Insuring — And Ensuring — The Apocalypse
Regulators are taking aim at how insurance companies are helping to fuel the climate crisis.
by SAM MELLINS
The most famous drivers of the climate crisis are well known: Fossil fuel companies, Wall Street, science deniers, and the super rich, to name a few. But for decades, another climate villain has lurked in the shadows: The insurance industry that is knowingly ensuring an ecological disaster.
“Without insurance, new coal fired power plants wouldn’t get built. Without insurance, oil refineries wouldn’t refine,” said Douglas Heller, insurance expert at the research and advocacy group Consumer Federation of America. “That doesn’t mean that the insurance industry is solely responsible for fossil fuels. But it’s a part of the equation.”
The problem is not just that insurance companies offer coverage to fossil fuel projects, but they also use millions of people’s premiums to invest in — and provide capital to — the fossil fuel industry’s expansion.
State insurance commissioners have the power to expose and curtail these activities. But because the fossil fuel industry has pumped tens of millions of dollars into state politics, most states other than California have refused to do so. Meanwhile, the Republican stronghold of North Dakota — one of America’s largest producers of coal — is now exploring providing government-supported insurance to the fossil fuel industry.
But now there’s some good news: Insurance regulators and legislators in New York and Connecticut, both of which are key states for the insurance industry, have taken steps to fight back — suggesting a new front could be emerging in the war on global polluters.
A Vicious Cycle
In one sense, the insurance industry should be a natural opponent of climate change, considering how much the cataclysm threatens the insurance business, as evidenced by 2021. From the California wildfires to Hurricane Ida (which left an inch of water in my New York City bedroom), natural disasters prompted tens of billions of dollars of damage claims on insurers.
These disasters, and their impacts on the insurance industry, were all made more severe by climate change. And as climate change worsens, its effect on the industry is only expected to grow. This will harm not only the companies’ bottom lines but also hurt consumers, since greater losses from more extreme weather events will force insurers to raise premiums to avoid bankruptcy.
And yet, the industry is nonetheless driving climate change in two key ways.
The first is that the industry provides insurance for fossil fuel extraction projects, allowing investors to support them by protecting against catastrophic losses. The second way is through its investments. Insurance companies turn a profit in part by investing their revenues in other companies. Billions of dollars of those investments go to the fossil fuel industry.
In a vicious cycle, the costs of these investments are passed on to insurance buyers. As increased extreme weather events caused by climate change force insurers to pay out greater amounts in claims, the companies are predicted to raise rates to cover their losses — and then may reinvest those premium dollars in fossil fuels.
“Consumers pay higher premiums to cover the climate risk that was generated by those companies, and then when [insurers] get our premiums, they’re going to go invest back in those companies,” Heller said.
Among the industry and its regulators, there is a “growing recognition” that through these roles, insurance is exacerbating the climate crisis, according to Heller.