IN-DEPTH: Legal Storm Brewing Over Insurers’ ESG Agenda

A satellite image shows Tropical Storm Hanna, which is expected to strengthen to a hurricane, in the Gulf of Mexico and approaching the coast of Louisiana on Oct. 27, 2020. NOAA/Handout via Reuters

GOP representatives took a first step toward investigating a United Nations climate club for insurance companies this week, as club members, fearing antitrust actions, headed for the exits.

In an Aug. 1 letter to Linda Thomas-Greenfield, U.S. Ambassador to the United Nations, Rep. James Comer (R-Ky.), chairman of the House Oversight Committee, wrote: “The U.N.-convened Net-Zero Insurance Alliance (NZIA) requires insurance company members to commit to transitioning their portfolios to net-zero greenhouse gas (GHG) emissions by 2050.

“Recent reports indicate insurance companies with ‘significant U.S. business and exposure’ are rapidly dropping out of [this] U.N.-supported net-zero climate organization due to concerns with the environmental, social, and governance (ESG) agenda and antitrust law compliance,” Mr. Comer stated. “Americans deserve to know whether the U.S. Mission to the U.N. is jeopardizing their nation’s sovereignty by advancing radical climate goals of the U.N. and other countries with their tax dollars.”

In recent months, about half of the NZIA members, including Lloyds, AXA, Sompo, Allianz, Scor, Munich Re, Swiss Re, Zurich Insurance Group, and Hannover Re have dropped out of the alliance. NZIA was established by eight insurance and reinsurance companies in 2021, including AXA, Allianz, and Scor. By 2023, membership increased to 29 members, representing about 15 percent of the global insurance market.

Other U.N.-sponsored net-zero financial clubs include the Net Zero Asset Managers initiative (NZAM), the Net Zero Asset Owner Alliance (NZAOA), the Net Zero Banking Alliance (NZBA), and the Paris Aligned Asset Owners (PAAO). These organizations fall under the umbrella of the Glasgow Financial Alliance for Net Zero (GFANZ), which also works with U.S. agencies like the Federal Reserve to craft climate-related regulations for American companies.

In addition, attorneys general from 23 U.S. states wrote to NZIA (pdf) on May 15 that they were “concerned with the legality of your commitments to collaborate with other insurers and asset owners in order to advance an activist climate agenda.

“Under our nation’s antitrust laws and their state equivalents, it is well-established that certain arrangements among business competitors are strictly forbidden because they are unfair or unreasonably harmful to competition,” the AGs wrote. “The NZIA protocol’s ‘targets’ and requirements appear to violate these well-established laws.”

Climate Clubs Set CO2 Reduction Targets

In addition to their membership in NZIA, 85 insurance companies and pension funds with $11 trillion under management are also members of NZAOA. Members of these climate clubs pledge to “transition insurance and reinsurance underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050.”

In January, the NZIA released its first “Target-Setting Protocol” for members. According to this protocol, members must adopt NZIA’s “emissions reduction targets” by compelling their clients to cut CO2 emissions by up to 60 percent by 2030. This could include things like pushing customers to buy electric vehicles (EVs) instead of gasoline-powered vehicles.

State AGs wrote to NZIA that “because your companies hold substantial market power, these ‘targets’ against certain individuals may be an illegal boycott …. NZIA members are forced to collectively move toward a product when there is not necessarily commensurate market demand for that product and move away from products actually demanded by the market. As a result, insurance prices for those products actually demanded by the market will likely increase.”

Many NZIA members appear to recognize that their collective efforts against the oil, gas, and coal industries may violate U.S. antitrust laws like the Sherman Antitrust Act, which prohibits companies from colluding “in restraint of trade or commerce among the several states, or with foreign nations.”

A GFANZ spokesperson, however, condemned efforts to investigate these organizations, stating: “These political attacks are now interfering with insurers’ independent efforts to price climate risk, which will harm policyholders, main street investors, and local economies. Despite these political headwinds, we will continue to support insurers’ efforts to manage climate risk and develop transition plans.”

Insurers are also getting pressure from non-governmental organizations.

