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.
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:
They 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
They 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
They 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.
They 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.
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 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 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!