Our most recent reporting reveals a contradiction in the investing practices of Canada’s largest life and health insurers – Manulife, Sun Life and Great-West Lifeco. This disconnect is a financial and reputational liability. At a time when the science is unequivocal about the harm caused by fossil fuel combustion – from deadly air pollution to worsening wildfires – Canada’s life insurance companies remain out of step with both health science and global expectations for climate-aligned investing.

Fossil fuels directly threaten the people insurers protect

Fossil fuels are not an abstract threat to human health. Their combustion is responsible for millions of premature deaths every year. Air pollution is one of the world’s leading killers, contributing to respiratory disease, cardiovascular conditions and higher mortality from heat and wildfire smoke. Wildfire smoke, now an annual feature of Canadian summers, is up to 10 times more toxic than pollution from burning fossil fuels. One five-day period of wildfire smoke in Ontario in 2023 alone cost more than a billion dollars in healthcare impacts.

Last month saw air pollution caused by fossil fuel combustion in New Delhi reach record highs. Notably, Sun Life and Manulife are expanding their life insurance business in India and across Asia. Delhi’s air quality index maxed out at 500 – 50 is the limit recommended by the World Health Organization. Air quality indexes showed that actual data reached 850. People were warned not to go outside. Hospitals were filled with people struggling to breathe.

For life and health insurers, the implications are direct. Rising illness and mortality drive claims. Climate-fuelled disasters increase volatility and undermine long-term actuarial assumptions. Every dollar invested in fossil fuels is a dollar invested in future morbidity – and future costs.

A gap between pledges and practice

Yet despite this, Canada’s major insurers are lagging in redirecting their general account capital toward solutions good for both health and the climate. BloombergNEF shows that financial institutions should be targeting a low-carbon to fossil-fuel investment ratio of at least 4.8:1 by 2030 if they wish to align their portfolios with a 1.5°C warming future.

According to our recent analysis, based partly on estimates, none are close. Manulife is estimated at 2:1 – ahead of peers, but still far from alignment. Sun Life sits near parity at 0.9:1. Great-West Lifeco is furthest behind at 0.28:1. These ratios reveal that, to date, all three insurers are not yet aligning their investments in the clean-energy future they believe is both necessary and inevitable.

More troubling, none have yet set quantitative targets to increase renewable-energy or climate-solution investments in their general accounts – the portfolios used to protect policyholder liabilities. Manulife and Sun Life don’t fully disclose their fossil fuel exposure, forcing analysts to estimate their holdings.

Meanwhile, European peers AXA and Allianz and Canadian peers RBC and the Co-operators have moved toward clearer “climate solutions,” “low-carbon solutions” or “renewable energy” investment or lending targets that increase credibility and reduce the risk of greenwashing.

The business case for climate-healthy portfolios

Life insurance companies invest their client premiums so they can pay out future claims, which can sometimes be decades in the future. These long-duration insurance liabilities are perfectly suited to corresponding stable, long-term investments in renewable energy, clean infrastructure and climate-resilient assets. These investments reduce exposure to volatile fossil fuel markets and support healthier environments and healthier populations.

Insurers should be natural leaders in health and climate-solution financing. Leading medical institutions, including the Canadian Medical Association and the World Health Organization, describe fossil fuel financing as a direct threat to public health.

Three things insurers can do now

To realign their portfolios with their purpose and reduce risk, Canada’s life insurance companies can take three immediate steps.

1. Bring transparency to the numbers

Insurers can disclose clear, comparable data on fossil fuel exposure and renewable-energy investments within their general accounts. Without transparency, neither policyholders nor markets can assess credibility or progress.

2. Set clear investment targets

Life insurance companies need explicit, quantitative goals – whether framed as targets, envelopes or sleeves – for increasing their exposure to renewable energy and climate solutions. Vague “sustainable finance” labels are no longer enough. Real impact requires real numbers.

3. Integrate climate and health science into underwriting

If air pollution, wildfire smoke and extreme heat are driving mortality and morbidity, insurers should reflect that reality in their actuarial models and disclosures. Failing to account for these rising health risks leaves a critical gap.

Finally, insurers can use their influence to advocate for policy reforms that better align financial incentives with health and climate goals. If markets undervalue climate solutions today, life insurance companies – given their expertise – are well placed to help correct that.

Kyra Bell-Pasht is the director of research and policy at Investors for Paris Compliance.

The post How life insurance companies are undermining their own business model appeared first on Corporate Knights.

We are now in the “find out” phase of climate change: 2024 was a record year for insurance claims in Canada at about $9.1 billion, driven by extreme weather, and a fraction of the more than $24 billion in uninsured damages.

The industry’s response to such claims is to increase premiums and reduce coverage to remain profitable. On average, Canadians’ home insurance costs rose 76% over the past decade, no matter whether they have made claims, and insurers expect increases greater than inflation this year too. Where there have been disasters, such as a suburban Calgary hailstorm last year, rates have spiked much higher.

It’s not fair to expect either a policy holder or a taxpayer to foot the bill for damages being caused by companies making a profit by putting emissions into our atmosphere.

– Kiera Taylor and Matt Price, Investors for Paris Compliance

Unlike in the United States, home insurance rates in Canada are not regulated. Our provincial market-conduct authorities do not even publish information regarding rates or regional coverage withdrawals. Nor will you see panels on insurance affordability at the annual conference. The industry is content to quietly pass along rising costs as long as it is able. Insurance companies like Intact and Definity are even raising shareholder dividends while doing so.

