March 11, 2026

To address growing climate risk, regulators must mandate net-zero insurer transition planning.

Insurance companies are both exposed to and contribute to significant climate-related risks. To address the unique nature of these risks, states will need new, proactive tools. Insurance commissioners can start by issuing specific guidance to insurance companies on managing climate-related financial risk. To shift insurance companies to proactive risk reduction, they should also mandate insurers set climate risk reduction targets, develop and disclose transition plans to meet those targets, and report on their progress reducing climate-related risk at a regular interval.

Insurers’ current risk management practices are inadequate for managing climate-related transition risk.

The physical effects of climate change, including severe floods, wildfires, hurricanes, and other disasters, are driving up insurance costs and threatening the long-term financial viability of insurers and the economic health of policyholders. Insurers are offloading the growing cost of climate disasters onto homeowners and renters through rate hikes and nonrenewals. Some insurers have responded by leaving communities entirely, eroding their own markets and leaving households without coverage, rather than working with policyholders and communities to build climate resilience.

Insurance companies also play a major role in fueling the climate crisis. They underwrite emissions by insuring fossil fuel projects and finance emissions through their investment portfolios. To mitigate climate change and avoid financial risks, insurance companies will need to phase out their investments and underwriting in fossil fuels. To support the energy transition and keep markets insurable, they will also need to increase investments in clean energy and resilience. 

Without a managed transition, the bursting of a carbon bubble could leave insurers with stranded assets and financial exposure to declining industries and a delayed and disorderly transition away from climate intensive industries has the potential to destabilize the financial system and broader economy. 

Many insurers wrongly believe that they are insulated from transition risks. The insurance industry relies on one year underwriting contracts, allowing insurers to drop fossil fuel and other climate intensive projects easily year to year. But pointing to one-year contracts as a solution to transition risk neglects the aggregate impact on the insurance sector and broader financial system. 

Failure to align investment portfolios with net-zero milestones will also create financial market instability. Disorderly unwinds of fossil fuel investments can create concentrated losses for the insurance sector as firms typically pursue investment strategies that are similar to one another’s. Assumptions that transition risk in insurer investment portfolios won’t materialize for years or even decades are misguided as fossil fuel companies don’t need to be insolvent to threaten insurance company portfolios and the ability of insurers to generate sufficient returns to meet liabilities.

Allowing insurers to dictate the pace of their own energy transition ignores the realities of climate change. Transitioning away from fossil fuels and building renewable energy at scale are needed now to avoid the worst effects of climate change on communities and the economy. Mandatory transition planning for the insurance industry is needed to align investment and underwriting with emissions reduction milestones and promote financial stability. Transition planning can also be used as a tool to incentivize the insurance industry to take an active role in supporting the energy transition—affirmatively investing in projects and industries that bring the economy closer to net-zero goals. 

Defining credible transition plans for insurers

Insurance commissioners must ensure transition plans are credible and lead to meaningful climate risk reduction. Credible insurer transition plans include the following elements:

1. Include emissions reduction targets. Credible transition plans require insurers to set emissions reduction targets across all activities—including underwriting, investing, and operations. Transition plans that give insurance companies discretion in how they manage their transition risk, rather than mandate emissions reduction are insufficient. Insurers may wish to set additional targets and pursue additional strategies to manage transition risk beyond emissions reduction, but these approaches are not a substitute for emissions reduction. 
2. Align plans with climate science. The pace of the energy transition must be dictated by climate science, not the preferences of insurers. Insurer transition plans must include plans to achieve net zero emissions by 2050 as well as plans to reduce emissions in the short and medium term. Without short- and medium-term emissions reduction milestones, insurers may use their one year underwriting contracts and short-dated investment portfolios as an excuse to delay their transition—continuing unsustainable emissions contributions and contributing climate risk to the financial system. 
3. Address emissions throughout the value chain. Scope 3 emissions, including those from underwriting and investing in climate intensive industries, comprise approximately 95 percent of insurer emissions. Insurance company transition plans must focus primarily on transitioning away from underwriting climate-intensive projects and industries and toward emissions reduction in the companies’ own investment portfolios. Transition plans focused only on reducing scope 1 and 2 emissions are not suitable for insurers. Insurers may also wish to engage with clients and portfolio companies on their own transition planning. A credible client engagement strategy requires that insurers produce and follow realistic plans to deal with clients who do not make progress on emissions reduction, including by ending underwriting relationships and divesting company portfolios. 
4. Prohibit reliance on carbon credits or unproven technology to meet emissions reduction milestones. Insurance companies cannot rely on purchasing carbon credits or investing in unproven carbon capture technology to achieve emissions reduction targets. Transition plans should detail how insurers will move their businesses away from emissions-intensive industries and investments, rather than pursuing strategies to offset these investments with false solutions.
5. Make it mandatory and enforceable. Insurer transition plans must be mandatory and enforceable by insurance commissioners. Non-binding transition plans can be used as a tool for greenwashing or misleading investors and the public and can lull regulators into false comfort that insurers are managing their climate risk. Climate risk disclosures or insurer participation in voluntary initiatives are not a substitute for mandatory and enforceable transition plans. Insurers should be required to report on their progress towards achieving the targets set in their transition plans at a regular interval.
6. Require emissions reporting under established frameworks. To facilitate comprehensive and comparable evaluation of insurer transition plans, regulators should rely on existing frameworks, such as the Science Based Targets initiative’s Financial Institutions Net-Zero Standard and the frameworks published by the United Nations Forum for Insurance Transition to Net Zero.
7. Publicly disclose plans. Publicly disclosed transition plans can be used by insurance commissioners across states and by the public. Public disclosure can encourage standardization across states and reduce the compliance burden placed on insurers. It also supports insurer accountability and alignment of insurer action with commitments made in the transition plan. Insurer progress reports should also be publicly disclosed.