European insurers and reinsurers have begun to abandon the Net-Zero Insurance Alliance (NZIA) bandwagon even faster than they got on to it. There may be several reasons for backtracking. At the core is economics. Driven by quarterly outcomes and professional shelf-lives of those in ‘control’. Losing growth markets is their biggest nightmare. Then there is the Chinese and Arab bogey! And ooh those Russians can be menacing, too… let’s look at these and some more! 

The NZIA was incarnated at the speed of the virus. The spotlight was compelling. At the G20 Venice Climate Summit, eight of the world’s leading insurers and reinsurers made a historic commitment to play their part in accelerating the transition to a net-zero emissions economy, as required by the Paris Agreement. The eight founding members of the NZIA are AXA, Allianz, Aviva, Generali, Munich Re, SCOR, Swiss Re and Zurich Insurance Group. Convened by UNEP Finance Initiative’s Principles for Sustainable Insurance (PSI), they committed to transitioning their insurance and reinsurance underwriting portfolios to net-zero greenhouse gas (GHG) emissions by 2050, consistent with a maximum temperature rise of 1.5°C above pre-industrial levels by 2100.

Gold standard

“By committing to join the gold standard alliance for net zero, the Net-Zero Insurance Alliance will ultimately make underwriting contingent on underlying companies having credible net-zero transition strategies,”

predicted Mark Carney, the UN Special Envoy on Climate Action & Finance, and Chair of the Glasgow Financial Alliance for Net Zero. 

“I urge the rest of the global insurance industry to respond to the climate emergency and urgently follow the example set by the founding members of this pioneering alliance,”

said Inger Andersen, Executive Director of the UN Environment Programme (UNEP). These utterances must have been music to the ears of the signatories.

Thomas Buberl, CEO of the AXA Group, and chair of the NZIA was already playing God:

“With this new Net-Zero Insurance Alliance, we are raising our climate ambition further by using our underwriting, claims, and risk management practices to help ensure and enable the transition to a resilient net-zero global economy.”

Why would the rest be too far behind? Based on the NZIA Statement of Commitment, these global insurers and reinsurers also announced individually setting science-based intermediate targets every five years and independently reporting on their progress publicly and annually. They also committed to advocating for and engaging in governmental policies for a science-based and socially just transition of economic sectors to net zero.  

Hard landing

Back at their headquarters, they would have encountered stakeholders’ pushback and an unfolding drama. BlackRock for instance has a stake in all the founding NZIA players, ranging from approximately 5 to 10%. Could it be a quiet front? 

But the Paris Agreement has no teeth. Donald Trump has already made an exit. Why are there no American insurers? Why is there no guidance from the International Association of International Supervisors (IAIS)? And who is UNEP? What happens to our US book? With the Environment, Societal and Governance (ESG) rebellion from the Red States, much of the world’s largest market revenue would be impossible to count upon. In the meantime, Ukraine Russia conflict gave a new twist to the green taxonomy. Gas and nuclear are back in. Is a possible reversion to coal possible? They had no clue how to deal with degrowth. But then, who has?

Too hot to handle

Let’s look at growth markets. They account for the world’s largest industrial growth; trade; personal lines expansion, asset class buildup, and aviation. Fossil fuel is their dominant engine and is here to stay. We have a strong presence - direct, joint ventures and subsidiaries, built over years of hard work. No US, no emerging markets, Europe headed for a recession - but let us revisit our rems and reward policies, the operating teams would have said.

If ESG is the new deliverable, our incentives and bonuses should be linked accordingly. Suddenly the hard reality would have dawned upon the owners. Shrinking books and market share, no abatement of claims, share price under severe pressure, demanding institutional investors… the Arab and Chinese capital would make big moves. Perhaps Brazil, Russia, India, China, and South Africa (BRICS), too! All this was when pricing across the markets was beginning to harden.

The CEOs who basked in their 15 minutes of fame were in panic mode! Mark Carney’s charms were fading. His new employer Brookfield has stakes in AIG and Travelers - steadfast in supporting the fossil fuel industry. Anti-trust suddenly appeared as a pretty cool tool for the deserters to cling to! The unforeseen stress test failed European insurers in their climate resolve. People and the planet before profit - must wait! They had rushed into making big commitments; the rank and file were unprepared hence no buy-in; stakeholder conviction and engagement were amiss. It all translated into empty rhetoric. 

In conclusion

As serious wildfires rage in North America, is redlining such areas the only option insurers are left with? State Farm and Allstate recently exited the homeowners' segment in California. How does one stop investing in and insuring what hurt the planet rather than not insure the ones who are consequently harmed? The NZIA just let go of one such opportunity.