Unfortunately, this is now an established cycle of damages, claims and rate increases. The global reinsurer Swiss Re estimates that because of climate change, insured losses will rise by an annual rate of 5% to 7%, which, if we take the midpoint, amounts to a doubling in 12 years and a tripling in 19 years.

Where does this end? Logically, it ends in system buckling as people’s ability to pay higher rates diminishes. We see signs of this in places like Florida and California, which are ahead of us in extreme weather impacts. That’s a pretty big elephant to ignore, not just for the industry but also for the provincial and federal regulators that are supposed to safeguard the system. And, the knock-on effects include real estate devaluations, mortgage defaults and possible contagion into the broader financial system.

The industry’s plan for climate damages

To be sure, the insurance industry acknowledges the role of climate change in driving extreme weather and higher claims. Its response can be summarized in one word: adaptation. Homeowners are being asked to flood- and fireproof homes, and the industry is advocating that new homes not be built in risky areas, which is still ongoing. This is all worthwhile.

The industry is also advocating for taxpayer dollars both for infrastructure preparedness and for directly assuming some of the risk of flood-prone homes. The problem with that advocacy is not the content, but rather the fact that the industry does not have “clean hands” in making the case. Companies like TD Insurance – particularly via its parent – invest heavily in fossil fuels, while other insurance companies like Fairfax profit by insuring fossil fuel projects around the world. This activity fuels climate change and the damages that the industry is expecting the taxpayer to cover.

Some Canadian insurance companies have made net-zero commitments and are leaders in the space, such as Cooperators. But others like Fairfax have not, and the Insurance Bureau of Canada has no stream of work encouraging net-zero by its members, nor does it advocate for emission-reduction policies. Until this changes, politicians would be right in challenging the industry to put its own house in order before granting an audience.

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Ultimately, the industry needs to acknowledge that adaptation will go only so far. As a board member of the German insurer Allianz recently said, “The damage at 3C will be so great that governments will be unable to provide financial bailouts and it will be impossible to adapt to many climate impacts.” Property and casualty insurers should be front and centre making the case for strong climate policy, both to safeguard their own industry and to protect their policy holders.

And, since we are already experiencing the financial costs of climate damages, we need to have a bigger conversation about who pays. It’s not fair to expect either a policy holder or a taxpayer – often the same person – to foot the bill for damages being caused by companies making a profit by putting emissions into our atmosphere. Some U.S. states have started to seek cost recovery from polluters. Canadian insurers and legislators should be looking at the same.

Kiera Taylor is a senior analyst and Matt Price is executive director of Investors for Paris Compliance, a shareholder advocacy organization holding Canadian companies accountable to their net-zero commitments. 

The post Canadian insurers need to get real about climate damages appeared first on Corporate Knights.

For nearly 500 years, whenever things have gone very badly – a storm sank your ship, say, or a drought killed your crops – and the normal course of business has been unforeseeably and uncontrollably disrupted, you could always blame your problems on an “act of God.” Dig into nearly any boilerplate contract for goods or services today and you’ll still find an all-purpose divine scapegoat, there to take the heat for catastrophes that no one could have reasonably anticipated or prevented. 

It’s a good system: when shit happens, blame God. Now that we’ve pumped a few trillion tonnes of greenhouse gases into the atmosphere, however, God has grown less reliable as a fall guy. Courts rely on historical weather data to determine foreseeability when assessing act-of-God claims, but in the era of climate change, much of that data is no longer accurate. “You can’t keep calling things hundred-year floods when you have them three years in a row,” points out Richard Reizen, a partner at Gould & Ratner and chair of the firm’s construction practice. 

In recent years, many lawyers like Reizen have called attention to the intrinsic tension in force majeure provisions – “force majeure” is a broader category of calamities that encompasses acts of God and includes things like war and strife – as the direct impacts of climate change add new layers of uncertainty across many sectors, while also opening doors to new opportunities for investment. 

Construction isn’t the only industry where natural disasters and weather disruptions have increased the frequency of force majeure claims. “The climate is changing, and the law has to change with it,” says Hannetjie Marais, a legal advisor at Inlexso in South Africa who represents clients in the energy sector, where climate change affects renewables in particular.

Reizen and Marais are part of a cohort of legal professionals helping businesses transition to the new epoch of climate risk, alongside digital innovators in insurance and weather forecasting. Altogether, they are laying the groundwork to unleash the necessary capital for a new economy where climate adaptation and mitigation take centre stage. 

The new force majeure

One way of tracking the increase in force majeure claims is by looking at the number of weather events with more than a billion dollars in damages, as the two tend to correlate closely, says William Droze, a partner at Troutman Pepper, a U.S.-based law firm. Data from the National Centers for Environmental Information shows that billion-plus events occurred on average 5.6 times per year in the 1990s, compared to 20.4 times per year over the last half-decade. In 2023, there were 28. 

But the changes to the weather wrought by global warming aren’t all showstoppers like hurricanes and tropical storms. Climate change also alters global weather patterns in ways that aren’t as damaging as headline-making extreme events. Sometimes the wind blows less, not more. 