On March 21, a group of 24 climate activist organizations including Greenpeace, the Sierra Club, and the Rainforest Action Network, issued an open letter to the CEOs of the 30 largest insurance companies. They demanded that the insurers “immediately cease insuring new and expanded coal, oil, and gas projects; immediately stop insuring any new customers from the fossil fuel sector which are not aligned with a credible 1.5^oC [about 2.7 degrees Fahrenheit] pathway, and stop offering any insurance services which support the expansion of coal, oil, and gas production at existing customers; [and] within two years, phase out all insurance services for existing fossil fuel company customers which are not aligned with such a pathway.”

States Work to Curb ESG Insurance

While the Biden administration is encouraging ESG policies by, for example, permitting ESG investing by private pension funds and implementing “green” accounting standards for all listed corporations, state legislators in places like Texas, Florida, North Dakota, and South Dakota have been working to stop insurance companies from establishing policy criteria that are not “actuarily valid,” or that are not based on accepted insurance practices for quantitatively assessing risk.

“If it’s not actuarily valid, you shouldn’t be doing it,” Dr. Tom Oliverson, Texas state representative and chairman of the House Insurance Committee, told The Epoch Times. “I don’t care what your personal justification is, if it’s not an actuarily valid principle, it’s just as off-limits as redlining.”

“ESG is not actuarily justified,” he said. “In other words, there’s no correlation.” A car is not less risky to insure simply because it is an electric vehicle, versus a gasoline-powered vehicle, he said.

“It’s a fact that some insurance and reinsurance companies have either bought in to using ESG standards for coverage, creating ESG products, or they’re using ESG as good PR to respond to investors who are pushing these initiatives,” Devin Galetta, communications director for Florida Chief Financial Officer Jimmy Patronis, told The Epoch Times. “All of it costs money, resources, and time, and has nothing to do with evaluating the price point of a policy.”

Like California, Florida has been struggling to keep homeowners insurers within the state, but according to the Insurance Information Institute (III) (pdf), “the reasons have little [to] do with the state’s hurricane exposure.” Florida is the leading state for insurance litigation expenses due in part to regulations that sometimes require insurers to pay homeowners’ legal fees, which often exceed the cost of the claims themselves, III reports.

Biden Attempts to Expand Authority Over the Insurance Industry

The insurance industry is unique among financial companies in that, by contrast to banking, it is largely regulated by states. However, the federal government has been working under the Biden administration to expand its authority in this area as well.

The Federal Insurance Office (FIO), which was established under the Treasury Department by the Dodd-Frank Wall Street Reform Act of 2010 and tasked with monitoring the insurance industry, issued a report (pdf) to state regulators in June 2023 that stated: “All state insurance regulators should prioritize efforts to adapt their regulatory and supervisory tools to incorporate climate-related risks.”

The report makes 20 policy recommendations for state insurance regulators to follow, including that they “encourage insurers to implement climate risk monitoring, and to report to regulators, in a uniform manner, on the impact of climate-related risks on their strategic processes.”

“We did not appreciate that in the state of Texas,” Dr. Oliverson said. “And I know from talking to several insurance commissioners around the country that many other states didn’t appreciate that federal intrusion into the state-based system of insurance regulation.”

The justification for the FIO, when it was established, was to “ensure a level playing field for reinsurance products between the European and the American marketplace,” he said.  “But the Biden administration has now got them doing climate justice stuff too.”

On July 20, Rep. Adam Schiff (D-Calif.) and 10 other representatives sent a letter (pdf) to the FIO, telling them to investigate how climate change is impacting insurance coverage for homeowners after State Farm and Allstate stepped back from providing home insurance policies in California. The representatives called on the FIO to force insurance companies with more than $100 million in annual premiums to publicize their investments in fossil fuels.

ESG Advocates Say It’s Good Risk Management

Many in the insurance industry argue that ESG is nothing more than gathering information about climate risks, which must be taken into account so they can properly price their policies. A report by Bloomberg news stated that insurance losses from “extreme weather” hit a record $120 billion in 2022, noting that “before 2005, industry losses never topped $50 billion a year.”

