MatthewRisky Business Paterson Risky Business: Insurance Companies in Global Warming Politics • Matthew Paterson* Observations that the interest in global warming shown by insurance compa- nies could transform the political dynamics of global warming have been wide- spread. In various contexts, different writers have argued or suggested that the emergence of insurance companies in climate politics could facilitate more ag- gressive greenhouse gas abatement than would otherwise be the case. In some of the policy-oriented literature, Flavin and Tunali, for example, state that at the ªrst Conference of the Parties in Berlin in 1995: a more progressive conºuence of political forces [than the coalition of fossil- fuel dependent countries and companies] began to assert itself—promi- nently featuring the insurance and banking industries. As a business on the frontline of society’s most risky activities, the insurance industry has a long tradition of spurring policy changes to help reduce society’s risks.1 Journalistic accounts, such as Paul Brown’s Global Warming or Ross Gelbspan’s The Heat is On, express similar optimism, with Gelbspan writing: “It is the world’s insurers...whoareleading the frontline opposition against the fossil fuel industry.”2 Paul Brown, in a press conference with insurers at the Kyoto Conference in 1997, asked the (perhaps falsely naive) question: “So have you made any decision not to invest in Exxon yet?” reºecting this optimism.3 Many of the limited range of academic works that address the phenomenon also express such optimism. Based largely on the context of insurance’s role in global ªnancial systems, several such authors argue that insurance could signiªcantly affect climate politics by shifting the assessment of the general in- terests of capital.4 * I am very grateful to Adam Harmes, Mark Lacy, Johannes Stripple, and to the three reviewers for Global Environmental Politics, for perceptive comments on an earlier draft of this paper, to Dirk Kohler of Gerling Re for his time discussing the themes of the paper, and to John Wooden of the Association of British Insurers for providing me with ABI documents regarding climate change. 1. Flavin and Tunali 1996, 63. 2. Gelbspan 1997, 87; and Brown 1996, 185–198. See also Spencer-Cooke 1999. 3. As quoted in Leggett 1999, 304. 4. See for example Ward 1996, 871; Paterson 1996, 166; Newell and Paterson 1998, 696; and Karliner 1997, 203. For a fuller analysis that is skeptical of this optimism (on different grounds to those I emphasize), see Brieger, Fleck, and Macdonald 2001. The most prominent writer on Global Environmental Politics 1:4, November 2001 © 2001 by the Massachusetts Institute of Technology 18 Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/152638001317146354 by guest on 02 October 2021 Matthew Paterson • 19 Perhaps, most importantly, such optimism is expressed in the way that Greenpeace, followed by UNEP in particular, have pursued insurers to try to fos- ter their involvement in global climate politics. Jeremy Leggett, then of Greenpeace International, began pursuing insurers immediately after the Earth Summit in June 1992 to persuade them of the need to become involved in cli- mate politics, and to evaluate their own investment strategies to mitigate global warming. Leggett felt that three sorts of responses by insurers were possible: They could hope that current increases in payouts for extreme weather events were temporary and would thus do nothing; they could act to reorganize busi- ness by raising premiums, increasing deductibles, and so on, to manage their ex- posure to ªnancial risk; or they could “strategically protect” their market by ag- gressively investing in renewables to mitigate global warming. Leggett’s belief was that while insurers may be tempted to go for the second of these, they could be pushed from adopting the second towards the third, arguing to insurers that when data cease to be actuarial, the second set of responses becomes inade- quate.5 UNEP became involved in 1995 with the establishment of the UNEP In- surance Industry Initiative and its organization of the Statement of Environ- mental Commitment by the Insurance Industry. For most observers interested in this phenomenon, it is of interest because of a belief that this creates the possibility of pursuing more aggressive green- house gas (GHG) abatement measures. The ªnancial size of the insurance in- dustry (with estimates varying between $1.4 and $2 trillion), combined with the vulnerability of the sector (particularly the property insurance sector) be- cause of the rise in extreme weather events, is the basis for this environmentalist optimism. In Time magazine’s words, “the crucial role played by the $1.41 tril- lion insurance industry in