A 2022 study of the resilience of renewable energy under a changing climate found that, under high-emission scenarios, “wind energy and hydropower production could decrease by as much as 40% in some regions due to climate change.” While other forecasts are less stark – the Intergovernmental Panel on Climate Change has projected that average annual wind speeds could drop by 10% globally by 2100 – there’s no doubt that climate change alters wind patterns in ways that are unevenly distributed. For example, wind energy potential in India fell by 13% from 1980 to 2016 because of rising temperatures in the Indian Ocean. 

The climate is changing and the law has to change with it.

— Hannetjie Marais, legal advisor to Inlexso

Marais says that shifts in weather patterns have also led to disappointing results for wind energy in South Africa. “What we’ve seen happening on the ground is that wind farms are not performing as expected,” she says. That sets the stage for legal disputes and potential appeals to force majeure over missed production targets. “You use 20-year historical wind data to decide what the power curve for a facility is going to be, and suddenly the wind simply stops blowing.” 

Short-term wind droughts also pose an occasional threat. For example, in 2021, plummeting wind contribution forced the United Kingdom to temporarily reignite two mothballed coal plants. But the very next year, Britain’s wind farms produced record power, and its coal plants were ultimately shuttered for good in 2024. 

Long term, hydropower production will fall steeply in some regions where climate change disrupts precipitation patterns, snowmelt dynamics and river flows, says Ahmed Osman, a senior research fellow at Queen’s University Belfast and the lead author of the 2022 study. China and South America will experience declines, and Portugal could see a 41% reduction in hydropower generation by 2050 due to reduced rainfall and reservoir capacity. 

Diversified renewable-power sources across large geographic areas are capable of compensating for temporary wind or rain droughts or missed targets, but investors and operators of renewable projects need to be realistic about the risks. Marais says that for renewables to continue developing, they’re going to need force majeure protections that reflect the reality of a changing climate. “Because of climate change, businesses can no longer rely on historical weather information such as wind data to help develop an accurate financial model,” she explains.

Increasing granularity, greater flexibility

One way that lawyers writing contracts for renewable production and other industries can improve their defences against weather risk is to dig down into the details. “Engineers plan for sea walls and barriers to protect cities from future floods,” write Kristina Kopf Thomas and Briana James of the law firm Eversheds Sutherland. The same must be done for contracts, they argue. “We must look at how contractual provisions intended to address the extraordinary will function in a world where what was once unusual is now less so.” 

The key, Thomas and James say, is to get specific. “Parties relying on boilerplate force majeure clauses may unintentionally find themselves responsible for unwanted risks,” they write. For example, if a builder is contracted to construct a development in a region where hurricanes are occurring more frequently, Thomas and James suggest describing the wind speeds and duration that would excuse delays or nonperformance, rather than hurricanes in general. 

When he’s negotiating a construction deal, Reizen has learned to include “weather days” in the contract. “What I find most effective is to sit down, look at where you’re building, and put down a specific number of weather days that you actually put in the contract so that people can adequately plan,” he says. 

It’s not always the direct impacts of extreme events that cause the greatest problems; sometimes the secondary effects create the most setbacks. “In California, when there’s a forest fire, you’re not just looking at the fact that it could come on your property,” Reizen says. “The bigger risk is air-quality days where, because of fires, people can’t work outside.”

Still, you have to strike a balance, says Mary Mbugua, founder and CEO of Risk Response Africa, a risk-management company in Kenya. Force majeure provisions should be “specific enough to address the risks at hand while also allowing for flexibility due to the uncertainties inherent in climate science.” Mbugua suggests that contracts should allow for adjustments as new scientific data or risk-modelling techniques emerge, as well as include provisions for periodic reviews and updates. 

Hedging climate risk for the renewables market

Carefully written contracts can’t do all the work of protecting investments, and where legal recourse remains uncertain, such as in the wind-power sector, financial instruments can do a lot of the heavy lifting. “You can actually structure financial contracts where you can protect yourself against a downturn of the wind,” says Pascal Storck, head of technology at Vaisala, a global climate-intelligence firm. 

In simple terms, it’s about skimming off the boom times to pay for the bust times. “You want to have a financial hedge where if you have less energy, you’ll have some compensation,” Storck explains. “In order to achieve that, you’re willing to give up some of your revenue in periods of abundance.” 

We must look at how contractual provisions intended to address the extraordinary will function in a world where what was once unusual is now less so.

— Kristina Kopf Thomas and Briana James, Eversheds Sutherland law firm

Energy traders have been making weather-based bets since long before renewables achieved the level of market penetration they have today. Investors in coal, oil and natural gas markets have relied on predictive weather technologies for decades to forecast demand based on temperature. In simple terms, demand goes up in a hot summer or a cold winter, and vice versa. Savvy traders with a good almanac – that is, a service like Speedwell Climate in the United Kingdom, which has provided predictive models to players in these markets since the 1990s – make their bets accordingly. 

Now, energy traders are diversifying their portfolios to include renewables and making bets based not only on demand but on supply. For example, if you know there’s a warm, windy winter on the way, then the value of gas will go down, because people will be burning less for heat and the energy supply from wind power will be greater.

The weather derivatives market, as it’s called, helps answer a fundamental question, according to Storck: “The weather is getting crazy because of the climate, so what do we do about it?” By converting climate risks into investment opportunities, these instruments can help de-risk renewable-power projects and create the stability for more capital to flow into the sector. 

Halting the retreat of insurance

Obviously, insurance providers have a critical role to play in creating protections for climate change, but as the impacts of shifting weather patterns cost more and more, insurance companies are retreating from the markets where they are needed most. 

