Making the fossil fuel insurance market less perfect
August 3, 2019
Timely as ever, I thought I'd immediately jump on to the news that a month ago the first big American insurance company, Chubb, announced it's no longer insuring coal company operations. The big European insurers have already dropped out, and the pressure's on now for the other big American insurers.
I go back and forth about whether climate divestment can have a direct economic effect on fossil fuel companies. The billions of dollars in financing that's not screened off, and the thousands of investors willing to make investments, argue that it'll be a while before divestment directly harms the market for stocks and bonds from fossil fuel companies. The knock-on effects from making fossil fuel businesses disreputable, OTOH, are profound. There aren't that many insurance companies capable of insuring multi-million dollar operations.
So yes there are a still a handful of insurers happy to help pollute the planet, but a handful is far from a perfect market of buyers. Coal companies are going to have to pay an additional premium to get insured because fewer insurers want to play with them, and that's very much a good thing. The climate divestment push is helping make this happen.
Other knock-on effects from divestment include decreased willingness of big financial institutions to make loans, and simply the increased stigma of being a fossil fuel company driving up their costs and reducing willingness to do business with them. The real game though is political - the relative costs of fossil fuels and low-carbon alternatives are only part of the decisionmaking, with the rest being political. Climate divestment helps show the weakening political power of fossil fuels, which then makes it easier to knock them down.
We'll see what other American insurers are going to do. Meanwhile it's unfortunate that these insurers will make an extra profit out of being the bad guys. I hope some stigma moves over to AIG, Travelers, and Berkshire Hathaway to balance that out.
I go back and forth about whether climate divestment can have a direct economic effect on fossil fuel companies. The billions of dollars in financing that's not screened off, and the thousands of investors willing to make investments, argue that it'll be a while before divestment directly harms the market for stocks and bonds from fossil fuel companies. The knock-on effects from making fossil fuel businesses disreputable, OTOH, are profound. There aren't that many insurance companies capable of insuring multi-million dollar operations.
So yes there are a still a handful of insurers happy to help pollute the planet, but a handful is far from a perfect market of buyers. Coal companies are going to have to pay an additional premium to get insured because fewer insurers want to play with them, and that's very much a good thing. The climate divestment push is helping make this happen.
Other knock-on effects from divestment include decreased willingness of big financial institutions to make loans, and simply the increased stigma of being a fossil fuel company driving up their costs and reducing willingness to do business with them. The real game though is political - the relative costs of fossil fuels and low-carbon alternatives are only part of the decisionmaking, with the rest being political. Climate divestment helps show the weakening political power of fossil fuels, which then makes it easier to knock them down.
We'll see what other American insurers are going to do. Meanwhile it's unfortunate that these insurers will make an extra profit out of being the bad guys. I hope some stigma moves over to AIG, Travelers, and Berkshire Hathaway to balance that out.
