How insurers prop up the fossil fuel industry.

When we think about fighting the fossil fuel industry, we often focus on extraction companies themselves, major funders or governments. However, we often forget a major enabler of the industry: insurance companies. Insurers play a critical role in allowing fossil fuel companies to continue unchecked expansion, despite the catastrophic impact on our planet.

Ensuring production.

Insurance companies provide financial protection - or underwriting - to coal, oil and gas companies at every stage of production, from extraction to transport. This coverage shield fossil fuel companies from the massive risks inherent in their operations. These risks include environmental disasters, legal liabilities, and business interruptions.

A fossil fuel project will usually need multiple insurance policies to operate, including:

1. Property insurance - This protects the physical assets of fossil fuel companies, such as oil rigs, pipelines and refineries, from damage caused by accidents and other incidents.

2. Liability insurance - This covers legal claims and lawsuits that arise from environmental damage, such as oil spills or toxic emissions. This coverage allows fossil fuel companies to operate even when their actions lead to environmental catastrophes.

3. Business interruption insurance - This compensates companies for lost income when their operations are disrupted, ensuring that they can continue to profit even in the face of disasters.

Case study: The Deepwater Horizon Bailout The Deepwater Horizon oil spill was a catastrophic industrial disaster that began in April 2010 in the Gulf of Mexico. Triggered by an explosion on British Petroleum's Horizon oil rig, the spill resulted in the deaths of 11 workers and released millions of barrels of crude oil into the ocean over 87 days. It is the largest maritime oil spill in history, causing extensive environmental damage and severely impacting local economies reliant on fishing and tourism. The spill led to billions of dollars in damage claims, clean-up costs and fines. The insurance industry took losses of more than $3.5 billion, marking one of the most significant energy insurance losses in over two decades. Lloyd's of London and Swiss Re were amongst the hardest hit having been involved in the project and said that as a result of the spill, the premium rates they charged would have to rise.

Ensuring expansion.

If investments are the lifeblood of the fossil fuel industry, insurance is its backbone. Insurers provide the framework that enables the industry to survive and expand, providing the security and stability needed for growth and exploration. By covering financial risks, insurance companies make it possible to secure long-term growth. Here's how:

1. Encouraging risky behaviour - Fossil fuel projects, particularly those in extreme environments like the Arctic and deep oceans, are inherently risky. Insurance mitigates these risks, making it easier for companies to embark on new projects that further endanger our climate.

2. Supporting new ventures - Insurance enables the exploration and development of new fossil fuel reserves. Without insurance, high-risk ventures would be financially unfeasible, and companies would be less likely to invest in expanding their operations.

3. Facilitating regulatory compliance - Many governments require fossil fuel companies to have insurance to cover their operations and potential environmental damage. While this might seem like a safeguard, it actually enables companies to continue operating with the assurance that their financial risks are covered.

4. Maintaining investor confidence - Investors are more likely to finance fossil fuel projects if they know the company is insured. This perpetuates a cycle where insurance supports fossil fuel expansion, which in turn attracts more investment into the industry.

Case study: Stopping EACOP The East African Crude Oil Pipeline (EACOP) project is a pipeline designed to transport crude oil from Uganda's oil fields to the Tanzanian port of Tanga for export. At 1,443 kilometres long, it would be the longest heated crude oil pipeline in the world. It is a joint venture between oil companies Total and CNOOC and the governments of Uganda and Tanzania. The project has faced significant environmental, social, and financial concerns due to its potential impact on local communities and ecosystems. The Stop EACOP campaign has worked to get 22 insurers to publicly refuse to insure the project. Major financers have also pulled out or refused to invest in the project. As a result, the project has been severely delayed and incurred an additional $1.5 billion in extra costs.

Insurance in numbers.

Insurers play a significant role as investors in fossil fuel projects. Let's break down the numbers to illustrate this.

• Insuramore estimates the gross direct premiums (the amount of money made) from insuring the fossil fuel industry at $21.25 billion in 2022.

• Lloyd's of London, the UK insurance market, is the largest fossil fuel insurer worldwide accounting for 9% of all insurance provided to the sector for a total $1.6-2.2 billion in premiums.

• Primary insurers with a 58.8% share of the commercial property & casualty market have not taken any action on coal, and 80.4% of the market has taken no action on oil and gas.

A grand total of 0 insurers are aligned with the 1.5°C Paris Climate Accords target.

Insurers must act now.

• To protect the planet: The science is clear: fossil fuels are the primary driver of climate change. Insurers have the power to stop the expansion of fossil fuel projects by refusing to provide coverage. This would force companies to reconsider risky ventures that threaten our planet.

• To support a just transition: By refusing to insure fossil fuels, insurers can redirect their resources towards renewable energy and other sustainable industries. This not only helps combat climate change but also supports a transition to a more just and equitable economy.

• To reduce financial risk: As the impacts of climate change become more severe, the financial risks associated with insuring fossil fuels will only increase. Insurers that continue to support fossil fuels are exposing themselves to growing liabilities from climate-related disasters.