By Maura Forrest
March 19, 2015
Officials in the U.K. are warning that insurance companies could suffer if society takes steps to reduce dependence on coal, oil, and natural gas, as their investments in fossil fuels could become worthless.
“One live risk right now is of insurers investing in assets that could be left ‘stranded’ by policy changes which limit the use of fossil fuels,” Paul Fisher, deputy head of the Bank of England’s prudential regulation authority, told the Guardian earlier this month.
U.K. energy and climate change secretary Ed Davey added his voice to those sounding the alarm this week, telling the Guardian that “increasingly over time I think these oil and gas assets will look risky as the world makes climate change treaties.” Davey encouraged pension and insurance funds to divest first from coal, and more gradually from oil and gas.
A 2014 report warns that British pension funds, banks, and insurance companies are more financially exposed to fluctuations in the value of fossil fuels than similar companies elsewhere in Europe because of their investments.
This is just one of many concerns raised recently about the possibility of a carbon bubble – the idea that fossil fuel reserves have been overvalued because most carbon resources will need to stay in the ground if global warming is to be limited to 2°C.
In 2013, a report from the Canadian Centre for Policy Alternatives found that 78 per cent of Canada’s proven fossil fuel reserves need to stay in the ground to avoid a global temperature increase of more than 2°C. It warned that Canada is in need of a “‘managed retreat’ from fossil fuel investments” to deflate its carbon bubble.
To that end, around 30 Canadian universities now have divestment campaigns, including UBC, whose students and faculty have both voted in favour of eliminating the institution’s fossil-fuel investments.
The warnings to the insurance industry add to concerns about the increasing global cost of annual weather-related losses – estimated at $200 billion in 2014, up from around $50 billion in the 1980s.
In 2013, Canadian insurers had to pay a record $3.2 billion in claims from extreme weather events, including the floods in Calgary and ice storms in Ontario and Atlantic Canada.
Photo Credit: Len Radin