When Insurers Reshape Carbon Risk
Can insurers accelerate the shift to net-zero? A new study by Prof. Zacharias Sautner shows they can – by limiting insurance coverage for carbon-intensive projects. Text: Cornelia Kegele
Insurers have long recognized the financial risks of climate change. As early as 2005, Allianz, together with WWF, warned that global warming posed mounting economic threats. In recent years, with rising losses from natural disasters, many insurers have started adopting “carbon underwriting policies” – public commitments to reduce the coverage for carbonintensive sectors such as coal, oil and gas. Yet little was known about whether these policies meaningfully influence decarbonization or instead remain largely symbolic and weakly enforced.
How carbon policies take shape
A recent study by Prof. Zacharias Sautner, Olimpia Carradori and Dr. Felix von Meyerinck from the Department of Finance UZH examines whether and how the world’s largest insurers implement these commitments and their implications for U.S. coal mining operations. The authors link data on insurers’ carbon policies with detailed insurance certificates for U.S. coal mines and information on production, employment, and operating status of these mines. This approach allows them to trace how major property and casualty (P&C) insurers around the world change their coverage once a policy has been adopted, and to see what happens to the mines that lose it. Insurers’ coal-related policies have become more prevalent and stringent, though only a few insurers set comprehensive phase-out strategies. Policies targeting oil and gas remain far less common and weaker.
When insurers pull back, mines close
Once a policy is adopted, insurers are 8.4% points more likely to withdraw coverage of U.S. coal mines within the first quarter, rising to 18.3% points by the fourth quarter. Overall, insurance coverage falls by 16% in the number of insured mines and by 56% in insured coal volumes. Stricter policies cause larger declines in coverage, while certain forms of insurance, such as worker-safety coverage, are often retained.
These withdrawals are followed by real effects: mines exposed to policy-adopting policy-adopting insurers are 3.6% points more likely to be abandoned, while those that remain open cut employment by around 15%. The effect is stronger where alternative insurers are scarce, showing that limited substitutability amplifies the effects of the policies.
The study provides the first systematic evidence of insurers’ carbon underwriting policies and their impact on carbon-intensive projects. Still, the authors stress that the effectiveness of such policies depends on their rigor and on market conditions. They call for greater transparency and public disclosure of insured exposures to accurately evaluate the potential of these policies – for coal and other high-emission industries.
Zacharias Sautner is a professor of sustainable finance at the Department of Finance UZH, a senior chair at the Swiss Finance Institute (SFI) and a lecturer for Executive Education Finance courses.
Text: Cornelia Kegele, Source: Oec. Mag. #24