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.
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.