The insurance industry survives and thrives on two things: its ability to quantify risk and then its ability to profit on it. Whether talking about home insurance, car insurance, life insurance, or some other kind of insurance, the first step is to do the math of how likely it is that certain destruction will occur (mostly through accident or natural calamity) — or, more broadly, the estimated cost of destruction across whatever the market is that they’re insuring — and the next step is to charge customers a bit more than the estimated payouts for insuring against that destruction. Long story short: you need to understand the different types of destruction that can hit your insured property or people and the likelihood that fate brings those different levels of destruction to those properties/people.
As such, the property insurance industry has been a leader at analyzing and understanding the risks of global heating and climate destabilization. These risks are a critical part of insurance companies’ analyses now. But, some political extremists may disrupt that.
Some people believe that politicians should leave businesses alone and let them do what they do — navigate the free market, employ people, and make money. Not today’s Republican Party, though. Republicans have increasingly been telling companies what they can and cannot do, to the point that the governor of Florida has been attacking the largest employer in Florida and one of the most beloved companies on the planet, Disney. That’s old news, though. More recent news is that Republicans are going after ESG (environmental, social, and corporate governance) policies, or simply going after companies having ESG policies at all!
In fact, this antagonism toward companies having ESG policies is already pushing some insurance companies away. “Foreign-based insurers are getting a taste of the anti-ESG medicine that Republican policymakers have been serving to U.S. financial firms, and they’re clearly not enjoying it,” Politico writes. “European insurers are pulling out of the UN-convened Net-Zero Insurance Alliance over concerns that red states’ antitrust allegations could hurt their businesses. Bloomberg reported Wednesday that the group was holding a meeting to discuss recent departures, a week after 23 Republican attorneys general sent letters to members of the group raising antitrust concerns.” The ridiculous idea here that’s pushing insurance companies away is that concerted efforts to stop global heating and support climate action is supposedly an antitrust issue. Ah, yes, it’s corporate corruption that is getting insurance companies to address an existential threat to themselves and to humanity as a whole, not common sense. (Note: sarcasm.)
“Regardless of the situation, UNEP reaffirms its conviction ever since it initiated, convened, and launched the NZIA — that in order to successfully tackle the climate emergency, there is a fundamental and urgent need for collaboration, not just individual action,” the United Nations Environment Programme pushed back. Of course, all the merrier for Republican extremists trying to mislead people — the UN is frequently framed as an evil bad guy by them.
Regardless of the absurdity of anti-ESG Republican statements and policies, however, insurance companies are practical private sector players. And that may end up hurting many Americans in a big way.
Republicans may feel like they’re winning right now by getting some insurance companies to leave the Net-Zero Insurance Alliance. However, aside from shooting themselves in the foot in a climate way, they may be doing much more harm soon than they expect. For example, in Texas, “the state Legislature sent Gov. Greg Abbott (R) a bill this week that would bar insurers in the state from considering environmental, social and governance factors in setting rates.” From a property insurance standpoint, that doesn’t make any sense. How can a property insurer set rates without considering environmental factors like climate change, rising sea levels, erosion, etc.? Jordan Haedtler of the Sunrise Project thinks it is “sending a clear signal to insurance companies that they should ignore risk factors that are material to their business.”
Texas, like Florida, is under threat of massive hurricanes year after year. With climate science telling us that these hurricanes will get larger and more destructive, and that hurricane season will get longer and longer, not taking these factors into account would be like a lemonade stand deciding not to buy lemons. It just doesn’t make sense. Banning the mention of climate change in government documents and policies (as former Florida Governor Rick Scott did) is idiotic, but banning insurance companies from considering environmental matters is political and business malpractice that can only result in disaster.
Florida is already struggling with a property insurance crisis because of the growing costs of hurricanes. Imagine how much worse it could get if Governor DumbSantis decides to make this his next fight against “woke” culture — aka science, compassion, and common sense. We’ll keep you posted.
In the meantime, it’s not clear what’s going to happen in Texas. Some think this legislation is just a nonsensical nothingburger that will have no effect. But if you “bar insurers in the state from considering environmental, social and governance factors in setting rates,” how does that not result in bad math and hurt insurance companies? We’ll keep you posted about what happens in Texas as well.
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