06.09.23

Budget Committee Launches Investigation into Major Insurance Companies’ Climate Risk Evaluation, Fossil Fuel Support

“Underwriting dangerous fossil fuel projects makes it harder to achieve global climate goals, and there is little transparency about how the myriad risks factor into industry decisions,” wrote the Senators

Washington, D.C.—Today, Senator Whitehouse (D-RI), Chairman of the Senate Budget Committee, and fellow Committee members Senators Wyden (D-OR) and Sanders (I-VT) launched an investigation into how the U.S. insurance industry evaluates climate-related risks, decides to invest in or underwrite fossil fuel expansion projects that drive such risks, and prices policies that insure such projects.

In letters sent to AIG, Berkshire Hathaway, Chubb, Liberty Mutual, Starr, State Farm, and Travelers, the Senators pressed the companies to disclose why and how they are still supporting the underwriting of and investment in new and expanded fossil fuel projects; what plans they have to follow the example of global insurance counterparts, many of which have begun restricting their underwriting of fossil fuel projects; what plans they have to divest their fossil fuel-related investments; and what methodology they use to evaluate future impact on climate of their investment and underwriting decisions, among other questions.  The Senators also requested information about how the insurance companies evaluate their responsibilities with respect to the principle of Free, Prior, and Informed Consent, which ensures Indigenous Peoples can give or withhold consent for any action that would affect their lands, territories, or rights and is protected by international human rights standards.

“Any new fossil fuel expansion is incompatible with our climate goals and economic stability. By underwriting and investing in new and expanded fossil fuel projects, U.S. insurers are helping Big Oil bring us closer to the worst runaway climate scenarios, which threaten lives, livelihoods, and the federal budget. That is why I am launching an investigation to obtain key information and internal documents showing how these companies weigh risks to the climate when considering their underwriting and investment decisions.  This information is especially relevant as some of these companies begin to pull out of certain markets because they see the coming catastrophic climate risks—despite continuing to provide services to the fossil fuel industry,” said Senator Whitehouse.

The investigation follows a series of hearings held by the Budget Committee that have examined the economic risks associated with climate change.  Central bankers, economists, insurance industry executives, financial experts, and others have testified before the Committee that climate change poses multiple “systemic risks” to the economy—risks with the potential to cascade beyond immediately affected sectors to cause economy-wide harm, akin to the 2008 financial crisis.

“Witnesses have warned that sea level rise and wetter, more intense storms could eventually make more than $1 trillion in coastal real estate uninsurable, and therefore unmortgageable, leading to a coastal property values crash; that more frequent and intense wildfires could result in a similar death spiral for western property in the wildland-urban interface; that climate-related losses are making it harder for the insurance industry to price risk, already resulting in insolvencies among regional insurers; and that, as demand for oil and gas declines, hundreds of billions of dollars in fossil fuel assets may be stranded,”  wrote the Senators.

Many insurance companies are beginning to limit the scope of coverage they will provide—or pull out of markets entirely—due to their assessments of the likelihood of coming “catastrophic risk” caused by climate change. At the same time, and despite evidence that new and expanded oil, coal, and gas development is incompatible with global climate goals and long-term economic stability, the U.S. insurance industry is continuing to support fossil fuel expansion: U.S. insurers currently have approximately $582 billion invested in fossil fuels, including nearly $90 billion in coal alone.

“...[I]n the United States, the insurance industry continues to support existing and expanded fossil fuel projects with few restrictions in place limiting—or excluding—either. U.S. insurers continue to underwrite polluting projects while making investments in an industry whose continued expansion poses multiple serious dangers to overall economic stability and to insurance services in particular,” the Senators continued.

Continued expansion of the fossil fuel industry poses serious dangers to overall economic stability and to insurance services, in particular.  In light of its concerns about long-term economic well-being of communities, business, and the federal budget, the Committee has requested information by June 16 and documents by June 23 from the seven companies.

Letters to each of the seven insurance companies can be found here: AIG, Berkshire Hathaway, Chubb, Liberty Mutual, Starr, State Farm, and Travelers.