The United Nations convened, Net-Zero Insurance Alliance (NZIA) has been eviscerated in the last month with the wholesale exodus of the (re)insurance market from its membership.
As part of its charter, NZIA members must commit to transition 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, in order to contribute to the implementation of the Paris Agreement on Climate Change.
Part of this NZIA protocol compels member companies to meet NZIA’s “emissions reduction target” by choosing either an overarching insurance associated emissions reduction target of between 34-60% by 2030, or targeting emissions on a sector-by-sector basis in line with a net zero pathway for that sector. Much of the language used within its requirements refers to ‘pressuring’ its ‘insureds’ in ‘dirty’ industries to fall into line.
Now only 17 insurers remain, with the founding and major member companies alike, including giants Munich RE, Swiss RE, Lloyds, Zurich, Hannover, QBE, and even Paris headquartered AXA and Scor, all vacating their association with the NZIA.
Why are you leaving me?
While none of the exiting members have directly addressed the details surrounding their ‘choice’ to depart, most have ‘Dear John’d’ the NZIA with their reasoning generally aligned to focussing on their own climate objectives rather than being dictated to.
John Neal, CEO of Lloyds, said to Reuters on 24th May 2023:
“There are five objectives, and you have 12 months to meet one of them and 36 months to meet three of them. NZIA needs to have another look at what its objectives are, or the alliance will fall apart.”
As part of the report, Reuters also reported that: ‘As for Lloyd’s, according to Neal, the insurance marketplace is staying put. He also indicated that Lloyd’s has no issues with compliance in terms of its NZIA membership.’
Lloyds then posted a very small (39 words) and quiet media release on its website 3 days later on the 26th May 2023 stating that it was also withdrawing its membership.
Enter the Legal Eagles
While we would hope that each of these companies have simply realised how devastatingly hypocritical, impractical and anti-competitive their actions have been to assist in any semblance of a responsibly achievable energy transition; however, it strongly appears that we have some very vocal US Attorney Generals (AG) and subsequent republican politicians to thank.
On the 15th May 2023, AG’s from almost half (23) of the US states wrote an eight-page letter to NZIA members – as you can imagine, predominantly from republican and swing states – generally outlining how these actions have been to the inherent detriment of their states and nation generally.
The introduction is flawlessly written to incite the precise response that was received by NZIA members:
“We, the undersigned attorneys general, are concerned with the legality of your commitments to collaborate with other insurers and asset owners in order to advance an activist climate agenda. These actions have led to serious detrimental effects on the residents of our states.
“The push to force insurance companies and their clients to rapidly reduce their emissions has led not only to increased insurance costs, but also to high gas prices and higher costs for products and services across the board, resulting in record-breaking inflation and financial hardships for the residents of our states. These financial effects are well-known and important. This letter, however, will focus on our legal concerns related to your actions.”
The letter generally goes on to lay much blame at the feet of the insurance market for all manner of inflationary costs and hardships on the US and its citizens, generally using the same playbook that environmental activists have historically used against them.
The similarities would be comical if not for how real the impact has been.
What does this mean?
Realistically, it probably doesn’t change too much in the short term, as insurers have spent a number of years creating their virtuously constructed agendas and have a lot of sunk bias and capital invested.
Optimistically, we are hopeful that this is a green shoot of progress for those of us with considerable dents in our foreheads from banging against the proverbial brick wall that is how practically ill-considered these net-zero objectives are, however rosy and comforting they appear to be in boardrooms across the financial services industry.
On a go forward basis, what this clearly shows is that corporations will ultimately wilt and wither before any aggressive challenge on this subject; and while logical and critical thinking have unfortunately fallen on deaf ears to this point, strongly worded and threatening legal overtures on one side, and extreme activism and threats on the other (with governments flip-flopping in the middle like freshly landed fish), appears to be how we will continue to conduct this debate.