May 26, 2021
The world's leading insurance companies, especially U.S. ones, are underwriting and investing in industries that drive planetary heating, destroy ecosystems, and violate human rights, according to Insuring Disaster, a new report released Wednesday by a United Kingdom-based financial industry watchdog.
"The U.S. insurance industry is burying its head in the sand as the rest of the world races to embrace a greener, cleaner, and more equitable future."
--Felix Nagrawala, ShareAction
In what it described as the first comprehensive assessment of insurers' environmental, social, and corporate governance (ESG) credentials, ShareAction analyzed and ranked how 70 of the world's biggest insurance companies--together responsible for assets totaling $22 trillion--are approaching "responsible investment governance," the climate emergency, biodiversity loss, and human rights.
In contrast to their reputation as "risk experts" who assess, manage, and help reduce social and environmental risks, "the majority of large insurers... fail to adequately address systemic risks such as climate change and biodiversity loss," wrote the authors of the report, which was based on company surveys and an examination of publicly available data.
Almost half (46%) of insurers received an E, the lowest grade, while another 17% received a D rating. Just 16% demonstrated a "relatively strong performance" that merited a rating of B or higher. Yet, "even the leading insurer scored just over 50% of the available points," the report said. "On average, insurers scored only 12% of all available points."
"We hope this unprecedented overview of the industry offers a wake-up call to insurers," report co-author Felix Nagrawala said in a statement. "These rankings must improve--and quickly--if the industry hopes to survive a future built on renewables and equity, not fossil fuels and slave labor."
No insurer received an AA or AAA rating, although five European companies received an A grade. The performance of U.S. insurers, meanwhile, was remarkably poor. ShareAction gave an E to 75% of U.S. insurance companies, compared with 52% in Asia and 22% in Europe.
Of the 12 lowest-ranked insurers with a property and casualty business, half were U.S. insurance giants--Nationwide, AIG, Allstate, Genworth Financial, Protective Life, and Travelers--that scored 5% or lower on issues of governance, climate, biodiversity, and human rights.
Furthermore, of the 15 lowest-ranked life and health insurers, which scored 3% or lower on the four categories being evaluated, nine were U.S. companies: RiverSource, Northwestern Mutual, Talcott Resolution, Pacific Life, Lincoln Financial Group, Protective Life, MassMutual, Brighthouse Financial, and Aflac.
"The U.S. insurance industry is burying its head in the sand as the rest of the world races to embrace a greener, cleaner, and more equitable future," said Nagrawala. "Despite the sector's expertise in identifying, forecasting, and managing risk, it continues to support companies responsible for climate change, including those engaged in coal, tar sands, and Arctic oil and gas."
\u201cAre global insurers living up to their role as risk experts? Our new ranking finds\n\n\ud83d\udc49 Few insurers have policies to restrict #coal \n\ud83d\udc49 None assess their #biodiversity impact \n\ud83d\udc49 More than 2/3s have no policy on human & #LabourRights \n\nRead more >> https://t.co/uKsfJXMjXs\u201d— ShareAction (@ShareAction) 1622012401
Disaggregated results from the study showed that while the world's top insurers received an average score of 27% on the topic of governance, they performed even worse on the climate crisis (11%), human rights (8%), and biodiversity (3%).
By continuing to underwrite and invest in fossil fuel extraction and disregard the well-being of working people--by neglecting dangerous workplace conditions, gender and racial discrimination, child and forced labor in supply chains, and the forced displacement of communities--insurance companies, particularly U.S. ones, are exacerbating environmental and social crises even more than other actors in the financial sector with stronger ESG policies and practices, the report said.
Despite the fact that insurers make up 12 of the 26 members of the United Nations-convened Net-Zero Asset Owners Alliance and despite plans for a Net-Zero Insurance Alliance, only 13% of assessed insurers have made net-zero commitments for investments, and just 3% have a net-zero policy for underwriting activities, according to ShareAction.
"These rankings must improve--and quickly--if the industry hopes to survive a future built on renewables and equity, not fossil fuels and slave labor."
"Insurers are better placed than any other type of private financial institution to exert pressure on the coal industry, as coal projects cannot be financed, built, or operated without insurance coverage," the report noted. "But U.S. providers are largely failing to use this influence."
In fact, of the seven assessed U.S. insurance companies with a property and casualty business, Liberty Mutual is the only one with a policy that restricts underwriting for coal projects, ShareAction pointed out. By contrast, 54% of non-U.S. insurers impose restrictions on underwriting for coal projects.
However, ShareAction said that none of the 70 companies receiving scrutiny has placed limits on underwriting for gas and oil, despite a 2018 warning from the U.N.'s Intergovernmental Panel on Climate Change that building new fossil fuel projects and keeping global warming below 1.5degC are incompatible.
Wednesday's sobering analysis of the global insurance industry comes on the heels of a bombshell report published last week by the International Energy Agency, in which the relatively conservative institution made clear that remaining fossil fuels must stay in the ground if the world is to avert the most catastrophic effects of the climate emergency.
Regarding biodiversity loss, "the vast majority of assessed insurers have not yet developed an approach to managing nature-related risks to their portfolios and show little understanding of how their investment and underwriting activities are driving, or may be affected by, the biodiversity crisis," the report noted.
Moreover, nearly three-quarters (73%) of assessed insurance companies "do not have an investment policy covering human and labor rights," ShareAction found.
"Only 13% of assessed insurers have made a commitment not to invest in companies that are knowingly in breach of human and labor rights, showing that the industry is willing to turn a blind eye to direct and deliberate corporate human rights violations," the authors wrote. "North American insurers are the worst offenders: Not a single one of the 24 insurers from the U.S. or Canada has a policy."
Underscoring the need for the insurance industry to evolve, the report noted that "only one of the seven assessed U.S. insurers with a property and casualty business has carried out climate scenario analysis" to identify long-term risks to their portfolios, compared with 46% of non-U.S. peers. ShareAction called that "particularly alarming in the context of recent wildfires in the U.S., which in California in 2020 alone caused insured losses of an estimated $8 billion."
Biden administration officials, said Nagrawala, "have their work cut out to bring the U.S. into line with European standards."
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