Insurers vs Climate Change vs US Legislators/Regulators

[Maphistos_Sidekick]

An article in today’s WSJ might be of interest to some (non-paywalled link):

Insurers Are in the Hot Seat on Climate Change

Nothing terribly earth-shattering in the article to some of us, but it’s interesting seeing the headache a few of us have to deal with getting mainstream media attention.

The biggest U.S. insurance firms are facing pressure from three sides. They are raising premiums and are cutting back coverage because of more damaging storms and wildfires, made worse by climate change. They insure the fossil-fuel producers whose products are blamed for causing climate change. And, as big investors, they fund these same companies. Most try to promote their climate bona fides.

This is a recipe for making lots of powerful people unhappy. Texas lawmakers want to ensure that insurance companies “do not hinder” oil companies. Connecticut lawmakers want the opposite. Republican state attorneys general accuse insurers of going too far in the fight against climate change. Democratic senators are asking if the companies are going far enough.

“We’re caught right in the middle between these very different agendas,” said David Sampson, head of the American Property Casualty Insurance Association, an industry group. “What we’re seeing is the weaponization of the business of insurance…to [try to] achieve certain public policy objectives.”

[NormalDan]

At the end of the day rates are based on predicting expected loss, less thumb on the scale based on political aims. Where that comes into play is really more senior than that, for example having a policy to not underwrite coal companies.

I’ll of course slip in that California is the only state in the country where it’s unlawful to include climate change in your rate analysis.

[Maphistos_Sidekick]

While the link between rates and expected loss cannot be denied, when you start getting into the insurance implications of ESG you start reaching questions like “should we exclude certain operations from underwriting eligibility?” or “should we sacrifice some optimality in our investment portfolio because of social considerations?”

I can’t see regulators intervening too much on the investment side, but I can see politicians in places like Texas or North Dakota being hostile to carriers that seek to exclude the fossil fuel industry with their underwriting guidelines.