Tag Archives: Insurance companies

Big Oil, California oil industry, Carbon emissions, Climate Change, Insurance and liability, Insurance Industry

‘Bad neighbor’ State Farm had at least $30B invested in fossil fuels when it abandoned CA homeowners and climate victims

Like a bad neighbor, State Farm is gone from California

An oil rig silhouetted by a golden sunset.

San Francisco Chronicle, by David Arkush and Carly Fabian, July 12, 2023

State Farm’s decision to stop providing new homeowners insurance policies in California is an indicator of the growing damage caused by climate change. As climate-driven disasters lead to higher losses, insurers like State Farm will raise prices and cut back coverage or even flee.

Far from neutral victims, though, insurers are profiting from both sides of this crisis. They collect premiums and investment profits from fossil fuels while extracting ever more from consumers whom they plan to abandon.

To be clear, there is no question that climate change is disrupting insurance markets. The rising frequency and severity of disasters are driving up the cost of insurance and destroying some insurance markets entirely by rendering areas “uninsurable.”

But there’s more going on here than a simple story of climate disasters disrupting the math of insurance.

The root cause of the climate crisis is the rampant burning of fossil fuels. Insurers are critical gatekeepers for the fossil fuel industry, providing the insurance that allows companies to operate. As experts in evaluating risk and extreme weather, insurers knew about climate change early on. But in their pursuit of short-term profits, they didn’t stop underwriting fossil fuels.

Many are still underwriting the most reckless and dangerous parts of that sector, like the expansion of fossil fuels. Some insurers, largely in Europe, have begun restricting their underwriting of fossil fuels, but U.S. insurers are dragging their feet, even as they increasingly abandon homeowners.

Insurers also invest heavily in fossil fuels, unconscionably using their customers’ premiums to profit from businesses that will destroy their homes and, in some cases, even kill them while driving up insurance costs and making many areas uninsurable.

State Farm is a prime example of insurers’ hypocrisy. Rather than suffering financially in California, the company has made substantial profits in the state in recent years, along with other homeowner insurers whose profits in California have been four times the national average, even after accounting for major wildfires. At the same time, the latest data shows State Farm alone had $30 billion invested in fossil fuels and the industry overall had over $500 billion.

The crisis has also been a boon for industry lobbyists who have seized it as an opportunity to bully states and bilk customers. When State Farm announced its decision to stop offering new California homeowners’ policies, the industry’s primary lobbying group, the American Property Casualty Insurance Association, claimed insurers must be allowed to use secret models to set profitable rates. The industry has long wanted those models because they make it harder to catch insurers overcharging for policies. Rather than work on a transparent approach to modeling climate impacts, the industry is pushing a consumer protection rollback it has sought for decades.

The industry playbook appears to be this: Profit as long as possible from fossil fuels. Stick customers with not just direct climate harms, but also higher premiums, while delaying, denying and low-balling claims. Bully regulators for giveaways. Then leave.

Some neighbors. 

Although the industry isn’t putting forward serious solutions, there are steps insurance regulators and legislators can take. In an emergency, the first step is to stop the harm. California can start by requiring insurers to align their underwriting and investments with science-based climate targets to stop insurers from contributing to this crisis.

Regulators can also explore transparent solutions for pricing climate-related risk and consider developing public solutions to provide reinsurance, which is essentially insurance for insurance companies. Public reinsurance programs would facilitate reimbursements for claims above a high dollar amount to insurers that expand their coverage, allocating risks in a way that creates stability for insurers and a stronger safety net for the public.

As insurers leave vulnerable areas, and unregulated reinsurance prices soar, a public backstop for the highest losses would provide more certainty for insurers who want to offer coverage in vulnerable areas while creating a stronger safety net for consumers.

After each disaster and withdrawal, industry trade groups will push for their wish list — with no promise to stay, even if they get everything on it. It’s time for the public and regulators to advance real solutions.

David Arkush is the director and Carly Fabian is the policy advocate for Public Citizen’s Climate Program.

[Note from BenIndy Contributor Nathalie Christian: The sections bolded above reflect my added emphasis.]

