Insurers play an important role in helping protect families, businesses and communities as our economy transitions to a greener energy future. However, those protections are coming under increased pressure from activists demanding an immediate cessation of insurance services for certain fossil fuel activities.
The call for an immediate end to insurance services for certain fossil fuel activities and producers ignores the importance of providing an effective energy transition to renewable sources. The 2022 Economic Report of the President recognized that transitioning the United States to clean energy even by mid-century would require an unprecedented transformation. President Biden also said that trying to move to renewable energy overnight “is just not rational.”
Energy expert Daniel Yergin underscores the need for an appropriate energy transition in his book “The New Map” and emphasizes that the nature and scope of that transition period differs from one nation to another. Equally important, many fossil fuel companies have the most technological expertise in the quest for reliable, renewable energy, so cutting off access to important financial services like insurance may actually slow the progress of a transition to renewable energy.
Limiting insurance coverage won’t stop most fossil fuel production, but it may unfortunately increase the risk of environmental disasters when safety, loss control, risk identification and mitigation controls facilitated by the insurance underwriting process are removed. Indeed, immediate cessation of insurance for certain fossil fuel activities and companies could rightly be viewed as anti-environmental.
Insurance carriers provide unique insights into risk mitigation and prevention in carbon intensive industries. For example, insurers empower well operators to implement prevention standards and monitor blowout performances, helping to significantly reduce environmental risk. This is a positive contribution that should be widely encouraged.
The property/casualty insurance industry protects the framework of U.S. commerce and innovation. And yet, our industry currently finds itself being pushed and pulled in conflicting directions because of the contentious public debate about corporate engagement on ESG issues.
For example, Connecticut made an attempt to penalize companies that underwrite fossil fuel interests. New York and California attempted to impose stricter emissions disclosures. Some environmental coalitions (such as Insuring Our Future) have even called on insurers to boycott fossil fuel production. Meanwhile, Texas and West Virginia prohibit their states from doing business with firms that agree to such boycotts and have proposed to prohibit such “economic discrimination.”
Insurers are now facing more than a hundred ESG proposals trying to dictate how financial firms engage on everything from energy production, guns, vaccinations, trade with China, abortion and biodiversity. There is a seemingly endless parade of pro- and anti-ESG dictates where insurance is being weaponized to try to force policy outcomes that should be decided by legislatures.
Both ends of the spectrum of the ESG debate are creating obstacles that may not only interfere with the effective regulation of insurers but also have serious unintended consequences that directly conflict with the underlying mission of the proponents. Regardless of one’s ideological stance on ESG matters, as a practical matter, if the targeted businesses are allowed to continue to legally operate, insurance plays an essential role in protecting the workers, consumers and surrounding society from potential harm. With respect to energy production, insurance both helps facilitate the transition to a lower-carbon society and ensure that energy development projects continue to operate in the safest manner possible.
Consumers, society and the environment ultimately benefit through greater availability and affordability of insurance when insurers have the flexibility to conduct business in line with widely accepted actuarial standards and are free to pursue different risk-based investing and underwriting strategies.