Is insurance the new frontline of ethical business protestation?

24 January 2019

With some global insurance companies publically backing populist campaigns, we explore whether the insurance industry has become the new frontline of ethical business protestation.

In the past, passionate lobbyists would use shareholder meetings to try to protest against a company’s direction.

More crudely perhaps they would even camp out at a corporate headquarters with chants and placards in an attempt to draw media attention to their cause.

In recent years, however, a new target has emerged for the protester. The insurer.

The theory behind this being that, by persuading an insurance company to stop insuring a certain class of business, the perceived perpetrators would cease their operations. But does this type of campaign work?

“As a broker, we are in business to arrange risk transfer programmes for a wide variety of clients on a global basis – and within that we do provide cover for industries that some may have an issue with,” says Hamish Roberts, CEO of the Power Division at JLT Specialty.

The coal industry

A particular case in point, he says, is cover for “mining companies and power generation businesses, which either produce or use coal – a sector that is worth an estimated $2.5 billion in premium.”

Roberts’ comments follow on from moves by a number of insurance and reinsurance companies to yield to pressure from a geopolitical lobby group.

The global coalition of non-government organisations (NGOs) and social movement is pressuring insurance and reinsurance companies, an industry already considering its responsibilities and approach in the context of the Paris Accord, to get out of the coal business with a view to disabling the coal industry.

The rationale behind the campaign is that the fossil fuel industry depends on insurance coverage for building and maintaining its coal mines, power plants and pipelines, and that insurance companies have warned about climate risks since the 1970s but also enable further coal projects through insurance coverage and through investments.

The targeting of the energy sector as a way of reducing greenhouse gas emissions makes sense, concedes Roberts, citing OECD figures showing that the biggest contributor of greenhouse gases by far is the energy sector (24 per cent).

Second, and a long long way behind, is agriculture, adds Roberts, closely followed by the fashion industry.

Roberts does not question the ultimate aim of the lobbying groups, to reduce carbon emissions. 

“It is an irrefutable fact that the world produces too much greenhouse gas, which is leading to increased windstorm, economic migration and a rise in water temperature and levels.

“We at JLT care about the environment and, while I think everyone shares the overall ambition of the lobbyists’ campaigns in terms of reducing carbon emissions, we believe that targeting insurance is a very blunt weapon and the withdrawal of insurance may also have a detrimental impact on the advance of cleaner technologies.”

The withdrawal of traditional insurance could also have some unintended consequences. “I am in no doubt that if any clients cannot get insurance, they will insure themselves instead – which is exactly what happened in the oil and gas sector in the 1970s, says Roberts.”

It would also remove the industry’s ability to influence behaviour. “Insurers can presently offer more competitive rates to incentivise the use of clean coal technology.

“By withdrawing cover and forcing them to self-insure, there is an additional risk that pollution may actually increase as companies reduce spend on maintenance and pollution control to cover the additional costs, adds Roberts.”

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Insurers take action

Roberts’ concerns aside, some major reinsurers and insurers have responded to pressure.

More insurers and reinsurers are stopping or limiting their insurance support for coal – with AXA XL and Generali recently joining the likes of Allianz, Zurich, Swiss Re, Munich Re and SCOR.

Swiss Re will no longer offer insurance or reinsurance cover to companies that generate 30 per cent or more of their revenues from thermal coal mining or use at least 30 per cent thermal coal for power generation.

And Munich Re has also responded by saying it will end insurance coverage for new coal-fired power plants in industrial countries and will no longer invest in shares and bonds of companies that generate more than 30 per cent of their revenue from the coal sector.

The exception for emerging countries of course does not influence those most embracing coal in their quest for economic growth – particularly China and India.

“They may mean well,” says Roberts, “but I believe they are setting a dangerous precedent responding to pressure from lobby groups and isolating what is at the end of a day a perfectly legal industry. 

“What next? Marine, oil and gas, aviation, fashion? All industries in some way involve processes and products that could be ethically questionable to someone. Is it right that the insurance industry should take a moral standpoint and act as both judge and jury?”

Roberts believes that change is better achieved from within. “Brokers have no trouble arranging company programmes for clients despite the noticeable withdrawal of capacity from the market.

Rather than withdrawing cover suddenly and risking unintended consequences, the insurance sector should work with its clients to encourage the adoption of more sustainable business practices.

Reducing pollution is one of the most important global objectives and the insurance sector can be a key part of the solution.”

Planned world coal power projects

A summary of countries and regions still investing in future coal power projects, based on 2017 data from Plants in the process of winding down operations have been removed.

Risk Specialist January 2019

Source: Table compiled from data provided by]

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