“The market learns,” says Alex Balcombe, a partner at Harris Balcombe, a U.K.-based insurance claims consultancy. He points to the COVID-19 pandemic, which disrupted supply chains and cost the insurance industry enormously. Afterwards, they stopped covering pandemics. “Insurance companies got their fingers burned massively there, so they’ve learned,” Balcombe says. “You can’t buy insurance for that kind of event anymore.” 

Likewise with climate change, insurers are fleeing areas that are prone to floods, hurricanes and wildfires or charging huge sums for coverage. “These extreme weather events are only occurring on an increasing basis, so there’s certainly a market for cover to be provided, but the question is at what premium and at what level?” Balcombe asks. 

A big part of the answer, Balcombe says, is parametric insurance, a mechanism that converges with the trend toward increasing specificity for weather events in force majeure provisions, and actually serves to simplify coverage. In essence, parametric insurance ties the payout to the event that causes the loss, not the loss itself, and sets a predefined threshold for payment, so there’s no ambiguity or need to negotiate. For example, a factory or warehouse in a flood-prone area might struggle to obtain traditional coverage, but by setting a specific water level to trigger the payment and installing a sensor to verify, they can proceed with adaptations for minor floods and still get coverage for bigger damages. 

“I think parametric insurance is going to become a massive feature, because it’s a much more economic way of doing things, and it gives people certainty,” Balcombe says.

While climate change is dismantling the traditional protections that businesses need, the new solutions are catching up and creating opportunities for companies that are building the post-fossil-fuel economy.

Mark Mann is a Montreal-based journalist and the associate editor at Corporate Knights.

The post Do ‘act of God’ clauses still work in the era of climate change? appeared first on Corporate Knights.

On Tuesday, after a ferocious Santa Ana windstorm blew through Southern California, a severe brush fire broke out in the wealthy Pacific Palisades neighbourhood of Los Angeles, burning 1,000 structures and forcing tens of thousands of residents to evacuate as of Wednesday afternoon. Another large brush fire broke out near Pasadena around the same time, killing at least two people. Together the two blazes threatened some of the most valuable homes and businesses in the United States. The damage from the Palisades Fire alone could exceed US$10 billion, according to a preliminary estimate from JPMorgan. [Editor’s note: updated estimates now put the insured losses as high as US$40 billion.

If this estimate holds true, it will test insurers’ commitment to a market that has been teetering on the verge of collapse for the better part of a decade now. Over the past five years, California has become a poster child for what climate-fuelled weather disasters can do to a state’s home insurance market. Following a rash of historic wildfires in 2017 and 2018, insurance companies have fled the state, dropped tens of thousands of customers in flammable areas and raised prices by double-digit percentages.

A requirement to expand insurance coverage

Until recently, elected officials have taken few major steps to address the crisis. But late last month, after more than a year of drafting, California’s insurance commissioner unveiled a set of reforms that he claimed will bring companies back into the fold as they take effect this year.

“This is a historic moment for California,” said Ricardo Lara, the state’s insurance commissioner, when he revealed the rules in December. “With input from thousands of residents throughout California, this reform balances protecting consumers with the need to strengthen our market against climate risks.”

The rules come after months of debate among state insurance officials, lawmakers, insurance companies and consumer advocates. The biggest change is that California will now require many insurance companies to do more business in what the state calls “distressed areas,” the fire-prone scrubland and mountain regions where insurers are now hiking prices and dropping customers.

Companies will soon have to ensure that their market share in these areas is at least 85% of their total statewide market share — in other words, if a company controls 10% of the state’s insurance market, it must control at least 8.5% of the market in fire-prone areas.

This mandate should push big companies like State Farm and Allstate to pick up customers they’ve dropped in flammable regions like the mountainous north of the state. Some companies have already begun to offer new policies in burned areas in anticipation of the state’s new rules: the insurance company Mercury announced last week that it will be the first insurance company in the state to offer new policies in Paradise, California, which was destroyed in the catastrophic 2018 Camp Fire. The move recognizes the town’s work to mitigate future fires by clearing trees and hardening homes.

Expanded coverage comes with a high cost

The requirement to expand coverage, coupled with recent announcements from companies like Mercury, “should give consumers hope that competition and options will be returning,” said Amy Bach, the head of insurance customer advocacy group United Policyholders, in a statement.

In return for this added coverage, the state is making a few big tweaks that will allow insurers to pass on the price of fire risk to their customers. California is the only state in the country that doesn’t allow insurance companies to use forward-looking “catastrophe models” when they set prices. It also prohibits companies from factoring in the rising costs of reinsurance, the insurance purchased by insurance companies to ensure they’re able to pay out big claims.

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These two restrictions have kept prices artificially low for years, and also prevented insurers from planning for climate change impacts, creating a de facto subsidy for homeowners in risky areas. But these protections were removed in an attempt to coax insurers back into the market.

“This addresses the major stumbling blocks that companies have been identifying for a decade, so that’s a positive,” says Rex Frazier, the president of the Personal Insurance Federation of California, the state’s leading insurance trade group.

This trade-off has some residents in fire-prone areas worried. Insurance companies might now have to offer more policies in flammable zones, but they also have more latitude to increase prices.

