· 14 min read
Professor Rupert Read is Co-Director of the Climate Majority Project (CMP), and Co-Editor of the shortly forthcoming book The Climate Majority Project.
PG: Your new book includes a chapter that you wrote specifically on the role of the insurance industry in relation to tackling our climate predicament. I’ve read it; it’s intriguing; it’s why we are having this conversation. So let me start by asking this question: why a chapter on insurance rather than any other money pipeline, in your book?
RR: The insurance sector is a financial sector that is (or at least should be!) most fully aware of the existential threat posed by the climate crisis, since it directly impacts the sector’s economic success (and the extent to which it has been doing so has of course drastically accelerated over the last several years). Insurance industries/companies/entities currently have what I term anultimate double-bottom-line: where, as I’ll explain pretty fully in this interview, ethical practice simultaneously makes good long-term business sense. Some industry executives (and, notably, actuaries) are among the newly climate-aware and are motivated to act from the perspective of their own values, coinciding with such enlightened self-interest. Joining the dots between climate and industry / key professions is a crucial communicative and organizing task of the Climate Majority Project (CMP), that I lead.
PG: So are you saying that Insurance has a critical role to play in gatekeeping bad actors, advocating policy changes, and supporting climate initiatives?
RR: Insurers are powerful enablers and de facto gatekeepers to many highly extractive and destructive industries, from fossil fuels to air freight and intensive agriculture. They are party to not only the risks these industries face but also to those they create. As such they are in a position potentially to discriminate against harmful practices, penalizing those companies that pose the greatest risks to planetary health; and they can hope to emerge on the right side of history by doing so.
Insurance companies are (supposed to be) alive to risk: so, one risk they should be well aware of is the risk of being sued in the future if they don’t take steps in this kind of direction. Another risk is that of consumer boycott. Another risk is that of falling foul of conscious quitting. My judgement is that all of those risks are likely to start to manifest significantly for – some – insurance companies within the next few years…
I am not saying insurance companies can do this all by themselves! But together they could; and especially if they got together to urge governments to regulate them such that they would have to… This is part of what I am calling for, Praveen. For insurers to think beyond the well-intentioned but inadequate UNEPFI framework, toward something that could work. Work with us in the CMP to figure out what regulations and incentives ought to be imposed upon insurance to help make it match-fit for a future. For co-creating an economy that will stop ever worsening our world, until (if present trends continue) there is no industry left.
PG: You are trying to mobilise the climate majority, the majority of citizens who are now concerned. Insurance is not a remote ‘political’ or ‘activist’ concern. It is a concern of the climate majority, is that right?
RR: Yes, but to get to precisely why I need to take a step back.
I have spent much of my career working alongside the world’s leading climate scientists and ecologists. Their scientific papers are scary enough, but when one gets to ask them what they actually think and feel – as I do – it is always worse than that. They are in deepening pain, over where collectively we are at. Moreover, the utterly unprecedented surface and (especially) ocean temperature rises of the last few months are taking us way further into the danger zone. The world is right now moving rapidly into a state of two degrees C plus of global overheat; that is truly terrifying. Let me be unequivocally clear: this is the fight of – for – our lives. It’s not just about your children, it’s about how things could fall apart within the next 10-15 years.
COP28 has done literally nothing to stop this trajectory.
Insurance must disclose what it knows about this dire threat. We need the world to know what insurers/actuaries etc. see in the risk and uncertainty that is ahead of us.
“Insurers sometimes assume that their business model is not badly affected by climate breakdown, because they can re-price premiums year on year”.
Moreover, and in a way more crucially still, just as the world at large faces an existential threat, so too does the sector of insurance, and sooner; as the world increasingly becomes uninsurable, insurance ceases to exist. AXA is famously on record as saying that the world is on course to become uninsurable, much of it perhaps by as soon as the middle of this century (and that estimate was made some time ago; the potential timeline for uninsurability has probably now come considerably closer). AXA is clearly not an activist group; they are primarily concerned with the continuation of their business. Just as AXA doesn’t need to be an activist group to align their values with combatting the climate crisis, neither does the average person. This is the philosophy of the Climate Majority.
PG: Insurance faces an existential risk as the world increasingly becomes uninsurable. An uninsurable world has, by definition, no place for the insurance industry.
RR: That’s exactly right. A world of intensifying extreme weather and chronic climate impacts places unprecedented pressure on insurers in terms of claims, from business loss and property damage to crop failure. Conversely, escalating risk makes insurance unaffordable for clients and infeasible for insurers, depleting business for providers year on year.
