As the climate crisis intensifies, the insurance industry finds itself uniquely exposed. Its investment patterns create financial and reputational climate-related risk, while its underwriting helps greenhouse gas-intensive industries continue operations contributing to global warming.
In their roles as underwriters, insurers are moving to curtail their exposure to climate-related risk, with a growing number ceasing to offer certain policies in some locations. However, there is less evidence that insurers are making their investment portfolios equally as climate resilient as their underwriting portfolios.
Ceres, ERM, and Persefoni conducted research into the relationship between the fossil fuel industry and the United States insurance industry, focusing on analysis of the insurance sector’s investments in fossil fuel-related assets.
Quantitative analysis of a large dataset of U.S. insurers’ 2019 assets, compiled by the California Department of Insurance, yields a number of insights into fossil fuel-related investment patterns in the insurance industry, including the specific types of fossil fuel-related assets (tar sands, coal, oil & gas, and corporate utilities) held. The report also builds on insights from interviews and focus groups with insurance company investment teams, regulators, and senior subject matter experts.
Among other insights, this report reveals that:
- The top 16 U.S. insurers held approximately 50 percent of the over $500 billion dollars in fossil fuel-related assets owned by the sector.
- The financial decisions of the two largest property & casualty insurance companies have a far greater impact on overall fossil fuel-related asset ownership than that of any other companies in the dataset analyzed.
- Investment policies that focus only on one type of fossil fuel, or only on one type of investment, may result in asset portfolios that still include large fossil fuel holdings.
Insurers are often large asset owners and therefore have an important presence within the institutional investor sector. However, U.S. insurers often lack an accessible, systematic approach to incorporating climate-related factors into investment decision-making. This report aims to provide useful insight into insurers’ patterns of investments in fossil fuel-related assets and to prompt the industry to harmonize its approach to climate change across its underwriting, risk, and investing functions.