“I’m not optimistic that it will improve the experience of the consumer, as the insurers can now pass certain costs on to consumers, which I’m expecting will result in higher premiums,” says Jason Lloyd, who moved to mountainous Lake County last spring. He and his wife came to the area because they wanted to be closer to his wife’s family, but when they made an offer on a home, they learned that they would have to pay more than US$8,000 a year for insurance, or else go to the California FAIR Plan, a state-run insurance program that offers minimal coverage.

Lloyd and his wife later bought another home in Hidden Valley Lake, a town that has taken ambitious steps to reduce flammable vegetation, but their insurance premium is still more than $4,500 a year, more than triple what it was on their last home in Kansas. Lloyd is worried that his insurance company will hike his price further under the new rules.

Making a bargain with the insurance industry

Other states across the West such as Colorado and Oregon are also seeing insurance coverage gaps emerge after big wildfires, though their problems are less acute than those in the Golden State. In Colorado, for instance, officials just recently established a state fire-insurance backstop like California’s FAIR Plan, since it’s only in the past few years that customers there have been dropped en masse.

California’s grand bargain with the insurance industry provides a blueprint for those other states: if you want to address coverage gaps, you need to give insurers broader authority to set prices.

Even this might not be enough. The past few years have seen a reprieve from major wildfires like the ones that struck in 2017 and 2018, but this week’s blazes in the Los Angeles area could cause billions of dollars of damage, on par with an event like the Camp Fire.

Joel Laucher, a former regulator and fire insurance expert at the consumer advocacy organization United Policyholders, said that the damage from the Los Angeles blazes could lead to further price hikes and more availability gaps.

“These are going to be major losses, certainly,” he tells Grist. “Certain areas are definitely going to have new challenges, to the degree that insurers are going to be able to charge to the rate they believe those areas deserve to pay.” Laucher says that insurance companies may not decline to renew as many policies as they might have under previous state rules, but they could still avoid selling policies in some of the affected areas.

Frazier, of the insurance trade group, voices similar concerns. He says that another round of monster blazes on the scale of 2017 and 2018 could drive the insurance industry away from the state once again, despite the commissioners’ reforms.

“If we were to have a couple more unprecedented years, all bets are off,” he says.

The post The Palisades Fire is the first big test for California’s new home insurance scheme appeared first on Corporate Knights.

Insurers paid out a record-breaking $7.7 billion for extreme weather claims in 2024, including for flooding, wildfires and hailstorms. This doubled last year’s total. Summer alone saw 228,000 insurance claims, a 406% increase compared to the 20-year average. Insured losses often cover only a fraction of the damages. For example, many Torontonians lack overland flood insurance, so the $1 billion from this summer’s southern Ontario floods represent only a quarter to a third of the total cost. Yet consumers are still warned to expect premium increases.

As profit-seeking entities, insurance companies pass these costs on to their clients. Home and mortgage insurance rates have climbed by nearly 350% over the past two decades, outpacing every other shelter-related cost, including electricity and rent. Saskatchewan and Alberta have seen the steepest increases this decade, at 106% and 90% respectively. But even provinces with fewer climate-related damages have experienced home insurance inflation, with a 7.7% rise across Canada this year.

Higher premiums are just the start. Insurers are also retreating from the most vulnerable areas. Over the summer, Aviva Canada announced it would phase out its direct-to-consumer home insurance business in Alberta, and Desjardins won’t provide new mortgages for properties with more than 5% chance of flooding in Quebec. This mirrors a troubling trend in the United States, where insurers are pulling out of states like Florida and California. If this continues, Canadian homeowners face an unsettling future where some homes are uninsurable and lose their value.

The Canadian insurance system isn’t prepared for this escalating crisis. A simulation of a one-in-100-year flood event estimated $9.1 billion in residential damage in Vancouver, $6.1 billion in Montreal and $1.6 billion in Calgary. This year has shown that these catastrophic scenarios are no longer hypothetical. They are here now and getting worse unless we change course.

International comparisons reveal another reality: Canadians pay more for property insurance than nearly any other wealthy nation. Canada spends 1.23% of gross domestic product on property insurance premiums, almost double the average of 0.66% in the Group of Seven countries. It’s not surprising to hear that over the past five years, more than 10,000 Canadians have turned to crowdfunding when disaster strikes.

While the insurance industry recognizes the central role of climate change and preaches adaptation, it is silent on its own complicity. Canadian insurers invested more than $19.5 billion in fossil fuels in 2023, fuelling extreme weather and damages to property. Toronto-based Fairfax Financial ranked as the fifth-largest underwriter of fossil fuels globally.

Meanwhile, the insurance industry is seeking government support, such as a national flood insurance program and government backstops. Taxpayers would be right to ask that insurance companies stop contributing to the problem as a condition for assistance.

Globally, insurance companies like Allianz, Zurich, Munich Re, Suncorp, Generali and others are aligning themselves with net-zero by halting the underwriting of fossil fuel expansion. Yet no Canadian insurer has made such a commitment, and few have even published plans to achieve net-zero. Governments must intervene to ensure that the insurance industry cleans up its act, particularly if they are being asked for help.

Canadians need a more honest conversation about the costs of climate change. Climate disasters are growing in scale and frequency, and this is showing up in our insurance bills and food costs. Simplistic slogans like “Axe the tax” sow confusion and do nothing to tackle climate-driven inflation.

The coming year will bring both provincial and federal elections. As voters, homeowners and taxpayers, Canadians must demand better from insurers and governments alike. Rising premiums and shrinking coverage are not inevitable; they’re the price of inaction.

