Analysis: U.S. regulation fears drive insurers' climate alliance break-up

Grupo Catalana Occidente SA

01/06/2023 16:57

By Tommy Wilkes
       LONDON, June 1 (Reuters) - The success of Republicans in
triggering the break-up of a coalition of insurance firms aimed
at tackling climate change is down to U.S. states being the
industry's primary regulator, interviews with industry
executives and former officials show.
    The U.N.-backed Net-Zero Insurance Alliance (NZIA), formed
in 2019 to get insurers to commit to reducing greenhouse gas
emissions in their underwriting portfolios to a net-zero level
by 2050, has lost 12 of 28 members since attorneys general from
23 Republican-run U.S. states sent a letter to them on May 15.
The letter sought information about the insurers' membership and
threatened legal action over what it called anti-competitive
behaviour pushing up prices.
        Republicans say that by withholding insurance from
specific sectors, such as oil and gas, insurers penalise
businesses and drive up costs for companies and consumers.
    The attorneys general have turned their attacks on
environmental, social, and corporate governance (ESG) practices
in the business world into a political rallying cry.
    They have also targeted other climate coalitions of
financial firms, including the Net-Zero Banking Alliance and the
Net Zero Asset Managers initiative, with threats and requests
for information. Yet these groups have not suffered a large
number of defections, as the NZIA has. 
    The reason, two insurance industry sources and a former
regulator told Reuters, is that states are the regulators of
insurers, unlike major banks and asset managers that are
overseen primarily at a federal level in the United States.  
    "The attorneys general have seized on these characteristics
of the insurers to take advantage of them," said Dave Jones,
former insurance commissioner in California and now director of
the Climate Risk Initiative at the University of California,
Berkeley. 
    Jones added that he did not believe that the attorneys
generals' accusations of anticompetitive behaviour had merit. 
    Curtis Ravenel, a senior advisor at the United
Nations-backed Glasgow Financial Alliance for Net Zero (GFANZ),
an umbrella organization under which the NZIA sits, said
insurers were less accustomed to political pressure than other
financial services firms like banks.
    "(The state attorneys general) are exploiting a fear factor
given the authority they have,"  Ravenel told Reuters. He added
that he did not expect other climate alliances to suffer many
departures despite the pressure from Republicans, and urged the
16 insurance firms remaining at the NZIA to stay the course.
    The alliance had failed to attract U.S. insurers to join.
Most of the insurers which have left NZIA - including Spain's
Mapfre  MAP.MC , France's AXA  AXAF.PA , which chaired the
alliance, and Japan's Tokio Marine  8766.T  and SOMPO  8630.T  -
have sizeable U.S. businesses.
        Alarmed by the departures of their peers, the remaining
NZIA members have been holding calls this week to decide on
their next move, according to people familiar with the matter.
    They have been unnerved by the spread of departures among
insurers which have been assured by lawyers they are not
violating U.S. antitrust laws, and by the exit in the past week
of firms with tiny exposures to the United States, the people
said.
    Britain's Aviva  AV.L  and Dutch cooperative Achmea are
among the insurers which say they plan to stay. Some firms point
to the NZIA's achievements in creating a standardised
methodology to measure and disclose emissions from underwriting
portfolios.
        Of the 15 insurers that have departed the NZIA, only one
has explained its rationale publicly. Germany's Munich Re
 MUVGn.DE , the first to quit on March 31, said it was
withdrawing from the group to avoid "material antitrust risks"
given how much of the insurance market NZIA members represented.
It did not reference U.S. state attorneys general. 
    Munich Re remains a member of another GFANZ group, the Net
Zero Asset Owners Alliance (NZAOA), as does Allianz  ALVG.DE ,
which quit the NZIA last week. Munich Re said that the share of
global assets held by NZAOA members meant antitrust risks were
"significantly lower". 
    
  
    SETTING TARGETS
    Insurance companies will play a pivotal role in the world's
shift away from a higher-carbon economy, given almost every
project depends on their underwriting. 
    The NZIA, like other GFANZ alliances, requires members to
align with the goal of the Paris Agreement to keep global
temperature rises well below 2 degrees Celsius and preferably to
1.5 degrees. They do this by setting targets for cutting
emissions.
    The NZIA in January gave members six months to set targets.
It left it up to insurers to specify the targets and decide how
they cut emissions.
    Many insurers have also been announcing climate targets 
independently. French insurer SCOR  SCOR.PA , for example,
announced limits on underwriting new gas fields and oil and gas
exploration in the Arctic the same day it left NZIA last week.  
    "How much were insurers really getting out of it?" said
Jones, predicting that the NZIA's demise would have little
impact on insurance companies' climate efforts.

 (Reporting by Tommy Reggiori Wilkes in London
Additional reporting by Ross Kerber in Boston
Editing by Greg Roumeliotis and Susan Fenton)
 ((thomas.wilkes@tr.com; +44 (0) 7769 955711;))