Instead of passing the buck on to the rest of us and our most vulnerable citizens, big insurance companies must use their leverage and clout to push the energy transition to a more sustainable future.
Cathy Cowan Becker, Guest columnist
This column was originally published by the Des Moines Register on May 23, 2024.
As the planet warms, the insurance industry finds itself at a crossroads, entangled in a paradox of its own making. On one hand, insurers bear the immediate brunt of climate change through increased claims from natural disasters. On the other, they perpetuate the crisis by backing the fossil fuel projects driving global warming. This duality not only exposes a glaring hypocrisy but also raises fundamental questions about the role of insurers in our collective future.
A recent article in The Hill highlighted the insurance industry’s losses due to inadequate housing policies exacerbated by climate change. But it missed a critical piece of the puzzle: Even as insurers withdraw from climate-vulnerable regions, they continue to invest in and insure fossil fuels ― the very industry at the heart of the climate crisis. This omission points to a larger, uncomfortable truth about the insurance sector’s complicity in the crisis of our time, leading us to an uninsurable future.
In 2023, the United States was pummeled by a record number of climate-driven weather disasters, each inflicting over $1 billion in physical damage. Since 1980 the United States has experienced 376 of these billion-dollar events, with damage totaling $2.6 trillion and, tragically, 16,340 associated deaths.
These catastrophes underscore the increasing volatility we all now face. As frontline responders, insurers are tasked with picking up the pieces ― a role that grows more daunting with each passing extreme event and year.
Yet, despite this clear threat to their bottom line ― and by extension to all of us ― major insurers are doubling down on the fossil fuel industry and have begun to cancel or restrict home coverage in our most vulnerable states.
In May, State Farm — the largest insurer in California — stopped accepting new applications for homeowners insurance due to “rapidly growing catastrophe exposure.” In June, Allstate followed suit. In July, Farmers stopped offering home and auto policies in Florida, forcing 100,000 ratepayers to find new insurance. In October, Nationwide canceled policies for 10,500 homeowners in coastal North Carolina.
As the pool shrinks and risks increase, insurance prices rise for everyone else. Nationally, homeowners insurance premiums are up 21% from a year ago and 35% from two years ago, according to the 2023 Policygenius Home Insurance Pricing report.
Despite increasing climate risks, insurers prop up risky oil and gas projects that, without their backing, would struggle to find the financing and insurance required to proceed. Moreover, they’re sinking billions into these climate-polluting fossil fuel companies, embedding the sector deeper into the fabric of our economy.
Take Berkshire Hathaway, for example, a conglomerate that owns Geico, Guard, and General Re insurance companies, along with extensive holdings in coal, oil, and gas. Its CEO, Warren Buffett, downplays the financial risks of climate change, a stance increasingly out of touch with the realities facing people and the planet.
The insurance industry’s support for fossil fuels is not just a matter of corporate autonomy but a direct contradiction of its role as risk assessors. Insurers meticulously evaluate the risk wildfires or floods pose to homes, yet seem to ignore the broader, more devastating risk their investments in and insuring of fossil fuels pose to the rest of us.
This cognitive dissonance was starkly highlighted by Sens. Sheldon Whitehouse, Ron Wyden and Bernie Sanders in a letter to State Farm, which has $18.2 billion in fossil fuel investments:
“It seems nonsensical at best — and complicit at worst — for State Farm to carefully factor climate risk from wildfires into its homeowner’s insurance policies, refusing in some cases to provide such policies at all, while apparently ignoring the heightened climate risk that its investment portfolio is helping to create,” the senators wrote.
The financial data is just as damning. Nine U.S. insurance companies invest anywhere from $1.2 billion to $46.2 billion in fossil fuels ― enough to pay for the 28 billion-dollar climate disasters in 2023 several times over.
It’s a hypocrisy that cannot stand. Insurers, by the very nature of their business, should be leading the charge against climate change, not underwriting and financing its acceleration. Their dual role as protectors against risk and investors means they are uniquely positioned to influence the shift toward a sustainable future.
Yet, as it stands, the insurance industry is choosing short-term profits over long-term viability ― which likely explains why few insurance companies have announced they would drop or reduce coverage for oil and gas projects, much less divesting from fossil fuel companies. The insurance industry must stop feeding the money pipeline that threatens to make our world uninsurable and uninhabitable.
Instead of passing the buck on to the rest of us and our most vulnerable citizens, big insurance companies must use their leverage and clout to push the energy transition to a more sustainable — and insurable — future.
Cathy Cowan Becker is the Responsible Finance Campaign Director at Green America.
