Ethical home Insurance

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

Buying home insurance

There are two types of company that sell home 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.

Ethical issues with home insurance companies

Some of the issues covered in the scoretable ratings.
 

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.
 

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.
   

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.

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

The Co-op is Fair Tax Mark certified.

Climate change

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.”

That aside, most insurance companies do now publish something on what they are doing to tackle climate change.

However, not all – we couldn’t find anything from J.C. Flowers (UK General). And 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”.
   
• Ecclesiastical says that it has a "no oil sands or Arctic drilling" policy, but has little else of substance.
   
• 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.
   

Insurance companies with better climate change policies

Some insurance companies are doing a bit more for the climate:

• 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.

We require all financial sector companies to commit to pull all investments from fossil fuels, or else they get worst in our new climate change rating system.

All of the companies in this guide get worst the worst rating, although some are doing more than others.

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:

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.

Racial and other Discrimination 

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.

Insurance companies consider postcodes and the local crime rates when deciding on policy rates. If you live in a poorer area, you will be charged more. And if you live in a flood-prone area, you may struggle to get home insurance at all.

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.

Insurance campaigns and initiatives

Insure our future

Insure Our Future, previously called Unfriend Coal, is a global coalition of campaigning organisations that is pressuring insurance companies to get out of fossil fuels and support low-carbon technologies.

Each year it rates the largest insurance companies on their policies, including five in this guide: Zurich, Axa, Aviva, Legal & General and Allianz.

Its aims are to get insurance companies to:

• Stop insuring coal, oil and gas projects and companies.
   
• Divest from the fossil fuel industry.
   
• Insure and invest in the low-carbon economy.
   
• Bring all their business activities, including as shareholders and corporate lobbyists, in line with the goals of the Paris Agreement.

Insure Our Future can be found at: https://insureourfuture.us.

ClimateWise

ClimateWise is a voluntary insurance industry initiative. Members have to report on their climate policies, and support research relevant to climate change and the insurance industry. Being a member is a sign that an insurance company has intentions to tackle its climate impact.

All of the companies in this guide are members apart from Co-op, Covéa, Legal & General, NFU Mutual, Ageas, esure, Direct Line (Churchill), J.C. Flowers (UK General), EUI (Admiral), and Hastings.

Private health insurance

In areas like health, private insurance is an alternative to a government safety net, which gives the companies a financial interest in cutting parts of the net away. Both Axa and Aviva sell private medical insurance. None of the other companies in this guide do, as far as we could tell.

In 2014, the Open Democracy website published an article on the think tank Reform, which has long argued for greater NHS privatisation, and had just recommended that people staying overnight in hospital should pay ‘hotel charges’.

It had found that “In recent years Reform has been funded by: Prudential, Legal & General, Scottish Widows [Lloyds Bank], Aviva, Benenden insurance, Gen Re (reinsurer of health products) and US health insurance giant UnitedHealth ... The industry’s trade body, the Association of British Insurers, is also a donor.”

Most of these are no longer on the list of donors on Reform’s website, although the Association of British Insurers is still there, and three 2018 events were listed as “supported by Prudential” (Prudential is an insurance broker).

Most funding for right-wing think tanks is not in the public domain, and so any information that does come to light tends to look significant.
 

Home 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, four three of which are covered in this guide: Zurich, Ecclesiastical, 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.