Insurance and Climate Change column

Survey from Regulator of Largest U.S. Insurance Market Shows More Coal Divestment by Insurers

By | November 29, 2018

California Insurance Commissioner Dave Jones on Thursday revealed he’s had some success with his 2018 Climate Risk Carbon Initiative Coal Divestment Follow-Up Survey.

Jones said the results of the survey reflect an increase in the number of insurers that divested or are committing to divest from thermal coal investments following his efforts to address climate-related financial risk.

According to the survey, an additional 57 insurers have committed to divesting some or all of their thermal coal investments compared to 2016.

“The most recent results of our survey of insurers show that more insurers are divesting or committing to divest some or all of their thermal coal holdings and are considering the climate-related transition risks to these investments,” Jones said in a statement. “While there is still more work to be done by insurers in this area, more are moving in the right direction.”

The survey also showed that companies without existing thermal coal assets were significantly more likely to pledge not to invest in thermal coal assets compared to companies with existing thermal coal assets. Companies with existing thermal coal assets were more reluctant to change their investment strategy, the survey shows.

The survey included responses from 1,185 property/casualty and life insurers. The survey results also suggest larger companies, as measured by assets under management, were more likely to have identified thermal coal divestments, significantly less likely to divest from thermal coal and unlikely to pledge to not invest in thermal coal assets compared to smaller companies.

Jones announced in May that he conducted a climate-related financial risk stress test and analysis of insurance companies’ investments in fossil-fuels. The analysis of insurers in California’s insurance market with more than $100 million in annual premiums showed they have more than $500 billion in fossil fuel-related securities, issued by power and energy companies, $10.5 billion of which consists of investments in thermal coal enterprises.

Jones last year came under fire from 12 state attorneys general and one governor, who called his efforts an “affront to sound insurance regulation,” and threatened to sue him for calling on insurance companies to evaluate and address potential climate-related risks to their investment portfolio.

Allianz Report

A report put out by Allianz ranks the U.S. lower than other world powers as a potential destination for low-carbon energy investments and its progress in meeting the goals of the Paris Climate Agreement.

Allianz this week released its annual Climate and Energy Monitor 2018, which ranks G20 nations according to their attractiveness as potential destinations for low-carbon energy investments and tracks their progress toward meeting the goals of the Paris accord.

The Climate and Energy Monitor is an annual publication developed jointly by NewClimate Institute, Germanwatch and Allianz SE, which focuses on power production from renewables in G20 countries as “core solutions for the decarbonization of the power infrastructure.”

France leads as the top G20 market for renewable energy investments, with European countries better positioned than other regions. China, Japan, Canada and Brazil have made improvements while Russia ranks last, according to the report.

The report states that recent policy decisions have dropped the U.S. two spots to No. 9, but offers a few “positive findings:”

  • The nation earned top marks in conditions for system integration (well established energy pricing and storage policies, grid codes in place);
  • Current investment $56.9 billion in renewable energy, ranking as the second largest absolute investment in renewables;
  • Strong support in certain states and a strong push from the private sector for more progressive climate policies;

“Continued strong policy signals and market certainty will be crucial for providing the private sector with the conducive environment it needs to ratchet up the deployment of renewables,” the report states.

Governments by-and-large are not following the goals they set out in the 2015 Paris Agreement, while most scientists agree that global CO2 emissions must be net-zero by 2050 to keep global warming below the 1.5°C benchmark set out in the agreement.

The only G20 countries that have formally submitted a long-term decarbonization strategy that extends to 2050 to the United Nation’s body responsible for climate change issues (UNFCCC) are Canada, France, Germany, Mexico, the U.K. and the U.S. Only the UK’s strategy proposes a full decarbonization of the power sector, and the current U.S. government no longer supports its own strategy, the report states.

Climate change and insurance

Insurance is changing your insurance, according to a recent story by PBS.

The story focuses on The Camp Fire, which together with the Woolsey Fire in Southern California that burned at the same time earlier this month, destroyed more than 20,000 residential and commercial structures. Estimates show property/casualty insurers and reinsurers total insured losses at $10 billion $15 billion from the wildfires.

The losses from the fire season a surpasses 2017, while six of the 10 most destructive California wildfires in history having occurred in the past four years, the story notes.

The story also draws on a government report released Friday that warns these extreme events are becoming more frequent.

Among those interviewed in the story is Washington Insurance Commissioner Mike Kreidler, who is also the lead commissioner on climate for the National Association of Insurance Commissioners.

Kreidler in the story warned that homeowners “should be worried that the insurance companies are going to increasingly reluctant to stay in certain markets and charge affordable rates.”

It also cites NAIC data that shows home insurance rates already increased more than 50 percent from 2005 to 2015, and lists four ways insurers are changing to accommodate more frequent and intense natural disasters:

Modeling for climate change

Climate change has made weather history somewhat irrelevant, as the climate models utilized by insurers often do not integrate the factors of a changing climate.

Charging more for reinsurance

Reinsurance companies have been slightly better about taking climate change into account than insurance companies, in part because they operate on a global scale and have a higher exposure to climate change risks. But if insurance companies are at a greater risk, reinsurance companies are going to charge more for their services, a cost that is likely to get passed down to insureds.

Government insurance programs

Look to Florida, where homeowners had to sign up with a state-backed insurer of last resort after private-insurance companies left the state following a series of hurricanes that hit Florida in 2004 and 2005, as a case study for what could happen when homeowners are left without options

Customers incentives to avoid disasters

More insurance companies are offering discounts on premiums to property owners who take steps to minimize damage from a natural disaster.

Examples include homeowners in Oklahoma, who retrofit their properties to withstand tornadoes, and residents in Florida, who upgrade their homes to minimize hurricane damage, are eligible for a reduced monthly insurance rate.

Open Letter

An open letter to be released ahead of the 24th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) by the World Economic Forum on behalf of the Alliance of CEO Climate Leaders says climate change is a major threat to the environment, societies and economy, endangering our well-being and prosperity.

However, a prosperous, inclusive and low-carbon world is possible, the letter reads.

“We are committed to climate action. We stand ready to fast-track solutions to help you deliver on an enhanced and more ambitious action plan to tackle climate change and meet the goals set out at the 2015 Paris Climate Agreement,” the letter states.

Since the agreement the members of the coalition have collectively reduced their own emissions by 9 percent.

The letter states that the aim of limiting global warming to well below 2° C is clearly not on track.

To help achieve that goal the authors of the letter are urging world leaders to:

  • Implement effective carbon pricing mechanisms that drive a meaningful price on carbon across the globe;
  • Stimulate low-carbon finance and investments by offering coherent policies that shift financial flows from high-carbon investments to the low-carbon economy;
  • Develop policy tools that help educate and positively influence societal demand for low-carbon solutions.

“These actions and incentives, facilitated by governments and backed by continued innovation in science and technology, will enable business to create jobs and economic value during the shift to a sustainable and socially responsible, low-carbon economy,” the letter states. “This in turn will enable governments to set more ambitious climate targets.”

The letter continues: “The shift to low-carbon economies will be positive for communities and workers, future-proofing our businesses and economies while protecting the planet for future generations.”

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