Carbon pricing systems, Corporate sustainability, Divestment in fossil-fuels, Socially responsible investment, Sustainability investments

Investing in socially responsible companies makes sense

Repost from the San Francisco Chronicle
[Editor:  Significant quote: “Studying the performance of over 2,000 companies in six sectors, the researchers discovered the stock price of companies that invested to improve sustainability in ways that were material to their businesses outperformed companies that did not.”  – RS]

Investing in socially responsible companies makes sense

By Tom Kiely, Lenny Mendonca and Steve Westly, September 17, 2015

What do CalPERS, and many of the world’s largest sovereign wealth funds from Scandinavia to the Mideast have in common? They’re betting big on sustainability.

In May, the California Public Employees’ Retirement System, a $307 billion retirement fund, said it will require its asset managers to factor environmental and social risks into their investment decisions. Norway’s giant national sovereign wealth fund, with $890 billion in assets built off its oil and gas reserves, is divesting from companies that mine or burn coal. A majority of the world’s largest institutional investors — pension funds, insurance companies, sovereign wealth funds — incorporate considerations about a business’s environmental and social track record into their investment decisions.

However, too many company managers are still under the spell of the myth that shareholders are the only stakeholders who count. For decades, neo-classical economists suggested — and business schools taught — that sustainability investments unnecessarily raise a firm’s costs, creating a competitive disadvantage. Invest in anything but the bottom line, and you risk your survival we’ve been told endlessly.

Shareholder idolatry holds executives back from making the investments they should to benefit the planet and their businesses in the long-term. For every corporate leader there is a regiment of laggards.

Sure, most of the Standard & Poor’s 500 companies issue sustainability or social responsibility reports each year, but try reading those reports — they are a catalog of the tepid. Few companies integrate social and environmental factors deeply into their business strategies. U.S business organizations, such as the Chamber of Commerce, have opposed government-led efforts to reduce climate risk as overly bureaucratic and costly for business, while doing little to further business-led initiatives to improve corporate sustainability.

That’s a big mistake. For instance, in one recent study, three Harvard Business School professors showed how “firms with good performance on material (our emphasis) sustainability issues significantly outperform firms with poor performance on these issues.”

When it comes to these investments, the materiality test is crucial. Companies make all kinds of investments in sustainability and in corporate social responsibility programs. But only some of these things have a material impact on performance. The researchers looked at a set of environmental, social, and governance measures that both companies and their investors deemed material and measured their impact on stock prices.

What did they find? Studying the performance of over 2,000 companies in six sectors, the researchers discovered the stock price of companies that invested to improve sustainability in ways that were material to their businesses outperformed companies that did not.

This makes sense to a growing number of investors. Smart sustainability investments allow companies to attract better employees, improve their brands to sell more or sustain a price premium.

What should be done? Companies must do a better job of compiling non-financial data on their environmental and social performance and report it to investors and other stakeholders. Fifty percent of institutional investors surveyed by PricewaterhouseCoopers in 2014 said they were dissatisfied with the environmental-social-governance information companies provided.

Business leaders need to step up and champion these efforts.

Also, executives should act like leaders in policy debates. In early June, 80 companies, including U.S.-based Coca-Cola and Mars, pressed the British government to fight for strong action against climate change in international talks, and to aggressively push for a long-term low-carbon plan for the United Kingdom.

Where are U.S. business leaders on this?

Business leaders should propose a concrete plan for pricing carbon, for instance. After all, more than 150 companies already factor a carbon price into their business planning decisions, according to a recent study by CDP, a sustainability measurement organization. Executives have the public clout to elevate the debate on carbon pricing, and the experience to propose pragmatic frameworks for getting this done.

Corporate executives need to stop thinking of sustainability as a political discussion, and see it for what it is: good business.

Tom Kiely is a member of the Standards Council of the Sustainability Accounting Standards Board. Lenny Mendonca is a consultant to leaders in the public and social sectors. Steve Westly, a former state controller, is managing director of the venture capital firm the Westly Group.