Parametric Insurtechs Could Be the Future. They Can Thank Insurers and Fossil Fuel Companies.
Plus, SEC Commissioner Hester Peirce weighs in on prescriptive rulemaking and its impact on crypto innovation
Number of the Week: $700 million (explanation below)
Parametric Insurtechs Could Be the Future. They Can Thank Insurers and Fossil Fuel Companies.
As the severity of the global climate crisis worsens, its disastrous effects are irrefutable: The world is hotter, drier, wetter, and prone to more frequent and extreme storms. What’s less clear: when the top three emitters of greenhouse gases (GHGs)—China, the United States and India—will significantly accelerate their reduction targets, how wealthier nations are going to invest in developing countries’ transition to clean energy alternatives without increasing their economic, political and population vulnerabilities, and what’s to be done about the energy sector, the single largest emitter of any sector, which accounts for 76% of global emissions.
Climate change is a global problem with profound and painful local and regional socio-economic consequences. After world leaders from 197 nations plus the European Union and corporate executives convened in Dubai for the United Nations Convention Framework on Climate Change 28th Conference of the Parties (COP28)—increasingly referred to as “the new Davos”—the final agreement was met largely with anger and cynicism because the text failed to explicitly call for fossil fuels to be phased out. Rather, it referenced “transitioning away” from them toward clean energy. There were other areas of disappointment and dashed expectations, according to the World Resources Institute, including climate finance, adaptation targets, and loopholes that favor oil- and gas-producing countries and fossil fuel interests.
Those fossil fuel loopholes could be getting a perversely counterintuitive assist from insurance companies, whose investment and underwriting practices related to fossil fuel companies and projects generate short-term, in some cases huge profits but contribute to growing negative climate and environmental impacts that increase their costs, compelling them to hike premiums and exit certain markets.
Yes, you read that right. Insurance companies are both benefiting from and falling victim to the fossil fuel activities in which they are involved (more on that below). U.S. insurers alone reportedly hold some $536 billion in fossil fuel investments. On the underwriting front, the global insurance industry earned about $21.25 billion from fossil fuel insurance, according to market intelligence firm Insuramore’s most recent data on the sector. Climate losses for insurance companies, however, are reaching unsustainable levels, raising serious questions as to why the industry would continue to invest in and underwrite companies whose fossil fuel production or deforestation operations harm the environment and, by extension, their businesses over the long term.