NPR, a government-sponsored media organization, reported in July that “insurance companies in states like Colorado, Louisiana, and Florida are paring down business to shield themselves from ballooning losses as climate change fuels more-intense disasters,” noting that without home insurance, people can’t get mortgages. Insurance companies in California have also been stepping back from homeowners insurance policies, citing risks like wildfires.

Doug Abraham, a lobbyist for the American Property and Casualty Insurance Association (APCIA), testified in March against a South Dakota bill that would prohibit insurers from denying services to someone for reasons other than “impartial risk-based financial standards.” Such a rule, he said, would result in higher insurance rates and bankruptcies among insurance companies.

Michel Leonard, chief economist at III, stated that “ESG is in the DNA of any insurance company,” adding that “it would be very difficult for the insurance industry to insure in an economically viable and sustainable way without paying attention to environmental patterns.”

However, while monetary losses from natural events may be escalating, it is unclear whether this is actually due to changes in the weather, or because more people have properties, and more expensive properties, in many high-risk zones. For example, despite extolling the risks from rising sea levels, former President Barak Obama invested nearly $12 million in the 2019 purchase of an ocean-front estate on Martha’s Vineyard, although to date this property remains above sea level.

Is Weather Really Getting More ‘Extreme?’

Despite the claim that weather is getting more “extreme,” some who track climate trends say the evidence suggests otherwise.

NPR wrote in January that “climate change makes heat waves, storms, and droughts worse,” and according to the EPA, record-setting daily high temperatures have become more common in the United States since the 1970s. However, according to a more extensive set of climate data, the 1970s were an unusually cool period, and heat waves were significantly more extreme a century ago than they are today.

Gregory Wrightstone, executive director of the CO2 Coalition, researched data over the past 100 years from the U.S. Historical Climatology Network (USHCN) and found that heat waves, measured as the number of days with temperatures over 100 degrees Fahrenheit, reached a peak in the 1930s and have been declining since.

Data from the U.S. Historical Climatology Network (USHCN) indicates heat waves were worse a century ago. Courtesy of Gregory Wrightstone, USHCN

Forest fires and hurricanes also appear not to be escalating.

Climate analyst Bjorn Lomborg wrote last week in a New York Post op-ed that “since the early 2000s, when 3% of the world’s land caught fire, the area burned annually has trended downward. In 2022, the last year for which there are complete data, the world hit a record low of 2.2% burned area.”

The New York Times has done extensive reporting on forest fires in the United States, Canada, and Australia, employing 40 staff members for its “Postcards From a World On Fire” project, which also included photorealistic animation. But their reporting omitted the fact that forest fires have declined.

“The Biden administration and the Times can paint a convincing picture of a fiery climate apocalypse because they selectively focus on the parts of the world that are on fire, not the much larger area where fires are less prevalent,” Mr. Lomborg stated.

A July 2021 report in Science News analyzed hurricane data from 1851 to 2019. The report “found no clear increase in the number of storms in the Atlantic over that 168-year time frame” and “more surprisingly … the data also seem to show no significant increase in hurricane intensity over that time.” While there has been short-term fluctuation in hurricane numbers and intensity, today’s patterns are consistent with historical averages.

Mr. Wrightstone researched data from the Centre for Research on the Epidemiology of Disasters and found that deaths from natural disasters worldwide have declined more than 90 percent from a century ago, down from an average of more than 500,000 deaths per year in the 1920s to 45,000 in the past decade.

Data collected from the Centre for Research on the Epidemiology of Disasters (CRED) shows a decline in deaths from natural disasters Courtesy of Gregory Wrightstone, CRED

In working to write Texas legislation on ESG and insurance, Dr. Oliverson said, “one of the things we uncovered is that we had large insurers who were, behind the scenes, praying for us that we could get this passed because they were worried about the same sort of hostile takeover by extremist shareholder proposals that you’ve seen in the banking sector.

“They saw what we were working on as an inoculation against radical policies being forced upon them by leftist shareholder groups,” he said.