Should a State Surcharge Insurers That Underwrite Fossil Fuel Risks?

Connecticut lawmakers are considering imposing a surcharge on insurers’ premiums from the fossil fuel industry.

The proposal (SB-1115) calls for a tax of 5% of any premiums any insurer licensed in the state receives from fossil fuel companies annually.

The proceeds from the tax would be split between the Department of Energy & Environmental Protection’s Climate Resilience Fund and a Connecticut Insurance Department premium assistance program, which helps middle and low-income homeowners pay rising insurance premiums.

The bill defines a fossil fuel company as “any entity that is involved in the exploration and production of … coal, oil, natural gas, propane or any other petroleum product.” The fossil fuel definition does not include renewable biomass or waste vegetable oil biodiesel.

The Insurance and Real Estate Committee heard testimony on the measure last week.

The proposal drew cheers from environmental, climate and community groups including the Sierra Club, Public Citizen, Chisholm Legacy Project and Connecticut Citizens Action Group, while drawing jeers from the insurance and energy industries.

“Through their underwriting and investment policies insurers place a much larger role in fomenting climate change than is recognized. The claims by the insurance industry that they are addressing climate change is like tobacco companies saying they care about peoples’ health,” stated Tom Swan, executive director of Connecticut Citizen Action Group.

“The cost of mitigating, adapting to and responding to climate change is significant and will continue to grow. Insurers need to do more to address their fossil fuel underwriting and the impacts that these projects are having on communities,” Samantha Dynowski, of Sierra Club, told lawmakers.

Insurance Industry

The insurance and energy industries complained that the bill unfairly targets them.

“This bill inappropriately singles out the insurance industry in the climate change debate and seeks to use the industry as a cudgel against fossil fuel companies,” Eric George, president of the Insurance Association of Connecticut (IAC), told the committee. “The bill also fails to recognize that the insurance industry is a leader in the climate change arena.”

George noted that as the bill is currently written the surcharge would apply to all lines of insurance written for fossil fuel companies including property, liability, life and health.

Testimony by Kristina Baldwin, representing the American Property Casualty Insurance Association (APCIA), said the measure could be unconstitutional in attempting to impose a tax on any insurer licensed to write in Connecticut regardless of the location of the insurer or the energy risk it is underwriting.

Insurers said the surcharge would also harm Connecticut-based insurers doing business in other states due to retaliatory taxes.

Integrated Energy

Stephen Sack, owner of a local energy wholesaler that offers both fossil fuel and renewable energy products, and the American Petroleum Institute (API) opposed the measure, suggesting it is not a meaningful solution to environmental problems.

Sack said he is concerned the bill would raise costs and have unintended consequences including making it more difficult to obtain affordable insurance in the state.

“This could push companies to leave the state and there will be less insurance companies competing for business,” Sack told lawmakers. He said it could hurt investments in the transition to renewables by the energy industry. He said about 20% of his sales are in renewables and he is working to grow that share.

The petroleum industry group said proposed legislation “inappropriately singles out the fossil fuel industry” for adverse treatment.

“Unfortunately, this legislation seeks to financially punish our industry and, in the process, disregards the advancements made by our industry as well as the nexus between fossil fuel and renewable developments, as integrated oil firms have the scale and technological ability to help shift toward renewable energy,” the API stated.

A Connecticut life insurance executive waded into the debate with his endorsement of the measure.

“The science is clear that extracting and burning fossil fuels is extraordinarily damaging to our environment, and in the end costs society far more that this small five per cent of the sum of each insurance company’s total premium amount received from fossil fuel companies,” said Nathan Irons, CEO of Bluestone Life. “It is critical that we accelerate the transition to more efficient and renewable sources of energy and this is one small step to assist in this process.”

Vulnerable Communities

Lisa Anne Hamilton, from the Chisholm Legacy Project, an organization working to connect Black communities with better tools and resources, said that some of the most severe harms and costs from extreme climate related weather events fall disproportionally upon socially vulnerable populations, including racial and ethnic minority communities.

“The billions in damages accumulated to date and projected for the future begs the question, who pays for climate change,” she said.

Hamilton said that as state and local governments bear increasing costs in response to climate change, the insurance industry continues to earn profits on the underwriting of the activities that directly contribute to climate change.

“Bills like SB 1115 offer a significant first step in ensuring that responsibility for the costs of climate damages is apportioned in a manner that is more equitably aligned according to who collects profits and who bears the burdens,” she told the committee.

Committee Senate Chair Kerry Wood stopped short of voicing support for the measure at the hearing but did say she believes policymakers “need to get creative” when it comes to addressing climate change.

Topics Carriers Energy Oil Gas Underwriting