A state lawmaker in Connecticut, which is a global hub of the insurance sector, wants to take a big step toward getting U.S. insurers to join European peers in moving away from coal and other fossil fuels.
State Sen. Matt Lesser is a co-chair of the Connecticut senate's insurance committee, and he is trying to pass a bill requiring the state's insurance commissioner to study and report on climate change issues. Lesser said Connecticut is interested in doing whatever it can to aid a transition to a low-carbon economy. Lawmakers will host a public hearing on the bill March 5.
A growing trend of European insurers taking action to limit exposure to the coal industry prompted the senator to think about what he could do on a similar front at home. During a trip to the International Association of Insurance Commissioners last fall, Lesser said he saw states struggling with what the insurance sector can do to help.
"We're really trying to figure out how we can sort of turbocharge this effort and get the U.S. insurance industry to focus intently on this issue," Lesser said. The bill aims to create transparency about both the support insurers provide to the fossil fuel industry and the risks the insurance industry is taking on when it comes to climate change, he said.
The bill would require the commissioner to determine if Connecticut-based or licensed insurers disclosed investments in fossil fuels and whether or not they were involved in underwriting for fossil fuels, including coal and tar sands projects. It would also require a study of whether insurers engaged a third party to assess their investment portfolios for exposure to climate risk.
By 2021, the proposed law would require the commissioner to assess the feasibility of requiring insurers to disclose a report consistent with the most current recommendations of the Financial Stability Board's Task Force on Climate-Related Financial Disclosures. It would require an annual report starting no later than Jan. 1, 2021, that would include the gross premiums earned by insurers from coal or tar sands projects.
"Backing fossil fuel projects at this time is going to make it difficult if not impossible to do what we need to do to protect the planet and save lives," said Samantha Dynowski, Connecticut state director for the Sierra Club and a supporter of the bill. "I think transparency is really the first step to hold insurers accountable for backing fossil fuels."
Fewer large U.S. insurers are rolling out exclusionary coal policies compared to European insurers, but the trend is accelerating with several U.S. insurers recently committing to some form of coal exclusion policy. At the same time, the total number of insurers excluding coal or other fossil fuels from their business dealings doubled from 2018 to 2019.
Coal producers are already feeling its effects.
"When you look at the broader insurance markets, whether it's federal black lung, whether it's workers' comp, even as simple as property and casualty insurance, the coal stigma is increasing the rate per thousand on any policy," Andy Eidson, CFO of U.S. coal producer Contura Energy Inc., said on a public call the company hosted in February.
A recent report from consultant Willis Towers Watson noted that U.S. coal generating facilities still need insurance, particularly against property damage, but exclusionary policies limit the options.
"The exodus of many international insurers from the market for coal risks complicates securing property coverage, particularly when insured individually rather than as part of a portfolio shared with non-coal assets," the report stated. "Ultimately, while sufficient capacity remains to insure stand-alone coal clients, these clients have less leverage with the insurance marketplace, given the limited choices available."
The proposed law has the potential to be a big deal for U.S. insurers. As an insurance activity hub in the U.S., Connecticut ranks third in the country in direct written premiums, with insurers in the state writing approximately $35.3 billion in premiums annually for the Connecticut market and $170 billion in premiums written in all markets, according to a 2018 report from PricewaterhouseCoopers. There are 1,478 domestic and non-domestic insurance companies licensed to do business in the state, it said.
Individual property and casualty insurance subsidiaries headquartered in Hartford alone controlled more assets than their peers in any other city in the U.S. except for Omaha, Nebraska and Bloomington, Illinois. Hartford-headquartered insurers reported $143.4 billion in total net admitted assets in the third quarter, according to an S&P Global Market Intelligence review of insurance regulatory filings.
"Connecticut is the insurance capital of the United States, so this legislation is especially significant," said Ross Hammond, senior strategist at Insure Our Future and The Sunrise Project, two campaigns driving insurers away from fossil fuel companies. "It's clear that pressure is rapidly growing on U.S. insurers to end their support for fossil fuels. There's simply no justification anymore for insuring and investing in the very things that are causing the climate crisis."
Hartford Financial Services Group Inc., a major U.S. insurer based in its namesake Connecticut town, recently added itself to the list of companies limiting exposure to coal. Hartford Financial is excluding new coal and tar sands projects from its underwriting and phasing out existing investments in the space while also pulling out of its investments in companies deriving more than 25% of their revenue from thermal coal.
"Extreme weather affects people's lives and businesses — and the risks are getting worse," The Hartford's Chairman and CEO Christopher Swift said in a statement after the company's announcement. "As an insurer and asset manager, we recognize the growing cost of this crisis, and we're determined to use our resources and influence to address the challenge."