Kiera Taylor is a senior analyst with Investors for Paris Compliance, a shareholder advocacy organization that holds Canadian companies accountable to their net-zero commitments.

The post What 2024’s costly climate disasters mean for home insurance rates in 2025 appeared first on Corporate Knights.

As temperatures rise, so do the intensity and the frequency of floods. In part this is because warmer temperatures lead to increased evaporation, which means more moisture in the atmosphere and, consequently, heavier rainfall. This pattern is evident in Toronto’s recent deluge, compounded by too much impermeable concrete and inadequate storm infrastructure, echoing a broader trend seen across Canada and the world.

Flooding has caused the highest insured losses in Canada over the past few years. Last summer, flash floods in Ontario caused more than $340 million in insured losses. Tuesday’s flood is expected to surpass $1 billion in insured losses. The Canadian Climate Institute projects that flood damage to homes and buildings could increase fivefold in the next few decades.

While severe weather escalates, the insurance industry continues to foster those very risks by underwriting and investing in fossil fuels. The seven biggest property and casualty insurers in Canada invested more than $19.5 billion in fossil fuel assets in 2023. By supporting fossil fuel expansion, insurance companies are, in essence, underwriting the climate disasters themselves – including Toronto flooding.

In response to rising claims, insurers are hiking premiums and cutting back on coverage. Many homeowners find themselves without sufficient protection, having to face the costs out of pocket or resorting to crowdfunding. More than 1.5 million Canadian households now lack affordable flood coverage, and an estimated 6 to 10% of Canadian homes are currently uninsurable against flooding. Twenty percent of Canadians are exposed to some degree of flooding, and 94% of people living in high-risk flood areas are unaware of that risk.

In February 2024, Desjardins pulled its coverage for mortgages on homes with a 5% chance or more of flooding each year, affecting more than 3,000 homes in just one borough of Quebec. Desjardins was the last major lender to offer mortgages in higher-risk flood zones. Some homeowners in Ottawa also can’t get flood insurance if they are situated close to the Ottawa River.

Meanwhile in B.C., just under half of policyholders were covered for flood damage in 2021, while 5% of homeowners are at too great a risk to access flood insurance.   One B.C family’s home collapsed into the Nicola River last November, and while they believed they were fully insured, their payout was only a fraction of the damage costs. Windsor residents are also unsure of their flood coverage; even some homeowners who spend tens of thousands on preventative flood measures cannot get full coverage.

There is an unspoken assumption within the insurance industry that it can indefinitely pass on cost increases to consumers. But there’s an inevitable breaking point when rising costs make insurance unaffordable for the average household. The lack of conversation around this issue allows insurers to continue this practice unchecked, placing an ever-increasing burden on consumers while undermining their own long-term viability.

Related:

• Canada’s life insurers have a fossil fuel problem
• Insurance giants exit net-zero pact
• Is the insurance industry walking away from fossil fuels? 

It’s clear that the insurance industry needs to be cleaned up. Companies cannot perpetually pass risks and costs down to consumers and taxpayers while continuing to funnel billions of dollars into the industries driving climate catastrophes. Insurers should develop and publicize robust and credible transition plans outlining their path to net-zero. Regulators should step in to accelerate this and introduce penalties for misalignment.

The recent flooding in Toronto is a harbinger of future challenges. Without immediate action to address the root causes of climate change and reform industry practices, the cycle of destruction and financial loss will only intensify. The insurance sector in particular has a critical role to play in this transformation.

Kiera Taylor is a senior analyst at Investors for Paris Compliance.

The post By backing fossil fuels, insurance companies are underwriting climate disasters like Toronto’s floods appeared first on Corporate Knights.

Since then, insurers have led the way in calling out the risks of flooding, wildfires and other symptoms of a broken world. So you might expect that global insurers, experts in managing risks, would be out front in protecting people and property from climate-related disasters and shunning the industries that poison our planet.

Turns out many insurers are still helping fossil fuel companies boost production by underwriting new projects and investing in oil and gas. At the same time, some are hiking premiums or backing away from coverage of high-risk properties. Canadian home insurance premiums are expected to rise more than 7% in 2024, according to MyChoice.ca, and the average cost of home insurance in Florida is expected to reach almost US$12,000 this year. In France, up to 2,000 towns were recently left uninsured as insurance companies terminated contracts in response to rising storm damage costs.

“Insurance companies prefer to pass on the costs of the climate crisis to communities and individuals, rather than make those responsible (fossil fuel companies) pay,” wrote London-based Insure Our Future (IOF). This spring, the organization called on Axa to stop insuring export terminals for LNG (liquefied natural gas). For the last seven years, IOF has ranked the top 10 insurance firms supporting fossil fuel development.

“If insurance companies took climate science seriously, they would fully align their underwriting and investment strategies with a credible 1.5°C pathway,” said Peter Bosshard, the outgoing head of IOF. “They would be suing fossil fuel companies, to make polluters pay for the growing costs of climate disasters and keep insurance affordable for climate-affected communities.”

If insurance companies took climate science seriously, they would fully align their underwriting and investment strategies with a credible 1.5°C pathway.

–Peter Bosshard, Insure our Future

Sixth on the list of the world’s biggest fossil fuel underwriters is Canadian insurer Fairfax Financial, estimated to have earned US$600 million from oil and gas companies in 2022. Founded by Toronto billionaire Prem Watsa, Fairfax acknowledges climate change as an ongoing business risk – but its 2023 annual report notes that property reinsurers “enjoyed another year of meaningful rate increases.”

