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    Insuring the Climate Crisis: New Bill Aims to Rein in Predatory Insurance Practices

    Published June 26, 2024

    By Lindsay Fenlock, Senior Researcher at the Center for International Environmental Law, Charles Slidders, Senior Attorney, Financial Strategies at the Center for International Environmental Law, and Nikki Reisch, Director of the Climate & Energy Program, at the Center for International Environmental Law.

    This is the first in a multi-part series, “Insuring the Climate Crisis,” which analyzes the intersection of the climate emergency and the insurance crisis.

    A new bill proposed in the New York State Legislature aims to use state regulatory authority over insurance markets to address runaway insurance costs and growing coverage gaps driven by mounting climate change impacts. The bill is among the first in the United States to address the predatory behavior of property insurers that are citing climate-driven disasters as a reason for raising homeowners’ premiums while simultaneously fueling the climate crisis by financing and underwriting fossil fuel projects. 

    In the last five years, the frequency and severity of extreme weather events have intensified across the US, wreaking havoc on communities. In response, insurance companies have hiked premiums and scaled back coverage in areas vulnerable to climate disasters. As a result, for many communities, home insurance is becoming unaffordable, while for others, their homes are rapidly becoming uninsurable. 

    Rather than working to fight the climate crisis, which is a cause of the insurance industry’s growing costs, many insurers are still investing large portions of their increasing premium pools in fossil fuel companies, the undisputed drivers of climate change. Some insurers have continued to finance new oil and gas projects while simultaneously turning away homeowners in high-risk climate zones.  

    This contradiction reveals the hypocrisy of the insurance industry, as it seeks to profit from both sides of the growing global climate catastrophe, and raises questions about the industry’s role in facilitating the severe weather events that they claim are making some areas uninsurable. 

    New York’s bill would prohibit insurers from underwriting new fossil fuel projects, require them to phase out support for existing projects, and force insurers to divest from fossil fuel companies. It would also add some protections for certain New York insurance customers, shielding them from sudden non-renewals and, in some cases, premium increases. If passed, the new law would help spotlight and stop the unconscionable conduct of insurance companies in facilitating fossil-fueled climate change and abandoning homeowners affected by the severe weather events it precipitates.  

    This proactive measure provides an example for other states of how they can use their regulatory authority to stem the climate-driven insurance crisis — starting by preventing insurers from exacerbating climate risks through their support for fossil fuels.  

    The Climate Emergency and the Insurance Crisis

    Since 2019, home insurance rates in the United States have increased by 37.8 percent cumulatively, with increases ranging from 6.8 percent in Alaska to 62.1 percent in Arizona. Much of the media attention on this insurance crisis has been on California, Louisiana, and Florida, where wildfires and hurricanes, exacerbated by climate change, have been devastating. But these are not the only states affected by extreme weather events and higher premiums. In the last five years, only three out of fifty states have not experienced rate hikes of 15 percent or more. These rate increases not only impact homeowners. Tenants, who often face greater housing precarity, also experience higher rents as landlords pass on their insurance cost increases.

    A significant driver of these rate increases is the escalating frequency and severity of extreme weather events caused by climate change. Insurance companies assert that the large payouts associated with these events in many parts of America have forced them to either impose exorbitant premiums or exit the home insurance market altogether. 

    While insurance companies work to limit their own risks related to climate-induced weather events by pulling out of vulnerable areas or raising premiums, they continue to facilitate the worsening climate crisis by investing in and underwriting fossil fuels. Industry analysts estimate that US insurance companies have investments of more than $500 billion in fossil fuel-related assets, including coal, oil, and gas. Furthermore, global insurers received some $21 billion underwriting fossil fuel projects in 2022, thus enabling those projects to move forward. 

    Notably, documents show the insurance sector has known for decades that fossil fuel emissions are the primary cause of climate change and its resulting extreme weather events. Despite knowing the impact of fossil fuel emissions on climate change, insurance companies have disregarded climate risk and invested in — and profited from — fossil fuels irrespective of the consequences.  

    More on New York’s Bill

    In New York, two members of the state legislature have proposed legislation to address the hypocritical conduct of insurers in facilitating climate change. Assembly Member Phara Souffrant Forrest and State Senator Brad Holyman-Sigal introduced the “Insuring Our Future Act” (Assembly Bill A9905A/Senate Bill S9435). 

    The proposed legislation would require insurance companies to phase out their existing investments in and underwriting of fossil fuel companies within five years. The bill would also effectively prohibit insurance companies from continuing to invest in the fossil fuel sector or underwriting new fossil fuel projects. The legislation would further establish new requirements for insurers to report on their investment and underwriting activity in the fossil fuel sector.  

    Critically, the proposed legislation includes provisions aimed at protecting communities from bluelining — the emerging practice of financial institutions “increas[ing] prices or withdrawing services from regions they perceive to be at high environmental risk.” Bluelining overlaps with the same racist patterns of disinvestment established by redlining: the “systemic practice of excluding communities of color from economic opportunities based on their race.” (Bluelining, and the proposed legislative attempt to counter the emerging practice, will be discussed in a forthcoming installment of this series.)

    The breadth of the Insuring Our Future Act is substantial and addresses both sides of insurers’ role in the growing insurance crisis: the increasing uninsurability of homes in vulnerable communities, and insurers’ continued investment in and underwriting of fossil fuel projects.   

    This bill represents a new strategy for state governments grappling with the growing strain that the escalating costs and reduced coverage of property insurance is putting on homeowners and tenants. Many states have turned to deregulation to entice insurance companies to continue providing policies within their borders, but now is not the time to experiment with industry deregulation and the removal of long-standing consumer protection rules. New York’s bill shows how states can use their regulatory authority to address the root of the problems driving the insurance crisis — climate change.

    New York’s legislative session has ended for the year, but Assembly Member Phara Souffrant Forrest and State Senator Brad Hoylman-Sigal hope to advance the bill through the Assembly’s insurance committee and into law next year. If enacted, the bill would address the complicity of the insurance sector in both causing climate change and exploiting it for profit, all while claiming to be a victim of the costliness of climate disasters. 

    Whether or not it passes, the introduction of the Insuring Our Future Act marks an important first step in terms of state regulation and remedy for the unconscionable insurance industry conduct fueling the vicious cycle of uninsurability.

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