Yemisi Izuora
Key global insurers have sustained underwriting of oil and gas infrastructure despite making record-breaking payouts for climate-related disasters.
Using estimates from market intelligence company Insuramore, Insure Our Future, an international non-profit, reveals that insurers and reinsurers collectively earned around $21.25 billion in 2022, from providing insurance to coal, oil and gas projects, with insurers on the ‘Lloyd’s of London’ market amounting to the world’s largest underwriters of fossil fuels, making up to $2.2 billion from annual premiums.
According to the report, it has been a slow year for insurers’ adoption of new fossil fuel policies, despite 2023 being one of the priciest years ever for payouts due to climate-related disasters.
Insurers it said are showing little sign of withdrawing from oil and gas infrastructure underwriting, despite insurance payouts for climate-related disasters doubling in the past ten years, finds the Non Governmental Organization, NGO, which annually assesses insurers’ progress on limiting exposure to the fossil fuel industry.
The NGO highlights a “shocking irony” where a number of insurers (and reinsurers) ranking low on its seventh annual scorecard are among those “abandoning communities already overburdened by the fossil fuel industry”.
The NGO claims that major reinsurers, for example, including AIG Re, AXIS Capital, AXA XL and SCOR, are among those that have either reduced cover for natural catastrophes or left the property market altogether in 2023, causing a ”spike in premiums” – all the while taking insufficient steps to phase out support for new fossil fuel infrastructure.
For example, the report finds that where insurers have set policies restricting fossil fuel insurance, they often include “large loopholes”.
Of the 30 major insurers assessed, just British insurance company Aviva Italian Generali and German insurers Allianz, Hannover Re, Munich Re and Talanx have ceased underwriting any new oil and gas extraction projects “without major exceptions”.
Meanwhile, hardly any insurers have ended cover for new midstream and downstream gas infrastructure like liquefied fossil gas Liquified Natural Gas, LNG, terminals and gas power plants, apart from Hannover Re, which no longer insures new midstream infrastructure benefitting new oil and gas production.
The past few years have seen just over a third of insurers setting policies to restrict insurance for coal mining and power projects, leading to some coal projects becoming ‘uninsurable’.
Insure Our Future’s report finds that in 2023, four additional insurance companies adopted coal exit policies, bringing the total to 45; as a result, the market share of primary insurers with coal restrictions has grown from 39.8 per cent in 2023 to 41.2 per cent this year.
However, just 26 insurers have announced restrictions on oil and gas projects, according to the NGO’s assessment, which finds that the share of insurers with oil and gas policies has grown from 15.4 per cent in 2022 to 19.6 per cent in 2023.
This year, just five insurers announced new restrictions on “extreme oil and gas” (tar sands, Arctic and ultra deep-water drilling, and any oil and gas expansion projects that drive increased production), while four announced policies on “conventional oil and gas”, according to the NGO.
It admits that the lack of any major change on oil and gas policies since last year came as a surprise. In 2022, three major insurers – Allianz, Swiss Re and Munich Re – all adopted “substantive” restrictions on their oil and gas businesses, suggesting that the industry’s shift away from oil and gas was “accelerating”.
One discernable change over the years is that insurers are starting to set equally restrictive policies for their underwriting businesses as for their investment businesses.
In previous iterations of Insure Our Future’s scorecard, insurers tended to take a much stricter approach towards fossil fuel investment than for underwriting.
Two years ago, speaking to Capital Monitor, Insure Our Future’s global coordinator, Peter Bosshard, explained that while insurers have a “direct self-interest in divesting [from fossil fuels], because they realise that many of these assets are getting stranded”, it is simultaneously in their interest to cash-in on underwriting contracts that roll over each year.
Speaking to Energy Monitor just recently, Bosshard explains that nowadays, most insurers “try to synchronise their approach to underwriting and investments”, with some exceptions; French insurer SCOR, for example, is an “interesting outlier”, in that it scores a “perfect ten out of ten” on investment policies but “ranks quite low on the underwriting side”.
This implies that it is continuing to benefit in the short-term from underwriting fossil fuel businesses it has deemed too risky to stay invested in in the long-term. “The company has some explaining to do,” says Bosshard.
Insure our Future’s report reveals that European insurers are more likely to score higher than their Asian and US counterparts for the strength of their fossil fuel underwriting policies; they are also more likely to be members of the Net Zero Asset Owners Alliance, the asset owner arm of Mark Carney’s Glasgow Financial Alliance for Net Zero GFANZ, which encourages members to take steps to limit investment in oil and gas.
The insurance arm of GFANZ, the Net Zero Insurers’ Alliance (NZIA), broke down earlier this year when most of its members exited the alliance ostensibly due to concerns that its rules were in violation of antitrust laws.
Given that these concerns were born out of the heavily politicised US anti-ESG movement, some have since questioned their validity and suggested these have been weaponised by anti-climate activists, especially given that NZIA had already tweaked the wording of its rules to comply with antitrust laws prior to the mass exodus of members.
Only 11 out of the original 31 remain a part of the group.
Responding to the news of the exodus earlier this year, Bosshard told Energy Monitor that he wasn’t certain exiting these alliances would materially impact insurers’ commitments to net zero.
However, six months later, Bosshard says, disappointingly, most members that left NZIA “haven’t stuck to their commitments”. NZIA requires members to reduce their emissions by 34 per cent from 2019 to 2030, which Bosshard perceives to be an already “very weak” target with a number of loopholes. He notes too, however, that those remaining in NZIA haven’t fared much better.
“We haven’t seen any actual emissions reduction targets that meet this 34 per cent minimum engagement threshold,” he says. The vast majority of insurers are also failing to produce transition plans. Where insurers have produced transition plans, they tend to be “minor players” in the fossil fuel insurance market, Bosshard adds.