Fairfax’s business-as-usual attitude is underscored by the fact that it increased its ownership of Dallas-based oil firm Exco Resources to 49%, up from 44% a year ago. Fairfax’s 2023 report boasts that Exco “did plenty of drilling” in 2023 – boosting its oil reserves by more than twice as much as it extracted through production.

No one expects the insurance industry to solve climate change on its own. But it can start by not making things worse.

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Such was the case for Kathy Bardswick, a titan in Canadian insurance who is now spearheading sustainable finance reform in Canada. 

As Bardswick was finishing up her MBA at McMaster University in the late 1970s, her mother – unbeknownst to her – applied for a job on her daughter’s behalf. It was an underwriting position with The Co-operators Group insurance company, based in Sault Ste. Marie, and not at all what Bardswick had in mind for a career launch.  

Bardswick took the position and soon realized this was not just a job but a calling. As she made her way up the ranks in The Co-operators Group – a network of companies offering life, property and casualty insurance, as well as an investment management division, Addenda Capital – she grasped the changing relevance and mission of the insurance industry in an era of climate change. When she left The Co-operators after 38 years, 14 of which she served as president and CEO, Bardswick had left her mark, not only as a female executive but also a pioneer of sustainability in the insurance industry.  

This legacy no doubt contributed to her 2021 appointment as the inaugural chair of Canada’s Sustainable Finance Action Council, as well as Corporate Knights’ 2023 Lifetime Award of Distinction. She was presented with the lifetime distinction by Luke Gould, president and CEO of Mackenzie Investments, at the Corporate Knights’ 2023 Corporate Citizens Gala last month sponsored by Mackenzie and Bullfrog Power.  

Looking back, Bardswick realizes that it was extremely fortuitous – or perhaps astute on the part of her mother – that she landed in a co-operative. The Co-operators was founded by a group of Saskatchewan farmers in 1945: an institutionalization of solidarity and risk-sharing in the wake of the Depression and the Second World War.  

“I really connected with the co-operative structure, with democratic ownership,” Bardswick says on the phone en route to the family cottage near Huntsville, Ontario. “There’s a fundamental, bone-deep understanding of quality of life, of integrity and engagement.” 

When Bardswick was named president and CEO of The Co-operators in 2002, she also became chair of the International Cooperative and Mutual Insurance Federation, a British-based association of “values-led” insurers to which The Co-operators belongs. Through this international involvement, she became increasingly aware of the devastating impact climate change was having in places that had only fledgling insurance structures.   

“They’d be trying to create some baseline security and then a weather event would happen and wipe them out entirely,” she says, referring to what she witnessed in the Philippines and Kenya, where hurricanes and droughts were becoming more frequent and intense, damage more extensive, and the capacity of entire communities eliminated by a single event.  

The same was happening back home in Canada. Since the 1980s, claims payouts in this country from severe weather have doubled every five to 10 years. “The gap between what was insured and what was not insured was growing,” she says, adding that she felt a growing sense of accountability and guilt for the insurance industry’s impotence in the face of weather-related destruction. In 2015, under Bardswick’s leadership, The Co-operators became the first insurance company in Canada to offer comprehensive protection against overland flooding and storm surges and waves.  

As these challenges deepened, it was increasingly clear to Bardswick that the insurance industry’s response to climate change had to be two-pronged: adaptation to the new reality and, at the same time, mitigation against warming. A penny dropped when she heard Swedish oncologist Karl-Henrik Robèrt address a conference she was attending in Singapore in the mid-2000s. Robèrt was describing what moved him, in 1989, to found The Natural Step, a non-governmental organization that promotes a whole-systems approach to sustainability: it was the awareness that, try as he might to cure childhood cancers, his efforts would be for naught if he failed to address the environmental factors causing the disease. The parallel with the insurance company’s role in the climate crisis was obvious.  

Everyone wants to have big aspirational conversations, but if we don’t execute, what’s the point?  

 

Bardswick resolved to have The Co-operators adopt The Natural Step framework – a process that involves “backcasting” from an aspirational end –state (the ideal sustainable insurer) and implementing the changes necessary to achieve it. Within five years, 60% of claims were paperless, and half of the audits were being conducted remotely, allowing the company to reduce its fleet of vehicles by 61%.  

In 2021, Bardswick (who considers herself “retired”) was named chair of the Sustainable Finance Action Council, a joint initiative of the Ministries of Finance and Environment and Climate Change to mobilize capital toward achieving net-zero by 2050. She was rewarded by the swell of interest from the financial community: so many institutions wanted to join that she had to limit formal membership to 25. It’s a great problem to have, she says, recalling her fruitless efforts in the early 2000s to bring other insurance companies, investors and asset managers together to discuss how they could collectively work to combat climate change.  

Last February, the council released a much-anticipated Taxonomy Roadmap Report. Aimed at creating greater clarity and consistency on green investments, the taxonomy proposes two categories: “green” for those with the least environmental impact and “transitional” for those that will aid in the shift away from fossil fuels. The hope is that by helping the investment community direct funds toward greener projects and technologies, the estimated $115-billion-per-year shortfall in investment needed for the country to meet its net–zero emissions goal by 2050 will be alleviated.   

