LONDON – The Republicans’ success in triggering the break-up of a coalition of insurance companies aimed at tackling climate change is owed to individual states in the US being the industry’s primary regulators, interviews with industry executives and former officials show.

The United Nations-backed Net-Zero Insurance Alliance (NZIA), formed in 2019 to get insurers to commit to reducing greenhouse gas emissions in their underwriting portfolios to a net-zero level by 2050, has lost 12 of 28 members since attorneys-general from 23 Republican-run US states sent a letter to them on May 15. The letter sought information about the insurers’ membership and threatened legal action over what it called anti-competitive behaviour pushing up prices.

Republicans say that by withholding insurance from specific sectors, such as oil and gas, insurers penalise businesses and drive up costs for companies and consumers.

The attorneys-general have turned their attacks on environmental, social and corporate governance, or ESG, practices in the business world into a political rallying cry.

They have also targeted other climate coalitions of financial companies, including the Net-Zero Banking Alliance and the Net Zero Asset Managers initiative, with threats and requests for information. Yet these groups have not suffered large numbers of defections as the NZIA has.

The reason, two insurance industry sources and a former regulator told Reuters, is that states are the regulators of insurers, unlike major banks and asset managers that are overseen primarily at a federal level in the United States.

“The attorneys-general have seized on these characteristics of the insurers to take advantage of them,” said Mr Dave Jones, former insurance commissioner of California and now director of the Climate Risk Initiative at the University of California, Berkeley.

Mr Jones said he did not believe that the attorneys-generals’ accusations of anti-competitive behaviour had merit.

Mr Curtis Ravenel, a senior adviser at the UN-backed Glasgow Financial Alliance for Net Zero (Gfanz), an umbrella organisation under which the NZIA sits, said insurers were less accustomed to political pressure than other financial services companies like banks.

“(The state attorneys-general) are exploiting a fear factor given the authority they have,” Mr Ravenel told Reuters. He added that he did not expect other climate alliances to suffer many departures despite the pressure from Republicans, and urged the 16 insurance companies remaining in the NZIA to stay the course.

The alliance had failed to attract US insurers to join. Most of the insurers that have left NZIA – including Spain’s Mapfre, France’s AXA which chaired the alliance, and Japan’s Tokio Marine and Sompo – have sizeable US businesses.

Alarmed by the departures of their peers, the remaining NZIA members have been holding calls this week to decide on their next move, according to sources familiar with the matter.

They have been unnerved by the spread of departures among insurers that have been assured by lawyers they are not violating US antitrust laws, and by the exit in the past week of companies with tiny exposures to the US, the sources said.

Britain’s Aviva and Dutch cooperative Achmea are among the insurers which say they plan to stay. Some companies point to the NZIA’s achievements in creating a standardised methodology to measure and disclose emissions from underwriting portfolios.

Of the 15 insurers that have departed from the NZIA, only one has explained its rationale publicly. Germany’s Munich Re, the first to quit on March 31, said it was withdrawing from the group to avoid “material antitrust risks” given how much of the insurance market NZIA members represented. It did not reference US state attorneys-general.

Munich Re remains a member of another Gfanz group, the Net Zero Asset Owners Alliance (NZAOA), as does Allianz, which quit the NZIA last week. Munich Re said the share of global assets held by NZAOA members meant antitrust risks were “significantly lower”.

Setting targets

Insurance companies will play a pivotal role in the world’s shift away from a higher-carbon economy, given that almost every project depends on their underwriting.

The NZIA, like other Gfanz alliances, requires members to align with the goal of the Paris Agreement to keep global temperature rises well below 2 deg C and preferably to 1.5 degrees. They do this by setting targets for cutting emissions.

The NZIA in January gave members six months to set targets. It left it up to insurers to specify the targets and decide how they cut emissions.

Many insurers have also been announcing climate targets independently. French insurer Scor, for example, announced limits on underwriting new gas fields and oil and gas exploration in the Arctic the same day it left NZIA last week.

“How much were insurers really getting out of it?” said Mr Jones, predicting that the NZIA’s demise would have little impact on insurance companies’ climate efforts. REUTERS