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Ethical buying guide to home insurance, from Ethical Consumer.

Ethical buying guide to home insurance, from Ethical Consumer.


This is a product guide from Ethical Consumer, the UK's leading alternative consumer organisation. Since 1989 we've been researching and recording the social and environmental records of companies, and making the results available to you in a simple format.

 

Is your home insurance company funding climate change?


The guide includes:

  • ethical and environmental ratings for 30 home insurance underwriters
  • Best Buy recommendations
  • Who are the ethical and green or eco insurance companies

 

 

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Our ratings are live updated scores from our primary research database. They are based on primary and secondary research across 23 categories - 17 negative categories and 6 positive ones (Company Ethos and Product Sustainability). Find out more about our ethical ratings

 

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Home Insurance

 

The insurance market is huge: spending on insurance accounts for about 6.2% of global GDP each year. That’s $4.5tr worldwide.

Insurance companies therefore hold vast amounts of capital; money which they keep in reserves to pay out when things go wrong. This covers incidents of all scales and sizes – from a small car crash to a massive natural catastrophe.

According to the OECD, global insurers held a whopping $28.2 trillion in financial assets in 2014. They don’t keep all this money as cash. Some they invest, in the hope that the income generated from shares, property or other assets will help to cover demand for payouts. In the UK alone, insurance companies manage investments worth around £1.8 trillion – or equivalent to about 25% of the country’s net worth.

 

Image: Home Insurance

 

When these companies are deciding how to invest, rate of return is usually key, trumping ethical factors. The money you pay for insurance therefore ends up indirectly financing everything from factory farming to cluster munitions. Most insurers have managed to overlook the irony of this approach as they continue to invest in many of the largest fossil fuel sectors. By continuing to finance climate change, they contribute to the very catastrophes that they are supposed to protect customers against.

As campaigners point out, insurers’ own long-term financial interests also lie in stable weather patterns. More frequent natural catastrophes mean a greater number of payouts. These have been making increasingly large dents in the profits of these companies. In 2016, insurers paid £50 billion for damages related to natural disasters – twice as much as the previous year. As sea levels rise and growing areas become vulnerable to floods, fires, or other natural disasters, climate change is making many properties and other assets too high risk to insure at all.

Insurers are finally clocking on to this fact. While rhetoric is strong in this area, however, insurers have been slow to act – only now beginning to develop policies around even the worst climate impact industries. 

 

 

Types of insurance

 

There are two types of insurance company: brokers and underwriters.

Brokers sell policies on behalf of one or more underwriters, and include well known brands such as Sainsbury and the AA. They make money by receiving a commission from the underwriter, once a policy is sold.

Underwriters are the companies that take most of the money from an insurance premium, but which also pay out when something goes wrong. They may not be as visible as the broker’s insurance brand. But they wield a significant amount of power in the global economy, often holding vast investments in other companies. That is why we have focused on them for this report.

Just to make things more confusing, some underwriters do sell directly to the public, or belong to the same company group as the broker itself. Others may re-insure a specific risk via a different underwriter (basically insurance for the insurer).


 

What to look for? 
 

In the UK alone, there are hundreds of brokers – too many to include in our reports, so our ranking tables only include underwriting companies.

Unfortunately, most of us will buy our policy through a broker, so you may have to do some extra digging. You can find the underwriter by looking at the ‘Key Facts’ document that the broker must provide when you are deciding to take out a policy. Comparison websites like Money Saving Supermarket will also sometimes either provide these documents or tell you who the underwriter is.

 

 

The price of ethical insurance
 

Insurance is a product bought primarily on price. Some insurers will give quotes that are twice or even three or four times the cheapest option – as we realised when researching for our ‘cheapest broker’ boxes, shown throughout the report. Different risk factors – whether you live on a flood plain or have a Lamborghini for example – will also produce vastly different results. 

 

 

How we rate companies
 

Several campaign groups have published reports about specific investments held by insurance companies (or the banks by which they are owned). We have marked down the companies named in these, and have included some more detail about the reports throughout the finance guides. Insurance companies appeared in Don’t bank on the Bomb; Unfriend Coal; and the Israel Report on our current accounts guide

We also looked for investments in specific companies, beginning with some of the largest in the UK and US such as WalMart, General Electric and Coca-Cola. Where the insurance company holds shares in, for example, a company criticised for pollution, it will also receive half a mark in the Pollution and Toxics column on the table. Most companies lost multiple marks in this way. Where no ethical investment policy or shareholdings could be found for a company, it was assumed to have investments in companies criticised in all Ethical Consumer categories – as, sadly, is the norm in this industry. We also wrote to these companies to check there wasn’t a policy somewhere we hadn’t found.

