Insurance Industry


Issue 140

Last updated: February 2013

 

 

Investing in environmental damage

 

Worldwide insurance premium sales volumes equal around US$4.34 trillion a year, equivalent to 6.9% of global GDP. This means that insurance companies hold a huge amount of capital. In 2009 insurers had US$22.6 trillion of assets under management which equalled 12% of all global financial assets.(1)

They hold these huge reserves to pay out when things go wrong. This would include everything from you crashing your car to dramatic international incidents such as the recent Hurricane Sandy.

Rather than keeping this money as cash, insurance companies invest most of it in the hope that the income generated from assets like shares, bonds and property covers most of the demand for pay outs. Their drive to make profits means that the financial performance of these assets is their primary concern. This means that your money is being indirectly invested in everything from factory farming to drilling for oil in the Arctic and manufacturing cluster munitions.

The problem for environmental and social justice campaigners is that this failure to focus on ethical as well as financial performance means that these financial assets are actively encouraging these controversial activities.

The fact that the long term financial interests of insurers are in stable weather patterns, and that their own investments may be serving to undermine this, is now well recognised. We have a special feature on Climate Change and Insurance which looks at three industry-wide initiatives, as well as some apparently contradictory investments.

Campaign groups will also identify specific problem investments from insurance companies from time to time and use these to call for change. By way of example we have looked at a recent campaign on nuclear weapons investment, and we also look at some more of these in our company profiles.

In a significant new move, Co-operative Insurance has become the first company to screen out unethical investments from its insurance reserves. This is covered in more detail in a special article.

Other insurers address the issue of the unethical nature of their investments by being active shareholders and ‘engaging’ with companies on some of their worst excesses. We look at the engagement records of the various companies and also at a separate analysis of life insurance by campaign group FairPensions.

 

 

Our Product guides

 

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

  • Brokers deal direct with consumers and include well known brands like Sainsbury and the AA. They make money by receiving a commission from an ‘underwriter’ once a policy is purchased. You can find out which underwriting company a broker uses for a particular policy by looking at the ‘Key Facts’ document that they must provide you with when you are deciding to take out your policy.
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  • Underwriters are the companies that hold most of your money and pay out when things go wrong. They are often very large financial institutions. While they may not always be as visible as consumer brands, they wield a considerable amount of power in the global economy. This is why we have focused on them for this report.

 

Confusingly, some underwriters also sell directly to the public, while still others may re-insure different risks with other underwriters.

There are hundreds of brokers in the UK alone. So many in fact that it would be impractical to put them all on our ranking tables. The score tables therefore cover underwriters only and you may need to ask a broker (or look at Key Facts documents on price comparison websites) to find out who is underwriting what. To begin the process, we have listed the top five brokers by price – and linked them to specific underwriter.

We have also featured a few specialist ‘green’ brokers, where appropriate, at key points in each product guide.

 

How we rate insurance companies

 

As well as collecting specific criticisms from campaign groups we have also looked to see which companies each insurer is investing in. We first looked at some of the biggest US and UK companies, such as WalMart, General Electric and BP to see whether any insurers were listed as shareholders.

We also looked to see if they ran any investment funds with publicly named shareholdings. Where an insurance company holds shares in, for example, a company criticised for pollution, it will receive a mark in the Pollution & Toxics column on the score table.

We have also looked at each insurer’s investment policies. Where an insurer is not a member of any climate initiative such as ClimateWise it receives a negative mark in the Climate Change column.

In addition, if an insurer fails to publish any policies regarding ethical issues and its investments, it receives a negative mark in the Anti-Social Finance column. The three top-rated companies on responsible investment will also receive additional points under Product Sustainability.

An explanation of each specific mark for each company is available to website subscribers using the 'More detail' link on the score tables or in the PDF versions of the product guides.

 

 

The price of insurance

 

Insurance is a product bought primarily on price. As we can see from our ‘cheapest five brokers’ which appear in each product guide, it is not uncommon for some insurers to quote prices twice or even four times more expensive than their competitors. The huge variety of circumstances – do you live on a flood plain or drive a Ferrari? – means that each individual’s experience of insurance pricing will be different.

In earlier articles discussing the price of ethical products, we have already identified how it is a myth that ethical products are always more expensive than their counterparts. In some cases they are, and ethical consumers are generally content to pay perhaps 10% more for a Fairtrade product and even 50% more for some organic goods.

However, when other insurers are quoting perhaps £1,000 less than the most ethical choice in the market, no-one is really expecting ethics to dominate most people’s decisions. For this reason, in our Best Buys in the product guides, we have recommended one or two top scoring products and then a longer list of second choice companies – ranked according to a balance of ethiscore and awareness of investment responsibilities.

The hope is that, if the first choice doesn’t work for you, a price comparison website or broker will be able to find a competitive proposition from someone else not too far down the list.

It is always worth checking more than just the cover price too. Other factors such as the size of the excess payable in the result of an accident are also important to consider.

 

 

Product Guides

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Car Insurance

What to buy and what to avoid. Ethical ratings and Best Buys covering nearly 100 underwriters in four different markets. 

 

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References:

1. International Association for the Study of Insurance Economics http://www.genevaassociation.org/pdf/News/2011globalinsuranceindustryfactsheet.pdf