The insurance market is perceived to be blocking progress around climate change due to providing insurance for fossil fuel projects – however, the situation may be more complex than protestors realise

By Jon Guy

Jon Guy

Jon Guy

The London and UK insurance markets are currently in the midst of a week of protests over their approach to climate change risks – but the situation is far from cut and dry.

On 26 February 2024, Lloyd’s was the venue for a protest that saw classical musicians take to the stage in Lime Street as campaigners sought to highlight what they see as Lloyd’s of London’s continued support for fossil fuel energy projects and firms.

More protests have been arranged for this week by climate campaign group Extinction Rebellion – but insurers find themselves between a rock and hard place.

Campaigners want an immediate and complete ban on the insurance of fossil fuel risks. However, underwriters say that the world is in transition towards a sustainable future and, as such, energy companies need support to manage the risks that arise as they move from fossil to renewable energy production.

To cover, or not to cover?

Times have changed.

Fifteen years ago, I attended a conference in Dubai where climate was on the agenda. I remember asking the chief executive of a major insurer why his organisation didn’t simply refuse to insure climate polluting companies.

His answer was simply: “If we don’t, then someone else will”.

While this answer would not win any support today, there is an argument that if the market did walk away from insuring fossil fuel production and associated firms, then this vacuum may instead be filled with less scrupulous or financially secure insurers that may have risk management standards which fall short of current levels.

We have seen in recent years insurers refusing to cover controversial energy projects from Africa to Australia – the major underwriters all have clear policies on what they will and will not cover in future.

The insurance market’s response to the insurance of fossil fuel projects and companies may also impact the war for talent.

A company’s climate credentials are fast becoming an increasingly important component when potential new hires are deciding what firms or sectors they want to join. Therefore, the insurance industry has to ensure that its narrative around climate-related risks is heard.

New risks

The development of renewable energy comes with new risks and the insurance market is increasingly working with companies to grow the scale and speed of sustainable energy sources.

Although world governments have published their respective road maps to achieve net zero carbon dioxide emissions in their jurisdictions – the UK, for example, plans to reach net zero by 2050 – this includes a reliance on reducing fossil fuels for the foreseeable future. For developing nations, this process may go beyond the common 2050 target.

Insurers are likely to be damned if they do or damned if they don’t when it comes to insuring fossil fuel-related activity and, as the events of this week have already highlighted, the literal song and dance over the marketplace’s role in the energy transition journey will continue.

Navigating the demands of current and future energy transition ambitions will take clarity and consistency from the industry.