the world could change the dynamic of the debate about global warming.”6 In most stock markets, insurance companies account for between 20 and 25% of all share ownership, and about 10% of all global ªnancial ºows.7 Yet there is little political analysis of the dynamics at play here. With the exception of Brieger, Fleck, and Macdonald, the academic sources mentioned above only brieºy mentioned the involvement of insurers in climate politics. Brieger, Fleck, and Macdonald offer an analysis, which attempts to answer the fairly straightforward question: “Is the insurance industry altering the dynamics of climate change policy making?” While they offer a useful outline of emerging strategies by insurers, the analysis (despite their avowed intention) is based largely on the North American experience, where insurers have been much more skeptical concerning the impacts of global warming on their business than in the rest of the world (on which more below). They thus overstate the lack of ac- insurance in IPE, Virginia Hauºer, has also noted their interest in global warming, but again the dynamics remain unanalyzed. See Hauºer 1997a, 134–6. 5. See Leggett no date. 6. “Burned by Warming,” Time Magazine, 14 March 1994, as quoted in Leggett 1996a, 42. 7. According to the Central Statistical Ofªce, insurance companies own 21.9% of shares on the London Stock Exchange (see CSO 1995, 8). The 10% of total global ºows ªgure comes from FM Research 2000, 56. Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/152638001317146354 by guest on 02 October 2021 20 • Risky Business tion by insurers on global warming. The other main academic work on the sub- ject is by Swedish researchers. This work adopts a pluralist approach, and is pri- marily concerned with the emergence of transnational alliances between environmental groups and the insurance companies, in terms of charting shifts in international politics away from state-centrism.8 More recent work by these researchers has outlined this shift in terms of debates on global governance, but this again remains largely “thick descriptive” in nature.9 My argument here is premised on a need to understand these strategies in the context of the contemporary and evolving political-economic location of in- surance. I thus draw in the later part of the paper on themes developed within IPE. Broadly, I argue that if we examine the political-economic context within which insurance operates (even in the preliminary manner offered here) it is not particularly surprising that the responses of insurers to their interest in global warming has not translated into the sorts of strategies desired by environ- mentalists, namely investment strategies to reduce CO2 emissions. Without such political analysis, there is little understanding of why the optimism of environmentalists and other commentators has been by and large frustrated to date. Despite a small number of actions by some insurers (many of which are described below), there has been little shift in investment patterns of the sort envisaged by environmentalists. And environmentalists have expressed considerable disappointment in the overall responses by insurers. Jeremy Leggett’s book charting his involvement in international climate politics ends with considerable disappointment about the conservatism of insurers in rela- tion to investing in renewables.10 One recent major publication by an environ- mental NGO, this time Friends of the Earth UK, reºects this disappointment by shifting tack considerably towards an attempt to pressure insurers into shifting investment using fairly general ethical investment arguments as well as those concerning the self-interest of insurance companies with regard to global warm- ing.11 Another indication of this frustration is that Jeremy Leggett shifted the fo- cus of his company, Solar Century, which was set up originally to build on his work with Greenpeace International by trying to promote investment by insur- ers and other institutional investors in renewable energy, especially PV solar technology. The company now plays a more general entrepreneurial role in pro- moting renewables.12 Clearly, the lack of clear political explanation of the role of insurance companies limits the understanding of their actions. I begin with an account of the emergence of the insurance industry as an actor in global climate politics. After brieºy outlining the reasons insurers have 8. Stripple, Chong, and Wiman 1997. 9. Carlsson and Stripple 2000. 10. Leggett 1999, 304. 11. FM Research 2000. I discuss developments in this regard in more detail below. 12. “Big Break: Solar Power Pioneer Gets Evangelical,” Financial Times, 5 September 1999. Solar Century’s website contains virtually no material speciªcally designed to persuade