As the climate crisis escalates, the fossil fuel industry remains the driving force behind global carbon emissions, environmental degradation and threats to the future of our planet. Targeting insurers to withdraw support for fossil fuels is not only a good idea, it's a strategic move that could fundamentally disrupt the industry and accelerate the transition to a low-carbon future.
The 3 pillars of fossil fuel expansion
Every new fossil fuel project hinges on three essential requirements: permits, money, and insurance. These three elements are interdependent and the absence of any one of them can halt a project in its tracks. Insurance is the linchpin that enables projects to move forward.
Permits - Fossil fuel projects require various government permits and licenses, ensuring they comply with local and international regulations. These permits depend on the project's ability to demonstrate financial and operational risk management - something that insurance provides.
Money - Large-scale fossil fuel projects are capital-intensive, requiring billions in investment. Investors and banks are more likely to finance these projects if they are insured as insurance mitigates the financial risks associated with environmental disasters, accidents and other liabilities.
Insurance - Insurance is the safety net that allows fossil fuel companies to manage the significant risks associated with their operations. Without insurance, the financial risks of fossil fuel projects would be too great, making it difficult, if not impossible, for these projects to secure funding and proceed.
Making or breaking projects
Insurance plays a critical role in determining the viability of fossil fuel projects. The impact of insurance - or lack thereof - on these projects can escalate in several ways:
Signalling risk - When some insurers agree to exclude insuring a particular fossil fuel project, it sends a strong signal to the market about the inherent risks involved. This can lead to increased scrutiny from other insurers, investors, and regulators, creating a ripple effect that raises questions about the project's feasibility and safety.
Increased costs and delays - As insurers begin to limit their offers of coverage for fossil fuel projects, companies face higher insurance premiums and more stringent terms. This not only increases the cost of doing business but also leads to delays as companies scramble to secure the necessary coverage. These delays can push project timelines beyond profitability, discouraging further investment.
Market shift - If policy adoption leads to widespread exclusion of fossil fuel projects from insurance coverage, the overall provision of insurance for these projects diminishes. As insurance becomes harder to obtain and more expensive, the market naturally begins to shift away from fossil fuels, favouring investments in less risky, more sustainable energy sources.
No insurance, no project - Ultimately, if insurers refuse to cover fossil projects, these projects cannot proceed. Insurance is a non-negotiable requirement for building an extraction project. Without it, fossil fuel projects are dead in the water, leading to a significant reduction in new fossil fuel developments.
Strategic impact
Targeting insurance companies to stop insuring fossil fuel projects is a strategy grounded in the theory of change - an approach that identifies key leverage points where interventions can create significant, system-wide effects. Here's why targeting insurers is so impactful:
Insurers as gatekeepers - Insurance companies are the gatekeepers of the fossil fuel industry. By deciding which projects to insure, they effectively determine which projects can go ahead. If insurers withdraw support, it creates a powerful barrier to fossil fuel expansion, forcing companies to reconsider their plans.
Insurers as investors - Beyond their role as underwriters, insurance companies are also major investors. Globally, insurers control over $35 trillion in assets under management, with European insurers alone holding more than $10 trillion. This makes them some of the most powerful players in the global financial system. By divesting from fossil fuels, insurers can exert immense pressure on the industry to transition to cleaner energy sources.
Insurers' role in risk management - The very purpose of insurance is to manage risk, protecting individuals, communities, businesses and economies from unforeseen events. Yet, the fossil fuel industry is a key driver of climate change, which is one of the greatest risks humanity faces. It is paradoxical for insurers to continue supporting an industry that exacerbates the very risks they are supposed to mitigate. This inconsistency threatens the legitimacy of their role as risk managers.
A threat to their business model - Climate change poses a direct threat to the insurance industry's business model. As extreme weather events become more frequent and severe, insurers face increasing pay-outs. This not only affects their profitability but also undermines the sustainability of their business model.
Public pressure - Public opinion of the insurance industry is already unfavourable. Insurers know this and know they cannot afford their public image to be tainted further. Strategically, this means they are a good target for additional public pressure, particularly from young people who are their recruitment base.