Ethical Car Insurance

Although different forms of risk-sharing goes way back before biblical times, the UK is responsible for inventing modern insurance companies and today the UK insurance industry is huge, the fourth largest in the world.

In this guide, we look at insurance companies’ investment and climate policies, their more shady political activities, and at their responses to COVID-19.

Insurance underwriters, brokers and comparison sites

There are two types of company that sell car insurance, underwriters and brokers.

The underwriter is the actual insurance company, that pays out on the claims. While they do often sell directly to the public, many also sell through brokers such as the AA, which take commission.

If you are buying through a broker, you should be able to find out the underwriter from the ‘Key Facts’ document which must be provided when you’re considering buying a policy. Comparison websites will also sometimes tell you.

Most people buy through price comparison websites, and we plan to publish a guide to these soon. They can be used in conjunction with our ethical ratings to help make a sensible choice all round. Be aware that the price comparison sites take substantial commission from the companies.

To complicate matters, underwriters sometimes have their own underwriters, as they may re-insure a specific risk via a different underwriter.

We are only covering underwriters in this guide because there are too many brokers to cover, hundreds in the UK.

Climate change and the insurance industry

The insurance industry’s business is risk, which makes its financial interests with regard to climate change somewhat muddy. The 2020 Global Insurance Outlook states, alarmingly cheerfully, “While there are serious downside risks to be managed, the potential upside in terms of premium growth is huge.”

We require all financial companies to commit to withdraw all investments from fossil fuels, or else they get worst in our new climate change rating system. As a result all of the insurance companies in this guide get the worst rating on climate change, although some are doing more than others.

Most insurance companies do now publish something on what they are doing to tackle climate change. However we couldn’t find anything from J.C. Flowers (UK General).

Scarcely better are NFU Mutual, esure (Sheila’s Wheels), Direct Line (Churchill), EUI (Admiral) and Hastings, who just talk about the climate impact of their offices. That is a huge cop out – the main climate impacts of an insurance company come from what it underwrites and what it invests in.

Other companies with weak climate change policies

• Hiscox discusses the climate impact of its investments, but outright rules out "a blanket ban on investing in climate-impacting companies or a positive bias to investing in low-carbon technologies” in favour of “an intelligent strategy” that “maintains a robust balance sheet”.
   
• Ageas just says that it does not invest in companies that are strongly active in coal, which is a start, but not nearly enough.
   
• Legal and General only has very weak policies on divesting from fossil fuels, although Insure Our Future does mention that it is a leader on supporting shareholder resolutions calling for climate action.

Companies with better climate change policies

Some insurance companies are doing a bit more however:

• Zurich measures the carbon impact of its investments, it will not insure or invest in either coal or tar sands projects or companies heavily involved in them, and has committed to investing $5 billion in low-carbon technologies. It is listed as a “leader” by Insure Our Future.
   
• AXA calculates the “warming potential” of its investments. It will not invest in companies that derive over 30% of their turnover from coal. It has committed to have €24 billion in green investments by 2023.
   
• Aviva has also divested from the most carbon-intensive fossil fuels. And it says "we...plan to increase our investment in low-carbon infrastructure through to 2030; this is in addition to our £3.8 billion low-carbon infrastructure investments over the last five years." It says that it calculates its “Portfolio Warming Potential” but doesn’t report on it in any real detail.
   
• RSA rules out investing in or offering insurance to most coal mines or power utilities that generate more than 30% of their revenue from coal. It also has policies on oil sands and shales, and on projects relating to energy extraction in the Arctic or Antarctic. It reports on the emissions of its investments.
   
• Allianz does not insure or invest in coal-fired power plants or coal mines. It says that it “strategically invests in low-carbon assets, including renewable energy, green buildings, and green bonds".
   
• Covéa has mostly divested from coal and publishes a calculation of its asset portfolio’s carbon intensity, but no clear targets for reduction could be found.

Other ethical issues for car insurance companies
 

Tax avoidance

Axa, Aviva, esure, NFU Mutual, Hiscox, Zurich, MORE TH>N, Allianz, Legal & General, Lloyds Bank, Hastings and Tesco were all marked down for likely use of tax avoidance strategies.

Ageas, Covéa, Direct Line, Admiral, and UK General, did not show the signs of it.

The Co-op is Fair Tax Mark certified.
 

