What can we expect from insurers’ net-zero underwriting commitments?

What’s happening? AXA has proposed an alliance of firms from across the insurance industry to ensure activities align with the 1.5C temperature increase pathway outlined in the Paris Agreement. The proposal was introduced at the Climate Action Summit. The “net-zero underwriting alliance” should be launched before next year’s COP26 summit, as the private sector can enable significant progress in the low-carbon transition, AXA CEO Thomas Buberl said. The move was supported by environmentalists, who warned that net-zero commitments must be backed by immediate action to stop financing fossil fuel projects to achieve sufficient emissions reductions needed to limit climate change.

Why does this matter? Insurers have banded together in the name of climate action in the past. In 2019, for example, Swiss Re, Allianz and Zurich were among companies that joined the Net-Zero Asset Owner Alliance, pledging to achieve net-zero investment portfolios by 2050. That group has since taken some steps with the environment in mind, warning portfolio companies in November to move away from thermal coal.

The same firms were also part of a cohort praised by Moody’s in February for limiting underwriting and investment exposure to coal and other fossil fuels. Insurers are also looking to cut emissions from their own operations – Swiss Re, for example, said earlier this year it would substantially raise its internal price of carbon in 2021.

Despite these steps, environmental activists have criticised the industry for reducing exposure to fossil fuels while still underwriting environmentally harmful projects.

It is also worth pointing out a commitment to a net-zero underwriting book would likely not only involve reducing coverage of fossil-fuel companies. Shipping, aviation and construction are also among high-polluting industries in need of insurance. How the industry continues to serve these sectors is among many questions likely to arise amid a net-zero push.

Another grey area is whether the industry will shift away from underwriting carbon-intensive projects but still provide other lines of coverage to fossil fuel firms. It’s been noted, for example, these companies could face an increasing amount of litigation and bankruptcy amid a transition to a low-carbon economy, potentially exposing directors and officers. Will insurers continue to service this sector via D&O, cyber or credit policies despite refusing to support projects?

Lateral thought from Curation – While initiatives such as the one suggested by Buberl may stop the private sector insuring high-polluting projects, state-backed insurers will likely continue to play a role supporting these, particularly in countries with economies dependent on fossil fuels. In Poland, for example, where the government is reportedly in the process of trying to secure EU subsidies for its coal industry, state-backed PZU Group has stepped in to support mining projects when private insurers have stepped away.

Nick Jardine

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