 

Companies with an ethical policy on investments
 

A growing number of company have some form of ethical policy on investments. But often these only exclude the most extreme players in a sector, for example those making cluster munitions or making over 50% of profits from coal mines. We were looking for something a bit more robust, which crosses lots of sectors. Only two companies, Ecclesiastical and The Co-operative Group.


The Co-operative has the most thorough investment policy in this industry, which sent to us. Here are some highlights:


Human Rights

We will not invest in:

  • any business whose links to an oppressive regime are a continuing cause for concern
  • the manufacture or transfer of armaments to oppressive regimes
  • the manufacture or transfer of indiscriminate weapons, e.g. cluster bombs and depleted uranium munitions

 

Ecological Impact

We will not invest in any business whose core activity contributes to:

  • global climate change via the extraction or production of fossil fuels
  • the unsustainable harvest of natural resources
  • the development of genetically modified organisms and nanotechnology

 

International Development

We will not invest in organisations that: 

  • fail to implement basic labour rights
  • take an irresponsible approach to the payment of tax in the least developed countries 
  • engage in irresponsible marketing practices in developing countries, e.g. with regard to tobacco products and manufacture.

 

Animal Welfare

We will not invest in any organisation involved in:

  • animal testing of cosmetic or household products or their ingredients
  • intensive farming methods, e.g. caged egg production
  • blood sports, which involve the use of animals or birds to catch, fight or kill each other
  • the fur trade

 

Ecclesiastical’s investment arm, EdenTree Asset Management, will not fund companies that earn more than 10% of pre-tax profits from alcohol production, gambling operations, pornographic or violent material or weapon production. It also says that it considers oppressive regimes, animal testing and intensive farming when making investment decisions. 

 


 

Table Highlights
 

 


Exemptions for those reporting well
 

Transparency around investments is rare in this sector. Very few companies publish shareholdings, let alone information about how they use them to steer those companies that they invest in. There were only two notable exceptions in our insurance tables: Aviva and AXA. They scored ‘Top of the Pile’ for transparency, and were not therefore marked down for their investments.

 



ClimateWise Membership

ClimateWise is a voluntary insurance industry initiative, focused on responding to the risks and opportunities of climate change. The companies involved commit to take action in many ways: through leading risk analysis, informing public policy, supporting climate awareness, and incorporating climate change into investment strategy. Almost all the companies in our table were signed up.

Ethical Consumer considers membership to be an important step for insurers towards addressing climate change: those who were not signed up therefore lost half a mark in the Climate Change category. Those companies were: Esure Group, Markerstudy Group, Ageas, Hannover Re, J.C. Flowers & Co., Admiral, Legal & General, Allchurches Trust, NFU Mutual, Lloyds Bank, Liverpool Victoria, Covea, The Co-operative Group, American International, AXA, Marsh & McLennan and Ageas.



Tax avoidance

 

Tax avoidance is known to be pervasive in the financial sector, and the insurance industry appears to be no exception. Almost all those companies that had business abroad also appeared to have lots of high-risk subsidiaries registered in tax havens. Companies that got a worst rating for likely use of tax avoidance strategies lost a whole mark under Anti-Social Finance, and those that got a middle lost half a mark. The Co-op Group stands out as a FairTaxMark accredited company.

Best: American International, Ageas, Admiral, Allchurches Trust, Direct Line, Esure, Liverpool Victoria, The Co-op Group

Middle: Covea, Lloyd’s of London

Worst: Allianz, Aviva, AXA, Markerstudy, Hannover Re, Hiscox, J. C. Flowers & Co., Legal & General, Lloyds Banking, Marsh & McLennan, Munich Re, NFU Mutual, Red Sands, RSA, Tesco, Zurich

Red Sands even gave a history of Gibraltar’s (lax) tax laws on its website!

 

 

Eco Home Insurance

 

Image: Eco Home Insurance

 

Don’t Buy

 

Insurance underwritten by Munich RE. The company not only received one of the lowest Ethiscores in our table, it was named in the IBFAN Don’t Bank on the Bomb report for funding nuclear weapons companies, and in the Unfriend Coal scorecard (see below) as a company that had only taken ‘baby steps’ towards divesting from and refusing insurance to coal companies.

 

 

Eco brokers

 

These companies were not included in our table and have not been rated by Ethical Consumer as they do not underwrite insurance policies, but are worth a few words.

Naturesave offers alternative ‘green’ insurance for property and small businesses. They provide discounts for eco buildings; are the only insurer in the UK to cover small renewable energy systems as a standard part of household policy; and offer cover to alternative houses that might usually struggle to get insured, for example timber-framed and straw bale housing. 10% of premiums go to The Naturesave Trust, which funds environmental and conservation projects in the UK.