The wider societal impact of climate and environmental damage will also have a knock-on effect on health, life expectancy and other types of claims. Transitional risks will impact insurers’ portfolios as assets are repriced. An increasingly volatile risk landscape threatens to destabilize business models that are founded upon what was historically a finite level of uncertainty and change; but it no longer is, now, in the ‘Anthropocene’. Increased frequency of acute outlier events – ‘thousand-year floods’, for example – causes the risk of bankruptcy to rocket. Re-insurers are already pricing this in, but they are of course ultimately the most vulnerable of all, in the sector. And in the difficult and desperate societal situation that we may be moving into, they should not assume that they are literally too big to fail (TBTF).
Insurers sometimes assume that their business model is not badly affected by climate breakdown because they can re-price premiums year on year. But in the light of what I have just said, we can see that is ignorant and short-sighted. Unless the world changes course, insurance companies will either ungradually cease to exist because they will suddenly fail, or at best (!) they will gradually cease to exist, as their business simply disappears, as the world becomes uninsurable.
Is that the future you want for your profession?
So here is the deal: Help change the future, and become heroes rather than literally zeros.
PG: But what about ways in which insurance has tried to step up to the plate already? For instance: The Net Zero Insurance Alliance… would I understand correctly that it should in your view have been criticized for being too timid rather than too bold, in your view?
RR: Undoubtedly. As many readers will know, in 2019 the Net Zero Insurance Alliance was set up under the auspices of the UN to transition members’ underwriting portfolios to net zero by 2050. The group’s ambition and scope were relatively limited, most obviously because the 2050 target is of course hopelessly late. If the Net Zero Insurance Alliance had been honest about the threat of the climate crisis, both to the world and their own fiscal future, then this target would have been set decades earlier.
Laughably, the NZIA was criticised by Republicans for being too activist. It has basically fallen apart under the criticism.
So a new start of some kind is needed, and more determinedly this time. Probably more bottom up, from within the relevant profession(s). Probably mostly ‘under the radar’ at first, to avoid getting targetted as the NZIA was.
The Climate Majority Project is interested in convening privately people from around and across the sector who would be interested in working together towards such a new start. I’ll develop this very practical point below.
“Insurance companies will have to be increasingly aware of their global reputation; a company that ignores the fuelling of the climate crisis will at some point before long worsen their results (their effects), and harm their reputation, perhaps fatally”.
PG: Regardless of the recent demonstration, in the failure of the NZIA, of craven short-term thinking from industry ‘leaders’, the climate predicament will not simply go away for insurers.
RR: Exactly. As economic damage from climate-linked events runs repeatedly into the tens and then hundreds of billions, insurers will be forced to consider how to invest in the benefits of mitigation and adaptation as part of their own survival strategy. The medium-long-term future of insurance is quite simply in extreme danger.
The reaction by the extreme Republicans against the Net Zero Insurance Alliance shows the (extreme) arrogance and stupidity that some members of our species exhibit to not recognize that their own survival is at stake. Well, our bet is that insurers, etc. will turn out to be smarter than that. More precautious and wisely risk averse! Averse to the blatant risk of a sectoral suicide strategy – which is the current trajectory of insurance…
PG: What industry shift in vision and long-term logic is urgently needed for steering the industry from its current catastrophic course?
RR: I have already spoken about the incentive of insurance industries to act on climate (and similarly existential risks facing nature, and coming from AI, by the way, too) from a purely financial lens; as the climate deteriorates, insurance becomes impossible, and dwindles away. In addition to this, and as already hinted at above, insurance companies will have to be increasingly aware of their global reputation; a company that ignores the fuelling of the climate crisis will at some point before long worsen their results (their effects), and harm their reputation, perhaps fatally.
Insurance must also become more collaborative; either the entire sector will go down or it won’t. Only by sharing knowledge, and discussing what works and what doesn’t, in ways that may be unfamiliar, does the sector stand a chance of surviving this existential crisis. The ‘anti-trust’ concerns that have been used to stymie such cooperation, especially in the USA, must be stood up to: there will be some sinking or swimming together. This is too big for any one company (however big!) to take on alone. (Though it is also worth noting, as I’ve already implied, that there are likely to be various kinds of negative effects on particular companies who lag in facing up to this great disruption, and various kinds of first-mover advantages to those that move to act so as to have a justified better reputation on climate, not to mention a smarter sense of what the risks and opportunities are in our changing world…).
PG: Will continuing to profit from harmful processes ultimately impact insurers’ public image, leading to a perceptible divergence between ethical and unethical insurers?
RR: Yes, that is what I mean. Failure to start doing the right thing will increasingly attract scrutiny and vocal (and litigious!) criticism from an increasingly powerful and broad-based climate movement, and experts who remain silent now will be judged harshly by the public suffering avoidable tragedies in years to come.
Obviously, I have no crystal ball, but that much I can see.
