causing ‘offence’. They just say they are not ‘in appetite’.
However, the difference is that there were always specialist insurers who would offer cover at a price. With fossil fuel we seem to be moving to a blanket ban on what is presently a legal industry and insurers are happy to say so.
That sets a dangerous precedent and begs the question who is next? Tobacco and the arms industries are questionable and then there is meat. It seems ridiculous but given how western governments now pander to unelected social media zealots it is not inconceivable that abattoirs and even some farms could become uninsurable in the foreseeable future!
But perhaps not. Given the Chinese rapid expansion in both fossil fuels and insurance, they could be the market of the future.