Donations to political parties

It is very common for company employees to give to political parties in the United States, which is why we find it nearly every time we look into an industry. Axa, Aviva, Zurich, Allianz and UK General were all marked down for donations to US Democrats and Republicans.

It is, however, rarer to find significant UK political donations. However, there were several on this occasion:

• Sir Peter John Wood, the founder of both Direct Line and esure, and at the time the Chairman and part owner of Esure, gave £1 million to the Tory party in 2019. He has since stepped down from his chairmanship.
   
• In 2016, Aviva Employment Services Ltd, a subsidiary of Aviva, gave nearly £12,000 to Tory MP Michelle Donelan.
   
• In 2016 Ageas gave £35,000 to the Liberal Democrats and £30,000 to the European Movement of the UK Ltd.
   

Arms and military supply

Aviva, Allianz, Axa, Lloyds Bank and Legal & General were all marked down for investing in companies that manufacture nuclear weapons.

Dividend payments

While they have been refusing to cover lockdown losses, insurance companies have not all been acting like these are truly the lean times.

Regulators in the UK, France and the EU have all asked insurance companies to suspend dividend payouts to shareholders in the wake of COVID-19.

Aviva, RSA, Hiscox and Direct Line agreed to cancel all dividend payments for 2019 and said that they will not consider further payouts until the end of the year.

But many other insurance companies have not. Axa, Admiral (EUI), Ageas and Hastings have gone ahead with dividend payments, but with reductions. And Zurich, Legal & General, and Allianz just refused, saying that they would make their full dividend payments. The others do not appear to have spoken publicly on the matter.

Discrimination based on race, wealth and loyalty

In 2018, a BBC ‘You and Yours’ investigation found that, keeping all other details identical, entering the name Muhammad Khan into price comparison sites led to higher car insurance quotes compared to a white British name, with the biggest difference being £360.

Companies claimed that this was not racism, but just the result of fraud detection tools that look for when a false name is being used at a known address.

The Financial Conduct Authority has not reported evidence of direct racial discrimination, which would be illegal. However, indirect discrimination, or discrimination based on wealth, are perfectly legal and routine.

The FCA also found that insurance companies often charge a ‘loyalty penalty’ – much higher prices to existing customers so, all else being equal, it is usually worth your while suppressing the feelings of profound affection that you have built up for your existing insurance company, and being a bit promiscuous.

Investment transparency

Insurance companies take money up front from their customers, betting on the chance of having to pay out later. In the meantime, therefore, they sit on a lot of money.

Or rather, they don’t sit on it. UK insurance companies had about £143 billion invested in 2017, equivalent to about 7% of the entire UK GDP. About 90% of the industry’s profits come from its investments. One industry expert described insurance as "investment companies that raise the money for their investments by selling insurance". At a global level, insurers are the second largest group of institutional investors after pension funds.

This means that the most crucial aspect of an insurance company for ethical consumers will be its investment policy. Otherwise, you may be inadvertently funding unethical activities like coal-fired power stations and white phosphorus weapons with your premiums.

As with the other financial companies, we rated all the insurance companies on their investment transparency, based on whether or not they have clear ethical criteria for what they invest in, and whether they publish their voting history for the investments that they have. They were rated as follows:

Co-op Insurance (owned by the Co-op supermarket group, not Co-op Bank) doesn’t actually publish its voting history, but it has such a clear lending and investment policy, that we gave it an exemption.

It says, for example, that it will not invest in any business involved in the extraction or production of fossil fuels (oil, coal and gas), or any business that is involved in the transfer of armaments to oppressive regimes, or any business that fails to implement basic labour rights such as the avoidance of child labour.

Insurance companies and COVID-19

How much of the bill for COVID-19 will be paid by insurance companies is, as we write, still very much up in the air. The High Court is currently adjudicating on a case involving a large number of insurance companies which have been refusing to pay out on business interruption cover, saying that it does not cover pandemics. Without it, thousands of small and medium-sized businesses face bankruptcy.

The case explicitly involves eight companies chosen as a representative sample by the Financial Conduct Authority, three of which are covered in this guide: Zurich, RSA and Hiscox. But it really involves many more.

The same fight is taking place across the world. In France, a court ruled against Axa, and it has been forced to pay out to restaurants that were forced to close. The court cases are likely to go on for years, as there are so many different policy wordings to dispute.