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Testimony: How Mandates Like ESG Distort Markets and Drive Up Costs for Insurance and Housing

Public Citizen Statement for the Record, Submitted to the House Financial Services Committee

By Carly Fabian

As Farmers, AIG and other insurers limit coverage in climate-vulnerable areas, a climate-driven insurance crisis is gaining long overdue national attention. Across the country, climate change is contributing to higher losses from more frequent and intense wildfires, floods, and other extreme weather events, and insurers are raising premiums and cutting coverage. Yet at a time when more Americans are struggling to find and afford insurance coverage, Republicans have focused on protecting insurance coverage for a different group: the oil, gas, and coal companies fueling the crisis.  

As the world moves away from reliance on oil, gas, and coal, their proponents have sought to rebrand climate denial in the form of attacks on “Environmental, Social and Governance” criteria designed to punish financial firms that step away from fossil fuels. By extending these efforts to the insurance industry, they seek to limit insurers’ ability to address climate risks from fossil fuels, intimidate insurers who make commitments to reach net-zero emissions targets, and prevent companies, legislators, regulators, and the public from assessing the impacts of the continued burning of fossil fuels on insurance markets.

Anti-ESG attacks have expanded to the insurance industry due to its crucial role in sustaining the fossil fuel industry. Insurance companies act as crucial gatekeepers, as fossil fuel companies cannot operate without insurance. Recognizing the risks, the Insure Our Future scorecard shows that many insurers have begun to create at least minimal restrictions on their underwriting for fossil fuels, particularly for coal. However, even as they back away from homeowners, U.S. insurers continue to recklessly delay action and not a single U.S. insurer has yet to rule out support for oil and gas expansion projects.

Insurers are also major investors in fossil fuels. Even as State Farm threatens to limit coverage in California, letters sent to insurers as part of an investigation by the Senate Budget Committee highlight that State Farm had over $30 billion invested in fossil fuels, while the industry had over half a trillion dollars in fossil fuel investments.

The insurance industry has so far relied on their use of short-term contracts and risky delay tactics to delay action and avoid the consequences for fueling the crisis. As they now scramble to protect their profits, they are passing on the costs of climate change to consumers through higher premiums, reduced coverage, and delayed, denied and low-balled claims. While insurers can profit doubly from the climate crisis, many Americans, particularly those in low-income and communities of color, will not be able to keep pace with rising costs and while insurers can hastily leave vulnerable areas and entire states, many Americans cannot easily uproot from their homes, local businesses, and communities.

Instead of working to help consumers adjust and require insurers to mitigate the risks, anti-ESG politicians in impacted states have instead invented scapegoats and leaned into new forms of climate denial. In Florida, the state’s Chief Financial Officer, Jimmy Patronis, has ignored the realities of climate change threatening his state and promised to “fight back” against insurers who consider “ESG” factors. Even as yet another major insurer, Farmers, recently left the state, affecting 100,000 policies, Patronis focused attacks on Farmers’ recent signing of the U.N. Principles for Sustainable Insurance.  

Even the industry has pushed back on these dangerous moves. In Texas, where an insurance crisis has forced tens of thousands of consumers to rely on last resort coverage, several bills aimed to limit insurers’ use of environmental data. In response, the Insurance Information Institute explained that “ESG is in the DNA of any insurance company” and the American Property Casualty Insurance Association described efforts to limit insurers’ use of ESG scores as a “potentially dangerous intrusion into the free market.” 

Attacks on “ESG” are not limited to preventing the private sector from assessing risks, but also restricting the federal government’s ability to collect data and assess the risks. In addition to attacking companies who make commitments to reduce their carbon emissions, anti-ESG proponents have attacked even basic data collection efforts on insurance markets. Last year, the Federal Insurance Office proposed collecting data on the impact of climate change on insurance markets to produce the first comprehensive review of climate impacts on insurance markets, based on valuable data. Republicans responded by criticizing the proposal as an effort to “strong arm” insurers on ESG. 

Without the ability to recognize climate impacts, Republicans have little to offer to their constituents to address a growing insurance crisis, leaving them dependent on increasingly desperate political stunts and scapegoats. Despite their twisted logic and lack of popularity even among the insurance industry, anti-ESG attacks on the insurance industry are likely to continue, as they provide cover not only for the fossil fuel industry but also their proponents’ inability to present coherent solutions to address the insurance crisis. 

As major insurers retreat and premiums skyrocket, the public cannot afford for regulators to continue to ignore the financial risks from climate change. The Federal Insurance Office must move forward with an overdue effort to collect data and offer recommendations on a growing national insurance crisis. While extensive anecdotal evidence suggests a growing crisis, consistent, granular data is needed to assess these trends at a national level and inform federal regulators efforts to examine the potential for systemic financial risks.  

Regulators and legislators should also bring transparency to insurers’ contributions to the climate crisis. While regulators in Connecticut and New York have taken crucial first steps by issuing guidance to insurers on managing climate-related risks, more states must act and they must be more ambitious, by requiring insurers to mitigate the risks by reducing their insured and financed emissions in line with science-based targets. A recent report from the Federal Insurance Office highlights that state efforts to address insurers climate-related risks, and the Federal Insurance Office should collect data on insurers financed and insured emissions. 

Additionally, legislators and regulators across the country must recognize that a climate-driven insurance crisis will not be limited by state lines and is quickly emerging as a national issue. As the reach of extreme weather events like wildfires and floods spreads further and global reinsurers raise prices or back away, there are few states that will be unaffected by climate impacts on insurance markets and many states will not be equipped on their own to solve a complex and growing global crisis without coordinated action. Congress should recognize the national threat of a climate-driven insurance crisis and work to require industry to reduce greenhouse gas emissions in line with science-based targets while identifying solutions that protect Americans homes, their life savings, and the broader economy.