If you want to get – to inhabit vicariously – a sense of how this could go well or badly, how it could play out, then read Kim Stanley Robinson’s cli-fi books, and Stephen Markley’s astonishingly brilliant book The Deluge. The latter develops a very believable picture of how pressure for change is going to build up, as the world climate crisis deepens.
PG: Do you really believe the climate movement and the insurance industry can be natural allies?
RR: Yes! Insurers are obliged to ‘model’ the future, and their capacity to assess and underwrite risk is as I’ve said contingent of course on a certain degree of predictability. An increasingly volatile risk landscape threatens to fatally destabilize business models that are founded upon a finite level of uncertainty and change. It really is therefore no great stretch of the imagination to see the climate movement and the insurance industry as natural allies.
And I mean this quite literally. The point of the Climate Majority Project is to make clear to the world that you don’t have to be an activist: you just have to act, where you have potential power and influence, for a future. For most people in insurance, that will mean: doing your job! But doing it differently. If you get busy doing that – and I will say more about just what that potentially amounts to, before this interview ends – then you are part of the climate majority. You are doing the world and your children proud – by potentially keeping the world insurable!
“I have spent much of my career working alongside the world’s leading climate scientists and ecologists. Their scientific papers are scary enough; but when one gets to ask them what they actually think, and feel – as I do – it is always worse than that. They are in deepening pain, over where collectively we are at”.
PG: What needs to change to keep the world insurable?
RR: To keep the world insurable, the climate crisis needs to be rapidly slowed. The insurance industry needs to step up and play its role in effecting this change. It can do this in the following four key ways, for starters:
- Tell the unvarnished truth about the climate dangers some/all customers are exposed to, now and over time. Insurance is how our civilisation deals with its vulnerabilities. Disclose what they – you – know about future rising risks and dangerous uncertainties that create these vulnerabilities. Do this in every way that is at your disposal. (If you encounter major obstacles in doing so, then consider leaking or whistle-blowing; for the future is at stake. But really this all ought to be doable in an open and co-operative manner. For we are talking here about a crisis which ultimately faces us all, as one.)
- Act without delay, using the levers at their – your – disposal to reduce the likelihood of those dangers, through choice of what they (you) agree to insure and at what price. For example, insurance for climate-destructive enterprises like fossil fuel extraction and fossil fuel funding should increasingly become punitively expensive or simply unavailable, helping to ‘strand’ those assets. On the other side of the ledger, offer incentives to those who take smart pro-climate action, both mitigational and adaptational. E.g. Reward businesses (with lower premiums) for having realistic, updated plans and protocols for dealing with climate risks such as supply-chain risks and disaster-risks.
- Place pressure on governments to reduce those dangers ‘at source’. This is absolutely critical. The lobbying power of insurers could be huge. Precisely because you are how our society processes and hedges against vulnerability. And because, as I’ve noted, you know: you know much of what is or may be coming.
- Put the vast funds accrued from premiums to work for the common good – i.e. strategic investment for a sustainable future and not just short-term, private profit – recognizing that such a future serves their (your) own long-term interests. Become impact investors, with your war-chests! Because, as Gandalf puts it at one key moment in Lord of the Rings: you may not realise it yet, but war is upon you. War is upon us. (If you are concerned that taking this bullet point on board might result in shareholder action against you, then become (say) a B-Corps, and/or lobby for the Better Business Act).
PG: What kind of precautionary actions are required by clients as well?
RR: One thing clients can do is simply voice their concerns and reservations. If one insurance company is ignoring the climate crisis, a client should instead approach a more responsible and far-sighted corporation, and then inform the original company why they no longer have your business. This will help impose climate-based thinking into the insurance industry.
The much bigger thing that clients should do is join the Climate Majority Project’s ‘Regulate Us’ campaign. Business, except those businesses that need to cease to exist in order for there to be a future, has a common interest in governments setting a higher, level playing field so that businesses can make a profit long term without driving the world over the climate cliff. In order for this to happen, business and finance need to break cover from both free-market fundamentalist dogma and ‘can-do’ ESG nonsense, and instead lobby governments, hard, to impose such a future-friendly policy environment. Before it is literally too late.
PG: Finally, what do you want those in and around the insurance industry to do? Today?
RR: If you agree with what you have been reading here, then come and talk with us. You can email me at rupert@ClimateMajorityProject.com. We have already gathered together quietly a little group of industry insiders (and retirees). We want to build a community that will pursue the kinds of goals that I’ve outlined in this interview. And who are determined to realise them. Determined to be able to say that you are doing the right thing with your life and your power, at this critical moment for our world.
If that is you, then I can’t wait to hear from you.
PG: Many thanks Rupert for these meaty insights – a rare treat! My best wishes to the Climate Majority Project (CMP). Your success is critical for our planetary well-being and thereby the insurance industry.
