In a new report on resiliency, the US insurance sector's substantial exposure to fossil fuel-related assets has come under scrutiny, revealing an investment of $536 billion in 2019. This revelation comes amidst insurers' acknowledgment of climate-related risks and escalating natural disasters, raising concerns about the alignment between their financial strategies and climate resilience efforts.
The report titled "Changing Climate for the Insurance Sector," jointly conducted by Ceres, ERM, and Persefoni, highlights a concerning trend within the insurance industry. Despite an increasing recognition of the impacts of climate change, the top 16 US insurers collectively held over 50% of the $536 billion worth of fossil fuel-related assets. This data was drawn from the 2019 assets of US insurers compiled by the California Department of Insurance.
Interestingly, the insurance sector's response to climate-related risks has been inconsistent. Some insurers have taken steps to mitigate climate impacts, with a growing number discontinuing certain policies in high-risk areas. For instance, State Farm's decision in May 2023 to cease offering new home insurance policies in wildfire-prone California and Farmers' move to stop renewing a significant portion of Florida policies in July 2023 reflect the industry's recognition of climate-induced risks. However, this report's findings suggest a potential disparity between such risk-averse actions and substantial investments in fossil fuels.
The concentration of fossil fuel-related assets is particularly evident among the industry giants. The top two property and casualty companies, Berkshire Hathaway and State Farm Insurance, jointly owned 44% of the total fossil fuel-related assets. Meanwhile, in the life insurance sector, asset ownership was more evenly distributed, with the two leading companies, TIAA Family Group and New York Life, collectively holding 14% of the sector's fossil fuel assets.
Industry experts and leaders emphasize the need for insurers to address the financial risks posed by their fossil fuel holdings and to seize opportunities to transition their investment portfolios toward clean energy alternatives. The report underscores the urgency of these actions in light of escalating extreme weather events, such as hurricanes, floods, and wildfires, that threaten both insurers' financial stability and the communities they serve.
Tom Reichert, Group CEO of ERM, asserts that the insurance industry must act promptly to address climate-related challenges. Given the intensifying climate crisis, insurers' unique exposure to climate risks necessitates proactive steps to ensure their business models remain resilient. By reevaluating investments and underwriting practices, insurers can safeguard their customers while accelerating the shift toward a low-carbon economy.
Kentaro Kawamori, CEO and Co-founder of Persefoni, underscores a fundamental truth emphasized by this research: climate risk is financial risk. He emphasizes the importance of assessing financed emissions and their impact through fossil fuel-related assets. Kawamori contends that technological solutions can facilitate this evaluation, enabling a seamless transition to a global decarbonized economy without imposing undue burdens on businesses and consumers.
The report signals a pressing need for insurers to align their investment strategies with climate resilience goals. As Mindy Lubber, CEO and President of Ceres, points out, the increased frequency and severity of extreme weather events necessitate a comprehensive shift in insurers' approach to climate risk. By divesting from fossil fuel assets and redirecting investments toward clean energy, insurers can contribute to a just and sustainable future.
This report's findings shed light on the complex interplay between climate risk awareness and investment choices within the insurance sector. As the industry grapples with the dual challenges of climate resilience and financial stability, a collective effort to divest from fossil fuels and embrace sustainable investments could reshape the landscape of insurance and contribute to a more sustainable global economy.
