Insurers are making the world uninsurable and unlivable

Insurers are slow to adopt policies to restrict financing for new oil and gas facilities.

A firefighter hosed down hot spots at a home in the aftermath of the Coastal Fire on May 12, 2022, in Laguna Niguel, Calif. Multiple insurers have pulled out of the California marketplace, saying that wildfire risk and the soaring cost of construction prompted them to stop writing new policies in the nation's most populous state.Marcio Jose Sanchez/Associated Press

Insurance might be the most paradoxical of all industries in the global warming era: companies raise prices or abandon communities that are damaged by climate change-induced disasters, and yet they insure and invest in fossil fuel companies that cause the climate crisis by burning those fossil fuels. We ask them to analyze risk in our economy, and so one half of the business is in full possession of all the actuarial data about fires, floods, and storms, but it must not be talking to the investing and underwriting part of the company, because for them it’s still business as usual — they’ve got half a trillion dollars invested in dirty energy.

Happily, environmental groups are doing their best to help the industry out. Insurers started researching and telling the public about the risks of climate change more than 50 years ago, one of the earliest corporate industries to understand risk related to climate. Environmental groups stepped up where insurers have fallen, releasing an annual Scorecard on Insurance, Fossil Fuels, and the Climate Emergency, which assesses the role of the global insurance industry in fueling or averting catastrophic climate breakdown. It focuses on 30 leading primary insurers and reinsurers, assessing and scoring their policies and practices on insuring and investing in coal, oil, and gas.

The scorecard matters because it shows which insurer is acting responsibly with its data and which is profiting off of making others pay. Families across the United States are footing the bill via soaring insurance premiums. Between May 2022 and May 2023, average US home insurance premiums increased by 21 percent. This past year State Farm, Allstate, Chubb, Tokio Marine, AIG, Berkshire Hathaway’s AmGUARD, and other insurers withdrew from California’s home insurance market following years of escalating climate disasters. In addition Farmers restricted their policy offerings in California, and Liberty Mutual pulled out of business owners’ insurance in the state. Insurers have a duty to the public to at least disclose what they are doing to make things worse. In June, the Senate Budget Committee sent letters to insurers requesting information on how much of their revenue comes from investing in and insuring fossil fuel companies; the responses are still forthcoming.

A few companies have begun to move: Globally, Allianz scores highest for its policies on fossil fuel underwriting and, in the United States, Chubb has taken some measurable steps to limit support for conventional oil and gas projects, restricting insurance coverage for oil and gas projects located in conservation areas and without emissions reduction plans. Although Chubb remains far from aligning with the scientific consensus that there cannot be any oil and gas expansion, the question is whether more US insurers will join Chubb.

Sadly, the Boston-based insurance giant Liberty Mutual remains a global laggard. In 2022, it recorded $3.55 billion in global catastrophe losses.

With these increases in losses, Liberty Mutual’s latest sustainability report should be strident in outlining how to resolve this problem. Instead, Liberty claimed to be committed to a global energy transition while omitting its behemoth insurance footprint in the coal, oil, and gas sectors or the need to end support for new dirty energy projects. Nowhere does the report mention the fact that it is a top global insurer of fossil fuels. According to analysis from insurance market research firm Insuramore, Liberty Mutual received an estimated $400 million to $600 million in premiums from the fossil fuel industry in 2022.

Although Liberty adopted restrictions on insuring and investing in coal in 2019, a recent report released by Public Citizen and Insure Our Future shows that it might be violating its own policy. The loophole-ridden policy means it can still provide coverage for new coal-fired power plants, which it is doing in Southeast Asia. Given that it has zero limits on oil and gas, Liberty is under fire to cut ties with projects such as the Trans Mountain tar sands oil pipeline expansion in Canada and offshore oil and gas drilling in Brazil.

This should be an issue that hits close to home for the company’s new CEO, Tim Sweeney, who works out of Liberty Mutual’s Boston headquarters. Liberty’s flagship offices in the Back Bay are at risk of being underwater if temperatures warm 3 degrees Celsius, given how vulnerable the city is to sea-level rise. Boston Mayor Michelle Wu is busy updating the city’s climate policies; it’s time for companies in Boston to do the same.

Especially since if they don’t, they won’t have a business. As the former head of French insurance giant AXA put it, a 4 degree Celsius world would be “uninsurable.” Not to mention unlivable.

Bill McKibben is the founder of Third Act, which organizes people over 60 for action on climate and democracy.