Unfortunately, Canopius, Naturesave’s underwriter for home insurance does not boast the same eco credentials. Canopius is part of the Lloyd’s of London market (see the company section below). Neither it nor Lloyd’s appears to publish any form of environmental reporting.

Naturesave explained that it had discovered a difficult trade-off between wanting to select eco-brokers and needing to provide affordable insurance for new and often difficult to insure eco technologies. “Failure to do so, can have serious financial consequences on the viability of such projects,” the company stated, although “those [underwriters] with large fossil fuel investments would never be our first choice.”

Sadly then, an eco-broker will not guarantee that your premium stays in green hands.

ETA was established as an alternative motoring organisation, to resist the pressure from others (such as RAC and AA) or continued road expansion in the 1990s. Nowadays, it offers insurance for property, bikes, mobility scooters and travel.

The company runs the ETA Trust, a charity campaign for a more sustainable, safe, and healthy transport future. Every cycle insurance policy comes with a free donation. The company is carbon neutral and provides carbon offset quotes for its customers. Its travel and home insurance is underwritten by UK General Insurance Ltd, owned by J. C. Flowers & Co. UK General did not have any ethical policy or reporting for its underwriting or investments.

 
 

Unfriend Coal
 

We cannot afford to build a single new coal plant if we are to meet the two degree goal set at COP21 in Paris 2015. Coal already accounts for 44% of CO2 emissions worldwide. Yet, 1,600 new coal plants are in planning, according to the Unfriend Coal campaign. These rely on the cover offered by, and often on investments from, many of the largest insurance companies.

The Unfriend Coal campaign targets these insurers, in an attempt to make coal economically as well as environmentally unviable. It has asked insurance companies to refuse to underwrite, insure, or invest in, companies that meet any one of the following criteria:

  • derive at least 30% of their revenues or power generation from coal;
  • produce, trade or consume at least 20 million tons of coal annually;
  • plan investments in new coal mines, power plants or infrastructure.


15 insurance companies have already taken steps, and are collectively divesting about $20 billion in equities and bonds from coal companies or are ceasing to underwrite coal projects. In November 2017, the campaign rated 25 major insurance companies, based on its demands. This is how the companies in our table scored:

 

Tabke: Unfriend Coal Campaign

 

Allianz and AXA were among the first insurance companies to divest from coal in 2015. In April 2017, AXA was also the first major insurer to stop underwriting the coal companies in which it would no longer invest. Unfortunately, Allianz' policy still has large gaps.

Although it has divested its own funds, it does not use a coal-free fund as default for the whopping $1 trillion in third-party assets that it manages. Zurich was a slow mover, but decided to divest from and cease to underwrite companies that derive more than 50% of their revenues from mining coal and from utilities that generate more than 50% of their electricity from coal in autumn 2017. 

We also found several happy updates, since the report was published in November. Having been criticised in the report for its weak threshold for divesting from and refusing insurance for coal businesses, AXA announced a new policy in December. By decreasing its threshold – from companies generating 50% of revenue from coal, to those generating 30% – the company has increased its divestment five-fold to reach Euro 2.4 billion. AXA will also stop insuring any new coal, tar sands and associated pipeline projects. 

November saw another success for the campaign, as Lloyd’s of London also announced that it would be divesting from coal. The company is yet to set its threshold.

 

 

 

Company profile
 

Lloyd’s of London was founded in a London coffee shop, over 325 years ago. It was originally a place where shipowners could meet men with the capital to insure them. Lloyd’s thus started out providing insurance for the colonial trade in sugar and also slaves.

This has been the basic structure of Lloyd’s ever since. Lloyd’s isn’t actually a broker or an underwriter: it is a marketplace where insurance managers can find capital to cover them. The capital is provided by Lloyd’s ‘members’ or ‘names’. Members were originally wealthy individuals, and all male, until a series financial crises and scandals forced the creaking institution to reform. In 1968, a shortage of capital persuaded Lloyd’s that inviting women to join might be worthwhile; and in 1994 this invite was extended to corporate groups. Nowadays, there are only around 290 individual members compared to 1760 of these corporate groups, which provide Lloyd’s capital backing.

Members come together to provide insurance, thereby pooling capital and spreading risk. All transactions are further underwritten by Lloyd’s own central fund. This partially mutualised structure allows members to write some of the more bizarre policies on the market, previously covering everything from Bruce Springsteen’s voice and an engraving of the Queen on a single grain of rice; to a comedy theatre company against the risk that an audience member would die laughing.

This has also enabled the organisation to offer some more questionable policies. The company was recently found to be choice insurer for gun shows across the USA and is even recommended by the NRA. A petition on Change.org is now asking the company to stop insuring shows that do not ask for background checks from those purchasing arms.


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