The insurance industry needs to stop funding fossil fuels and lead on the transition to clean energy, says COP26 panel

A coal fueled power station at sunset with smoke coming from its stacks, Ratcliffe-On-Soar, Nottingham, England, U.K.
It’s getting harder for plants like this to get insurance and funding. Enviromantic/Getty Images
  • For decades, the insurance industry has invested and assessed risk for fossil fuel companies.
  • These investments and insurance policies have helped fossil fuel companies grow and expand.
  • Some insurance companies have sold off their fossil fuel assets, but others continue to invest.

Insurance is seen as a measure of protection against the worst-case scenarios, like fire, flooding, and severe business losses. However, the global insurance industry is increasingly being questioned for its contribution to the climate crisis due to its decades of underwriting and investing in fossil fuels companies.

While some insurers are selling off their coal, oil, and gas assets due to pressure from the divestment movement, others continue to support production and expansion of the industry through investment and acceptance of potential risk for a fee, known as underwriting.

At this year’s United Nations Climate Change Conference in Glasgow (also known as COP26), a panel will release the fifth annual Fossil Fuel Insurance Scorecard, which will highlight which global insurers are helping the world transition to a low-carbon economy, and who is not.

Activists, non-governmental organizations, and even some firms themselves are advocating for the insurance industry to withdraw their services and funding in order to prevent new fossil fuel projects from being constructed as well as help phase out the operations of existing companies.

The relatively small number of insurance companies worldwide means policy restrictions and/or withdrawal of coverage and investment from a specific industry can have a large impact. For example, more than 30 insurers have announced restrictions on coal insurance, which has already made securing coverage more difficult and costly for coal projects and companies.

There’s also the concern of a growing number of climate-related lawsuits and potential liabilities amid a growing body of research showing coal to be a leading contributor to global carbon emissions and the action needed to prevent even more severe human-driven global heating, according to the latest report from the Intergovernmental Panel on Climate Change.

The most recent World Energy Outlook report from the International Energy Agency released this month also stated “no new oil and gas fields are required beyond those already approved for development” in order to achieve net-zero emissions by 2050.

The report will include updates on which major insurers have ended or limited their cover for coal projects, tar sands, oil and gas production, as well as who has pledged to align their investment portfolios with the target set by the UN’s Net Zero Asset Alliance of 1.5 degrees Celsius.

“It really goes a long way into breaking down all these big ideas and policies into a way that people can take in bite-size information in a way that makes sense for them,” said Joseph Sikulu, a managing director at the climate change advocacy group 350.org.

European and Australian insurance firms have led on coal-divestment policies as well as restrictions on oil and gas compared to American insurers, according to the insurance advocacy organization Insure Our Future. Earlier this month, AXIS Capital announced new policy measures restricting insurance and investments in heating coal, tar sands oil, as well as Arctic oil and gas, the first for a North American insurance company.

Some insurance professionals are realizing it is in their best interest to avoid contributing to industries that have been identified as worsening the climate crisis and the growing damage from floods, storms, droughts, wildfires, and heatwaves.

For example, more than 31 million American homes along the Gulf and Atlantic coasts were found to be at a moderate risk (or more) from being damaged by hurricane winds, and the costs of reconstructing those dwellings was estimated to be approximately $US8.5 ($AU11) trillion, according to a study by CoreLogic, a property data and analytics company.

“Insurers have to assess risk and our future,” Sikulu told Insider ahead of his appearance at COP26. “If they can’t see the damage that fossil fuel industries cause our future and the harm it is putting our people at risk, what’s the point of it?”