As insurers cut coverage due to climate change, they invest in fossil fuels

6 min

As insurance companies scale back coverage in disaster-prone states because climate risks have become too costly, U.S. lawmakers have launched an investigation into seven major carriers for continuing to insure and invest billions of dollars in fossil fuel projects, according to documents obtained by The Washington Post.

On Friday, the Senate Budget Committee sent letters to seven insurance companies or owners of insurance companies — State Farm, Liberty Mutual, Berkshire Hathaway, AIG, Travelers Insurance, Chubb and Starr — demanding answers and internal information about how each company underwrites, invests in and profits from the fossil fuel industry.

The inquiry also seeks their plans, if any, to follow the Paris Agreement’s commitment to lessen global warming, and their methodologies and projections for rates and coverage related to climate harms. The companies have until June 23 to respond and produce all the information demanded.

The Washington Post sought responses from all seven companies about the Senate initiative. So far, AIG has declined to comment.

The U.S. insurance industry’s response to climate-fueled disasters has contributed to the increasing cost of insurance for millions of Americans as well as to the uncertainty of their even being able to obtain it.

The success of the insurance industry rides on its ability to predict risk and loss, and climate change has made the underlying calculus much more difficult. However, according to lawmakers, there is little transparency into how carriers decide, price and factor that risk into their policies and decisions. Lawmakers argue that by investing approximately $582 billion in fossil fuels, U.S. insurers are helping to create their own crises.

Climate disasters make it harder to insure your home. Here’s what to know.

“By underwriting and investing in new and expanded fossil fuel projects, U.S. insurers are helping Big Oil bring us closer to the worst runaway climate scenarios, which threaten lives, livelihoods, and the federal budget,” said Sen. Sheldon Whitehouse, (D-R.I.), who chairs the Senate Budget Committee and launched the investigation. “This information is especially relevant as some of these companies begin to pull out of certain markets because they see the coming catastrophic climate risks — despite continuing to provide services to the fossil fuel industry.”

Insurance firms say that because of the significant economic impacts from extreme weather and disasters, they have needed to drastically raise premiums, drop policyholders, and stop offering new policies in or pull out of states including Florida, Louisiana, Texas and California. These choices have often left people scrambling to find new coverage and have put many others in financial difficulty.

At the same time, some of these companies have been insuring fossil fuel projects, such as oil and gas pipelines. They have also invested large amounts of money in an industry that in the view of environmentalists and many climate scientists is perpetuating the very risks the insurers say they cannot afford to take on.

State Farm, for example, recently announced that it would not write new policies in California because of “rapidly growing catastrophe exposure.” The company is the state’s largest homeowner insurer, and its decision will have wide impacts on people’s ability to obtain and afford coverage. State Farm invests more money in oil and gas ventures than any other insurance provider in the United States, according to the Senate Budget Committee. As of 2019, the company held at least $30.9 billion of fossil-fuel-related investments.

“It seems nonsensical at best — and complicit at worst — for State Farm to carefully factor climate risk from wildfires into its homeowner’s insurance policies, refusing in some cases to provide such policies at all, while apparently ignoring the heightened climate risk that its investment portfolio is helping to create,” the letter to the company said.

Warren Buffett, the chairman and chief executive of the investment giant Berkshire Hathaway, an owner of insurance businesses, has repeatedly pushed back against calls for companies to do more to reduce greenhouse-gas emissions.

Share your story: We want to hear from you on insurance coverage and costs

The letters suggest the companies are being hypocritical. Chubb, the world’s largest publicly traded property and casualty insurance company, lauded its moves to limit its underwriting and support of oil, gas and coal projects. However, Chubb is a player in insuring fossil fuel initiatives, collecting an estimated $500 million-$800 million in premiums from the industry every year. One of its subsidiaries was also linked to BP’s oil and gas exploration in the Arctic and to oil exploration in Brazil, according to the Senate committee.

AIG also made a big announcement that it would no longer write coverage for any new coal and oil-sands facilities and Arctic exploration. It also aligned itself with the goals of the Paris Agreement, committing to reaching net zero greenhouse gas emissions across its portfolios by 2050. Despite its climate initiatives, it has not “adopted any restrictions on underwriting new conventional oil and gas development and related projects,” the letter states.

It has also remained one of the nation’s largest insurers of fossil fuels, making about $675 million in premiums, according to the committee. The carrier provided coverage for Canada’s Trans Mountain Pipeline, which carried 590,000 barrels per day of some of the most “carbon-intensive oil on earth,” the committee’s letter to the company said, and also underwrote other controversial pipeline and exporting projects. AIG has also issued policies for Freeport LNG, a facility outside of Houston whose fiery explosion last year alarmed and angered nearby residents.

Unlike other global leaders that have pulled back from underwriting the oil and gas industry, Berkshire Hathaway has not taken any steps to limit its insurance of or investment in fossil fuel projects, according to the committee. One of its subsidiaries owns at least 11 coal power plants and has stakes in 13 others, the committee wrote. It is also the largest shareholder in Chevron. Liberty Mutual has similar involvement in oil and gas ventures.

The letters cite reports that some insurance companies have been using climate change as a mechanism to force policyholders to “disclose climate risk” and deny coverage for climate liability and losses “where the insured party has failed to meet greenhouse gas emissions reduction targets.” The committee’s letters also demand more information into whether carriers have accounted for Native and Indigenous communities, which are disproportionately harmed by polluting projects.

The industry could soon face more scrutiny. The Treasury Department has proposed looking at how carriers’ choices to withdraw from communities most vulnerable to climate change has widened “systemic inequities.”