Dec 5, 2018

Bucking global trend, U.S. insurers still underwriting coal

An insurance adjuster walks through a Coffey Park home that was destroyed by the Tubbs Fire on October 23, 2017, in Santa Rosa, California. Photo: Justin Sullivan via Getty Images

Seven global insurance companies — including the world's largest primary insurers and reinsurers — have now stopped or limited insuring coal projects. These moves come at a time when the costs of climate-related impacts continue to grow.

Why it matters: The insurance industry is a key and often overlooked player in the financial system that continues to enable coal industry expansion, as well as a bellwether for broader systemic risks climate change is expected to pose. Although the international industry has begun to act, the U.S. industry continues to lag.

Coal pollution contributes to 800,000 premature deaths annually, and, as coal becomes increasingly uncompetitive, governments across Asia are considering new clean-air regulations that could further undermine coal-plant economics. But incumbent forces continue to keep coal afloat.

Where it stands: Despite progress from global insurance companies — including stricter limits on coal from Europe’s third-largest insurer — U.S. insurance companies remain out of line with emerging global standards: AIG, Chubb, Berkshire Hathaway, and Liberty Mutual rank last in reducing their exposure to coal, even as costs associated with wildfires and hurricanes keep growing. Thus far, the only U.S. company to distance itself from coal is the Silicon Valley–backed startup Lemonade.

Between the lines: U.S. insurance companies clearly don't see climate change as a major risk to their bottom lines. As global insurers exit the coal sector, their U.S. counterparts are effectively offering a lifeline to new coal projects that align with the Trump administration’s energy policies.

Yes, but: As long as customers don't default on their premiums, insurers (like other suppliers) will benefit from selling services to a sector that's losing its competitiveness. This will change only once insurers start to lose other customers because of reputational harm.

What to watch: Last year was the second costliest since 1970 for insurers, hitting $337 billion, 73% of which was from Gulf Coast hurricanes and California wildfires. U.S. insurers may either raise consumer premiums, passing on the cost of extreme weather to consumers, or decline to insure people in risk-prone areas.

Justin Guay directs global climate strategy at the Sunrise Project and advises the ClimateWorks Foundation.

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