As a vital component of today’s financial system, the insurance industry plays a central role in the continuation of fossil fuel expansion and extraction. Without an insurer or reinsurer underwriting the construction and operation of carbon-intensive projects, they are effectively unfeasible. Issuing the green light to everything from oil and gas projects to coal mines, insurance plays a vital part in facilitating extractive economic activity that fuels climate and environmental breakdown.

First and foremost, the drive to fundamentally shift the operations of the insurance industry is a moral one. The consequences of inaction, or slow-moving action, are deadly, disproportionately harming countries and global regions that have contributed the least to the crisis. By continuing to support current and future extraction and emissions as insurance providers and institutional investors, the insurance industry is not only actively fuelling the existential threat of climate breakdown, but they are also throwing the future of their own industry into danger. Through investment in and coverage of fossil fuel assets, the industry generates compounding financial stability and solvency risks on both the asset and liabilities side.

Pressure is growing for the insurance industry to end its support for those aspects of the fossil fuel industry which are incompatible with meeting a 1.5°C scenario. Campaigners and social movements globally are calling out the hypocrisy of those companies within the industry that are profiting from facilitating climate destruction through their support for coal, fracking, and oil and gas, whilst claiming to be climate leaders. While pressure on the industry has led to important wins, the insurance sector still has a long way to go.

A new scorecard published in November 2021 by the Insure our Future campaign analysed 30 major insurers and reinsurers, revealing among other key findings that SCOR, Allianz and AXA rank at the top of the table on fossil fuel divestment, with Swiss Re, Zurich, AXIS Capital and Generali also scoring well. Only three insurers - France’s AXA, Italy’s Generali, and Australia’s Suncorp - have adopted policies to stop insurance for much or all new oil and gas production projects. Aviva, Allianz, and AXA demonstrated a comparatively strong voting record on shareholder resolutions and procedures to protect human rights, particularly with regards to Indigenous Peoples’ right to Free, Prior and Informed Consent (FPIC).

While the influence of the combined UK insurance sector on climate breakdown is significant, the scale, wealth, power, and international reach of one insurer - Lloyd’s - makes it of particular importance as a vehicle to shape emissions trends. The Lloyd’s of London market was alone estimated to be responsible for around 40 per cent of the total global energy insurance premium in 2018.

Efforts from the industry to tackle the compounding crises facing its future have thus far often focussed on enhancing ways to model risks, through, for example, improved data, rather than addressing the inherent risks of a model rooted in private short-term interests of carbon-intensive capital allocation and the dangers it poses to our collective future. A reordering of the insurance sector is urgently needed to ensure it no longer invests in or facilitates activities that are worsening the climate crisis and instead shifts rapidly toward 1.5°C alignment in how it insures and invests. A divestment from and refusal to insure all fossil fuel projects and companies and exclusions on fossil fuel underwriting in line with trajectory for a liveable planet will involve a fundamental shift in the current operations of the insurance industry, necessitating urgent and drastic action.

Aligning insurance coverage with a 1.5°C pathway

‍Alongside an immediate end to coverage of new coal, oil and gas exploration and production, insurance and reinsurance firms should implement a phase out of existing coal, oil and gas insurance coverage in line with a 1.5°C pathway. The sector should also divest from all fossil fuels including direct assets and those managed for third parties.

‍Mandating climate resilient strategies from insureds

‍By providing insurance coverage, corporate bond investments and capital via equity, the industry not only contributes to the climate and environmental crisis but also releases future financing for fossil fuel companies. Before providing coverage or renewals, insurers should necessitate that insureds have a codified, monitored and reported on 1.5°C aligned decarbonisation strategy.

‍Integrating sustainability into regulation

‍Given the clear and evident failures of a market-led approach to move at the scale and pace required to safeguard our collective futures, the divestment from carbon-intensive projects, assets and fossil fuel sectors should be overseen by regulators, mandating the operations of insurers and reinsurers to conduct future underwriting in line within the limits set by a 1.5°C pathway.

Enhancing transparency

‍There is a need for public, readily accessible details surrounding insurance and insurance policies to provide a more thorough grasp of who has accountability and when, allow for scrutiny of comprehensive risk assessments – both with regards to climate and environmental impacts and workers’ safety - and, crucially, knowledge of who pays, at what point, and why.

Repealing and replacing the UK Lobbying Act to challenge corporate power

‍Repealing the 2014 Lobbying Act and replacing it with a new Act is vital to rebalance power between corporate, for-profit voices and those championing climate and environmental justice, as well as enhancing transparency and accountability, ensuring that financial groups’ climate-relevant lobbying and engagement activities - which often have major associated carbon footprints through the undermining of climate policy - are internally consistent, and expressly consider long-term climate risk.

Tackling the climate-related UK insurance poverty premium

‍The Flood Re scheme should be extended to other climate-related risks to consumers, such as storm damage, as the rate and severity of storms intensify with climate breakdown. More broadly, however, there is an urgent need to reimagine the UK’s approach to areas such as flood resilience to safeguard climate and environmental protections and mitigate harm for consumers. Introducing a comprehensive roadmap for flood prevention, for instance, can enhance land use, create flood defences, including through an enhanced and accelerated national strategy for tree planting, and boost the resilience of housing stock.

Action to tackle global climate injustice

‍Accountability mechanisms should be enacted, such as the establishment of comprehensive due diligence and verification mechanisms for human rights, such as the right to FPIC, as included in the UN Declaration on the Rights of Indigenous Peoples. Further, considering the compounding, interrelated harms caused by wealthy countries such as the UK through high historic and current emissions and centuries of extraction and exploitation, urgent measures are needed to assist a global transition, such as climate reparations, debt cancellation and restructuring, and action to tackle corrosive conditions attached to aid and loans.