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Insurers Could Boost Shareholder Value by Refusing Oil and Gas Projects, Bank Analysis Shows

The 10 companies that insure the lion’s share of oil and gas exploration and production could drop those high-carbon industries and increase their own shareholder value but are choosing not to, Bloomberg Green reports, in a summary of an analysis conducted by French investment banking giant Société Générale (SocGen).

The companies, including AIG, Travelers Cos., and Zurich Insurance, “account for about 70% of total underwriting,” Bloomberg Green reports, citing analysis by Insure Our Future. And the SocGen report indicated the insurers are a lot more important to fossil industries than the fossils are to the 10 companies.

“Premiums from insuring new oil and gas projects amounted to about US$1.7 billion in 2018, which equals just 0.1% of all property and casualty premiums,” Bloomberg writes. “This means the financial impact on insurers from restricting coverage for new capacity wouldn’t be very significant.

“In other words, insurers can afford to drop the world’s biggest perpetrators of climate catastrophe, but choose not to,” the news agency adds.

(With Canada’s Trans Mountain pipeline expansion just days away from the deadline to confirm adequate insurance for the next year, independent economist Robyn Allan said the SocGen analysis applies only to new oil and gas development, not existing infrastructure like TMX. “Trans Mountain is not an oil and gas project and the insurance package the company needs is related to the old pipeline,” she told The Energy Mix in an email. “The reason the company is having difficulty getting insurance is because of the risk of the aging pipeline, and would have little if anything to do with climate change per se.”)

So far, only one insurer, Australia’s Suncorp, has taken what SocGen insurance research director Nick Holmes called “significant action” to exit oil and gas, compared to 23 that are stepping away from coal. “For the insurance industry to fulfill its stated commitment to combat climate change, it may want to accelerate its efforts to exit the oil and gas industry,” Bloomberg writer Tim Quinson comments in response.

Holmes said that shift may be starting. “We feel momentum is starting to gather in this area,” he told Quinson, citing last month’s killer floods in central and western Europe that caused €6.5 billion in damage and shone a light on insurers’ direct interest in fighting climate change.

And there are choices the companies can make to protect themselves (and the rest of us). “Insurers can have a huge impact on the oil and gas industry by refusing to provide coverage for the very worst aspects of the industry when it comes to atmospheric and environmental destruction—oil and tar sands, oil shale, and Arctic drilling—and by refusing to insure new projects,” Bloomberg explains, citing the 26-page SocGen report.

The news story provides a quick overview of insurers’ response so far to fossil sector risk, with Axa and Swiss Re receiving highest marks for environmental, social and governance (ESG) practices among the 14 companies SocGen surveyed. The report says all insurers could earn a “green valuation premium” by restricting their oil and gas activities, with ESG factors reducing their assessed value to shareholders by as much as 3% or increasing it by up to 9%.

Société Générale increased Axa’s and Swiss Re’s valuations by 6%, Bloomberg says, and boosted its assessments of four other insurers—Generali, Zurich, Allianz, and Munich Re—by 5%.

But Insure Our Future Global Coordinator Peter Bosshard warned that the companies covered in the SocGen assessment still have a long way to go.

“Zurich, Allianz, and Axa, who have made numerous strong climate commitments, remain some of the world’s biggest oil and gas insurers,” he said in a release. “They have no excuse for enabling the continued expansion of fossil fuels. Ending cover for new oil and gas projects would not only protect the climate and their reputation; the Société Générale report makes clear that it would also increase their shareholder value.”