• Insurance companies are supposed to protect us from catastrophic risks, and climate change is certainly the most serious risk that human society is facing. In spite of this, the insurance industry plays a critical role in enabling climate-destroying coal projects.
  • Burning coal for energy is the single biggest contributor to manmade climate change, yet more than 1,000 coal-fired power plants are currently in the planning cycle or under construction around the world.
  • In spite of their climate awareness and self-interest, insurance companies continue to be highly involved in financing coal and other fossil fuel projects.
  • This post is a commentary. The views expressed are those of the author, not necessarily Mongabay.

You can’t drive a car or buy a house without insurance. Likewise, the coal industry can’t get its mines and power plants funded without insurance coverage.

Insurance companies are supposed to protect us from catastrophic risks, and climate change is certainly the most serious risk that human society is facing. In spite of this, the insurance industry plays a critical role in enabling climate-destroying coal projects.

Every year, coal kills millions of people through air pollution, accidents, and black lung disease. Burning coal for energy is also the single biggest contributor to manmade climate change. Even though better solutions are available, more than 1,000 coal-fired power plants are currently in the planning cycle or under construction around the world. None of these projects can go ahead if average temperature increases are to stay below two degrees Celsius.

Insurance companies have a long-term self-interest in avoiding runaway climate chaos, which would make catastrophic weather events completely unpredictable. British insurer Aviva spelled out this threat most bluntly, saying that runaway climate change, if left unchecked, will “render significant portions of the economy uninsurable, shrinking our addressable market.”

In spite of their climate awareness and self-interest, insurance companies continue to be highly involved in financing coal and other fossil fuel projects. With assets of $29 trillion under management, insurers belong to the world’s biggest investors. According to a new report by Profundo, a research and advisory firm, Europe’s 15 biggest insurers and reinsurers have invested at least $131 billion in fossil fuel companies.

A separate report from Ceres, a group promoting responsible investment, found that the 40 largest insurance groups in the U.S. had invested at least $459 billion in fossil fuels at the end of 2014. U.S. insurers were on average even more strongly invested in the fossil fuel economy than other bondholders.

In a rapidly growing movement, more than 700 institutional investors have divested from fossil fuels in recent years, and at least 24 international banks have committed to no longer finance coal projects. The insurance industry is now also waking up to the threat. Seven insurance companies from Europe and Australia — but none from the U.S. — have divested from coal over the past two years.

Of course, the core business of insurers is not the investment of their premiums but the underwriting of risk through insurance coverage. In this they are also closely embedded with the fossil fuel industry. According to the new Profundo report, 11 of the 15 biggest European insurance and reinsurance companies continue to be “highly involved” in underwriting fossil fuel projects. Australia’s QBE is underwriting the Adani Group, for instance, which is currently trying to develop one of the world’s largest coal mines in the country.

On April 26, France’s AXA was the first insurance company to stop enabling coal projects. The world’s largest insurer announced at its annual general meeting that it would no longer offer property and casualty insurance to coal companies. AXA argued that no longer underwriting coal would be consistent with its divestment from the coal sector.

After AXA’s announcement, activists pressed other major fossil fuel underwriters to take the same step. Allianz, the world’s second largest insurer, indicated that it might stop underwriting coal companies in the future, and Italy’s Generali announced that it had sold off most of its $100 million stake in Duke Energy, a major U.S. coal company.

When AXA pioneered divesting from the coal sector in May 2015, several major insurance companies followed suit. If AXA’s new underwriting policy can again create momentum in the industry, the climate-destroying coal projects that are still in the pipeline may become uninsurable. Then it would be game over for the coal industry. Coal companies, power utilities, and their investors should take note.

Unfriend Coal, a new civil society alliance that includes the Sierra Club, Friends of the Earth France, and Greenpeace Switzerland, among others, plans to accelerate the transition away from coal in the insurance sector by asking insurers to adopt policies not to underwrite any new coal projects, to divest any assets from coal companies, and to scale up their investments in clean-job-creating energy companies, instead.

Insurance companies have warned about the risks of climate change for more than 20 years, and it is time for them to walk the walk. The world is moving away from coal, and insurance companies need to follow suit. By doing so, they can contribute to their fundamental business purpose: to protect society from catastrophic risks.

Cholla Power Plant, a major coal-fired power plant near Joseph City, Arizona. Photo via Wikimedia Commons, licensed under CC BY 2.0.

Peter Bosshard is director of the Finance Program at The Sunrise Project.