In the coming years, the Sustainable Finance Action Council will be making further recommendations in support of mandatory disclosure regimes and better use of existing climate-related government databases. Bardswick considers the progress made to date “significant” but is impatient to see more action. 

“Everyone wants to have big aspirational conversations,” she says, “but if we don’t execute, what’s the point?”

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So climate activists were surprised and disappointed when three large reinsurance companies backed out of the United Nations’ Net-Zero Insurance Alliance (NZIA) within just three weeks of each other this spring.

Munich Re, Zurich Insurance Group and Hannover Re each announced they were quitting NZIA. In late March, Munich Re said that it was leaving the alliance because of antitrust concerns but that it was still committed to decarbonization. Zurich followed days later. Hannover Re didn’t give any reasons for its decision but said it is also still committed to its climate targets.

Climate campaigners fear that the antitrust risks cited by Munich Re may hamper insurers’ ability to tackle net-zero goals collectively. But they also believe that the concerns are likely without legal merit and that pressure from American anti-ESG politicians is to blame.

“Munich Re, Zurich and Hannover Re derive about one third of their revenues from the US market and are vulnerable to its political follies,” wrote Peter Bosshard, of the Insure Our Future campaign, in Environmental Finance. “Net Zero alliance members that are less exposed should call out the current anti-ESG campaign as the cynical ploy of the fossil fuel lobby which it is, rather than continuing to coddle their coal, oil and gas clients.”

Bosshard points out that competition regulators in the U.K. released guidance to ensure competition law won’t limit companies’ ability to pursue collective climate action. He urged regulators in the U.S., EU and elsewhere to issue similar clarifications.

“The weaponized antitrust campaign is a headache for some climate leaders and an easy excuse for continued inaction for climate laggards,” he adds. “Some financial institutions have argued that they can’t take individual action due to competitive pressures and now argue that they can’t take collective action due to antitrust concerns. They are making a strong case for stronger regulation.”

These moves followed a threat by big banks back in the fall to leave the Glasgow Financial Alliance for Net Zero (GFANZ), a group convened by former Bank of England (and Canada) governor Mark Carney. Facing this mutiny, GFANZ went on to announce it would not require its members to set rigorous science-based emission-reduction targets in line with the UN Race to Zero campaign.

When it comes to the insurance industry, climate campaigners can take some comfort in the fact that these companies have not deserted their net-zero commitments. Munich Re still expects to cut emissions related to its investment portfolio by 29% by the end of 2025 and achieve net-zero by 2050.

Munich Re was set to stop insuring new oil and gas projects in April. That’s something that might have seemed an unlikely outcome just a few years ago.

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Yet both have a contradiction at the heart of their business model. They are also two of Canada’s largest investors in fossil fuels, including dirty coal, investments that adversely affect the health of the clients they’re insuring.  

The German NGO Urgewald just published a global database of fossil fuel investors, companies that own the most stocks and bonds in oil and gas and coal companies. The top five for Canada are Sun Life, RBC, Power Corporation, Manulife and TD, each with billions invested.  

It’s not a surprise to see the big banks on this list, but this represents a particular contradiction for Sun Life and Manulife, whose core business centres on the health of their clients.  

As the climate crisis accelerates, more attention has been focused on the role of the property and casualty insurance industry on the front lines of impacts such as floods, fires and storms. This is already driving increases to Canadians’ home insurance rates.  

But less attention has been focused so far on the role of the health and life insurance industry in the climate crisis, even though it’s not just property that’s negatively affected by climate impacts – it’s people too.  

Last year the Canadian government completed a major assessment of climate and health that concluded that climate change is already negatively affecting the health of Canadians through disease, injury and death, and that health risks will increase with warming.  

It also found that impacts disproportionately fall on vulnerable populations. Perhaps the most dramatic example was the 2021 heat dome, which killed 619 people in B.C., but health impacts are also showing up more quietly, worsening the mental health of young people. A Lakehead University study found that 40% of those aged 18 to 25 say climate anxiety already affects their daily functioning.  

As well, we also know that burning fossil fuels has direct health impacts via air pollution, such as respiratory disorders, strokes and heart attacks. The federal government estimates that coal burning results in hundreds of thousands of premature deaths globally each year.  

Why, then, do life and health insurance companies continue to foster these negative health impacts via their investments? And what are the implications for the insurance policies they issue, and potential claim payouts?  

Sun Life and Manulife grew in part by adding asset management to their business and invested in everything, including fossil fuels. Today, both companies have promised to reach net-zero by 2050 in emissions resulting from their investments but are yet to follow that up with any meaningful policy on fossil fuels. Both are at the early stage of evaluating how the climate crisis will affect their life and health policies and whether they will see a rise in claims, or a shift in qualification criteria. Without more work and more disclosure, this is a concerning risk for investors. 

Our organization, Investors for Paris Compliance, filed a shareholder proposal at Sun Life asking for this disclosure, to be voted on at its annual general meeting on May 11. With Manulife, we are hoping to see progress on these issues in its ESG report that will be released around the same time.  

The insurance industry is on the front lines of the climate crisis. Insurance companies should be leading the charge in fossil-free investment. Their business depends on it.  

Matt Price is the executive director at Investors for Paris Compliance. Kyra Bell-Pasht is the director of research and policy at Investors for Paris Compliance. Investors for Paris Compliance is a shareholder advocacy organization that holds publicly traded Canadian companies accountable to their net-zero commitments. 

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