The insurance industry, traditionally a pillar of risk management for businesses across the globe, is increasingly turning its back on the oil and gas sector. This shift is not just a fleeting trend but a deliberate and necessary response to the profound risks that fossil fuel companies pose. It’s time that insurers stepped up, and frankly, more should follow suit.
Unacceptable risks of climate change
The science is irrefutable: the continued extraction and burning of fossil fuels drive catastrophic climate change. The consequences of climate inaction are dire, from more frequent and severe natural disasters to rising sea levels and widespread ecological damage. Insurers understand this better than most, as their business models are based on assessing and mitigating risk. The financial toll of climate-related disasters is skyrocketing, with insurers paying billions in claims for wildfires, hurricanes, floods and other calamities exacerbated by global warming.
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By continuing to underwrite oil and gas companies, insurers would be enabling the very activities that are fuelling these disasters. It is an unsustainable contradiction: on the one hand, they pay out claims for climate-related damages, and on the other, they provide financial protection to the companies causing those damages.
Financial prudence and long-term viability
It’s not just environmental activists who see the writing on the wall. Financial analysts and investors are increasingly aware that fossil fuels are a bad bet. The global shift towards renewable energy, driven by both policy and market forces, is making oil and gas investments increasingly risky. The concept of “stranded assets” — fossil fuel reserves that cannot be profitably extracted as the world moves towards carbon neutrality — is becoming a reality. As governments and companies accelerate the transition to clean energy, the value of oil and gas assets is plummeting.
Insurers, whose survival depends on accurately assessing long-term risks, are right to distance themselves from a dying industry. Why should they continue to underwrite companies that are, quite literally, digging their financial graves? The transition to renewable energy is inevitable, and insurers must align their portfolios with the future, not the past.
Moral responsibility
Insurers have a moral responsibility to support the global fight against climate change. The 2015 Paris Agreement set a clear target to limit global warming to well below 2°C, with an aspiration of keeping it under 1.5°C. Achieving this requires a massive reduction in greenhouse gas emissions, primarily by phasing out fossil fuels. By refusing to underwrite oil and gas companies, insurers can send a powerful message that aligns with these global goals.
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By GlobalDataMoreover, as public awareness of climate change grows, so too does the scrutiny of companies that continue to support fossil fuels. Insurers who cling to outdated business practices risk damaging their reputations and losing the trust of customers, investors, and stakeholders who demand action on climate. Those who take a stand are positioning themselves as leaders in the struggle for a sustainable future.
The time for action is now
The decision of insurers to cease underwriting oil and gas companies is not just a business choice; it’s a statement about the kind of future we want to build. It’s a rejection of short-term profits at the expense of long-term planetary survival. According to Global Data’s Future Outlook of Financial Services 2024 report, 18 insurers have already adopted restrictions on underwriting fossil fuels since 2020. These include insurance giants such as Aviva, Munich Re and Zurich Insurance. This will catalyse other insurers to take notice and follow suit.
By 2035, insurance companies will need to focus on insurance-associated emissions – those linked to the financial services companies’ assets and liabilities. This category is emerging, so while some companies have begun setting targets to reduce financed emissions associated with key sectors in their portfolios, reporting is still sparse. Insurance majors will need to report on these emissions more comprehensively.
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