Insurers called out for 'contradiction': Supporting oil and gas industry but raising premiums

A wildfire rips through a forest south of Fort McMurray, Alta., on Highway 63 on May 7, 2016. THE CANADIAN PRESS/Jonathan Hayward

TORONTO -

A shareholder advocacy group is calling out Canada's property insurers for their support of the fossil fuel industry while also raising premiums because of climate-related disasters.

Investors for Paris Compliance says in a report out Wednesday that the seven largest Canadian property and casualty insurance companies collectively invested about $19.5 billion in oil and gas assets last year, with almost three-quarters of that represented by Toronto-Dominion Bank, while some companies also did underwriting for the fossil fuel industry.

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At the same time, the property and casualty (P&C) insurance industry has raised home and mortgage insurance rates by 73 per cent in the 10 years leading up to 2023, or 36 per cent when adjusted for inflation, based on data from Statistics Canada.

"The P&C industry is really entrenched in a contradiction," said Kiera Taylor, senior analyst at Investors for Paris.

"While their business faces an existential threat due to climate change via higher claims and growing uninsurability, they continue to foster those risks via underwriting and investing in fossil fuels."

Premiums are rising as the frequency and severity of climate-related disasters like wildfires and major floods grow, though other factors like rising replacement costs are also driving up rates. P&C catastrophic losses averaged $2.3 billion a year between 2011 and 2020, up from $675 million a year in the previous decade, the report said.

Taylor says the industry has talked a lot about the causes of higher premiums, and asked for government support through efforts like a national flood insurance program, but has done much less to address its own contributions.

"We've seen the industry only talking one side of the coin on this," said Taylor.

"Insurers are part of the problem both by fostering the risks, and then passing those costs on to consumers and taxpayers."

The Insurance Bureau of Canada pushed back against some findings in the report, especially on claims that the industry is trying to shift responsibility to government with a national flood insurance program.

The industry is offering to operate a program on a not-for-profit basis to help address past land-use planning decisions, which contributed to leaving 1.5 million Canadian households at high risk of flooding, said spokesman Brett Weltman in a statement.

"The claims made within the Investors for Paris Compliance report paint an inaccurate picture of the considerations related to climate change-related risk management."

He said various insurers were making their own decisions on investments and underwriting in a competitive market, but that the industry is working with regulators on climate disclosure requirements and the energy transition.

"The transition to a low-carbon economy must be undertaken in a thoughtful and measured way," said Weltman.

The Investors for Paris report notes some industry members are much further ahead than others on climate commitments, investment exclusions and their level of engagement on pushing for climate action.

Intact Financial Corp., Desjardins Group, Co-operators Group, Definity Insurance Co. and TD have all made net-zero commitments. The companies also all have fossil fuel exclusion policies that the report ranks as ranging from weak in TD's case to more robust for Intact and Desjardins.

But Intact still had about $1.5 billion in fossil fuel investments last year (which it says is down to $742 million as of the first quarter this year), Desjardins had almost $300 million and TD Bank Group had $15.5 billion.

Intact said its net energy exposure represents two per cent of invested assets, and that it has set an interim target of a 40-per-cent reduction in the emissions intensity of its investment portfolio by 2030.

"We have a proven track record of leadership in climate adaptation and building resilient communities and we are committed to achieving net zero across our business by 2050," said spokesman David Barrett in a statement.

TD said it is taking a range of actions on climate as outlined in its transition plan, while its insurance program specifically includes discounts for electric vehicles and solar panel coverage through homeowner insurance.

It also noted that the figures in the report contrast TD's whole bank operations to insurance companies with more narrow mandates, which affects the conclusions drawn.

Meanwhile Wawanesa Mutual Insurance Co. and Fairfax Financial Holdings Ltd. (which operates its Northbridge Financial Corp. subsidiary in Canada), haven't made net-zero commitments or exclusion policies, the report said. It said Fairfax also continues to be an insurer of last resort for coal operations in Asia. It underwrote an estimated $809 million in fossil fuels and had $1.5 billion in investments last year, the report said.

And while Fairfax is notable In Canada for its larger underwriting of fossil fuels, the report said there are also major international players operating in Canada that also backstop billions of dollars of global fossil fuel projects such as Chubb, Lloyds, Liberty Mutual and Travelers.

Investors for Paris Compliance however says all the insurers could make stronger climate efforts, and better disclosures of their transition plans. It also called on regulators to force the industry to create and make those plans public.

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The call to better help address climate change comes as the industry faces the potential for significantly higher costs ahead.

Annual severe weather claims could double from $2.1 billion to $5 billion over this decade, the Insurance Institute of Canada estimated in a 2020 report.

Taylor said the industry should look to factor in longer-term projections on premiums to prevent major spikes after disasters.

"The point would be to create more stability."

This report by The Canadian Press was first published July 10, 2024.