Hurricane Irma killed 134 people in 2017; Miami Florida USA. Source: Shutterstock
Insurance giant Chubb announced earlier last month that they will be the first US insurer to begin divesting from coal. It follows a string of European insurers who have been leading the way in making more ethical investments. Australian insurance companies are following suit; QBE, Suncorp, and IAG are all phasing out their business with the coal industry. And Japanese insurers are starting to head in the same direction; three large Japanese life insurers recently announced they would no longer be funding new coal projects.
Increasing Extreme Weather is Taking a Financial Toll
Although insurance companies have largely tried to stay out of the politics of climate change, many of the world’s leading governments are not prioritising the issue; Australia’s included if the 2018 federal budget is anything to go by. But insurers simply cannot afford to ignore the impact climate change is having on their bottom line. 2017 was reported to be the costliest year for insurers with a staggering $144billion of insured losses from natural and man-made disasters, according to Swiss Re research. Even more horrifying is that the total damage caused was actually worth $337billion, meaning only 42% of the devastation was insured.
Australia’s insurers have not been able to escape the financial impact of increasing extreme weather events. Both IAG and Suncorp reported profit falls for the second half of 2018, with extreme weather largely to blame. CSIRO’s 2018 State of the Climate report forecasts natural disasters will only increase and intensify, leaving insurers with little choice but to take the lead in the global fight against climate change.
Cutting Ties with Coal
Considering that insurance companies’ investment portfolio total is worth $30trillion, where they choose to invest could have a profound effect on the world’s future. According to the Unfriend Coal report, 19 major insurers have already committed to divesting from coal. With a combined investment portfolio of $6trillion, it’s a step in the right direction. Many major insurers across the globe have been announcing future commitments to end ties with coal, making it quite possible that we could see all insurance investments moved out of the fossil fuel industry by the middle of the century.
Green Portfolios and Infrastructure Investments are Key
But it’s not just a matter of moving away from coal and insurance companies understand that. Many are going beyond divestment and embracing Ethical, Social and Governance (ESG) investing. By the end of 2017 Allianz had invested €5.6billion in renewable energy. Axa announced an increase to their target for green investments from €3billion to €12billion by 2020.
Brisbane River Flood, 2011 (Source: Shutterstock)
Locally, Australian insurers have been making other adjustments in managing climate change. IAG are a signatory to the UN supported Principles of Responsible Investment (RPI) since 2008, and in 2018 held more than $70million in green bonds and invested $50million into renewable energy projects. Both IAG and Suncorp are committed to making Australia’s towns more climate change resistant. Whether it be by sharing their insurance data with universities and research projects leading to improved building codes, or controversially refusing to insure a particular town so that better infrastructure is developed. Reducing the impact of climate change is very much a multi-faceted battle.
What will the Future Look Like?
From 2030, the coal industry will not be able to access investment nor insurance from any Australian-based insurer. While it is unclear just how much impact the insurance industry’s movement will have or if it will be enough, what is clear is just how much power lies with the insurance industry.