“The whole world is becoming uninsurable,” says Peter Bosshard in the “Climate Laboratory”

Insurance is the invisible glue of our world. Statutory health insurance, private liability or car insurance are part of everyday life in Germany. Corporations also protect their managers, shipowners their oil tankers – and homeowners their property. But protection against natural hazards and natural disasters in particular is gradually becoming unaffordable: “You won’t be able to take out private insurance on the Florida coast anymore,” says Peter Bosshard in the “Climate Laboratory” by ntv. Last year alone, the industry took on climate damage of 120 billion dollars. That’s why the Swiss supports the “Insure Our Futurecampaign urging insurance companies to pull the plug on the fossil fuel industry. “You can’t build a coal-fired power plant, pipeline or oil platform without insurance,” says Bosshard. And American insurers are also having to bow to the pressure from the European giants.

ntv.de: Is the climate crisis a risk for insurance companies or does it open up new business areas?

Peter Bosshard: Natural disasters are a big risk because the costs have been increasing massively for decades. Last year, the damage worldwide was 270 billion dollars. A significant portion of that was insured: Insurance companies have covered $120 billion in climate damage—and it’s growing every year. Although “natural disasters” is actually the wrong term, because most of them are man-made. But there are already regions that are no longer insurable. This is difficult for the population affected, but also for the insurance companies, because the more climate change increases, the more parts of their market collapse.

There are regions where the risk of natural disasters is so great that you can no longer take out insurance?

In the beginning, the premiums increase. The insurance companies are not uninterested in this, because these are new sources of income. But when the risks get too high or unpredictable, things get difficult. In the hurricane areas of Florida or in the wildfire areas of California, you can practically no longer insure a house. Numerous insurance and reinsurance companies have withdrawn from these regions. As a result, at some point the premiums become so high that families or companies simply can no longer afford the insurance. Then a region or line of business becomes uninsurable.

But a lot of people still live in Florida. What do they pay per year if they want to insure themselves against natural disasters?

You will no longer be able to get private insurance on the Florida coast. The state must close this gap, but this is a minimal solution with huge deficits. A big problem arises there. So far, this has only affected isolated regions, but the number is increasing. And insurance companies know that if the climate catastrophe reaches a certain level, the whole world will eventually become uninsurable.

And if the state no longer pays for such catastrophes, will people be left with the damage?

That’s right. The insurance business is based on a certain statistical predictability. No one knows what kind of damage will occur where and when. But when insurance companies insure a million houses or five million cars, they know that there will be so many losses each year. This is how the premiums are calculated. However, if the climate catastrophe becomes more and more chaotic and certain thresholds at which these effects accumulate are exceeded, business becomes as unpredictable as the corona pandemic. Nobody could estimate how big the damage would be. Who should fill this gap?

The taxpayers?

That would be an option. In our opinion, the insurance companies should also knock on the door of the big oil and coal companies and say: You knew about climate change but denied it. Now we have to ask you to pay. That’s how the health insurance companies did it a few decades ago at the tobacco companies.

Have the insurance companies already knocked?

Not yet, nor do they intend to do business with these customers. But the pressure will increase, the premiums will rise, some regions will simply no longer be insurable. Then the question arises as to who should pay for this crisis.

The US government recently approved the controversial Willow oil drilling project in Alaska. Would you insure that?

Of course not. Almost exactly 50 years ago, Munich Re first warned of the consequences of climate change. Alongside science, insurance companies were the first voices to issue very urgent warnings about the risks. Action must follow these words. We know we can no longer afford to expand fossil fuels. As such, insurance companies should be consistent and align their operations with climate science.

How big would the leverage be if insurance companies actually said that they no longer insure such projects?

The industry is very influential. It is an indispensable pillar of every branch of industry and thus also of fossil fuels. Without insurance, we can’t get a mortgage on a house; without insurance we cannot drive a car; you can’t build a new coal-fired power plant, pipeline or oil platform without insurance. As an environmental organization, we therefore put pressure on insurance companies to withdraw the basis for such projects. That worked well in the coal sector, and new projects have already become largely uninsurable. Insurers must adopt the same attitude when it comes to oil and gas.

Coal projects are no longer insured worldwide?

Such projects are still possible within China, but it is not the case that Chinese insurance companies come to Australia, the USA or Europe and say: If the European competition doesn’t do it anymore, let’s do it! This trend has caught on outside of China, including in the United States.

How do they feel about this change? In your annual report European insurance companies in particular are mentioned as pioneers.

In contrast to the banking sector, the largest insurers are based in Europe and not in the USA. It therefore makes perfect sense for Allianz, Munich Re, Swiss Re, the French AXA and Hannover Re to play a pioneering role. But I don’t want to hide the fact that the corporate philosophy in the USA and Asia is different. Profits clearly come first there. In the case of coal insurance, however, we were able to increase the pressure so much that American, but also Japanese and South Korean insurers followed suit.

But insurance seems to have been found for the oil drilling project in Alaska, otherwise it wouldn’t be implemented.

That’s right. We’ve made great strides in coal since we began our campaign six years ago, but are only now seeing the first steps in oil and gas. So far, only Australian and European companies have participated. Allianz, Munich Re and Swiss Re in particular have imposed relatively strict restrictions on themselves. We assume that the premiums for such projects will increase as a result. So it will be more expensive to build a gas power plant than a wind power plant or solar project. That’s positive.

What sums are we talking about when you say that it will be more expensive?

In the coal sector, insurance premiums, alongside wages, have become the biggest cost factor for companies. And that applies to the existing projects. Premiums for new projects have probably increased tenfold over the past six years.

And how exactly do the insurance companies justify these increases?

It’s just supply and demand. More than 40 major insurance companies have said they don’t do it anymore. As a result, there is ten times less insurance capacity available for coal-fired power plants than for other power plants. And the few insurance companies that still offer protection for coal-fired power plants charge very high premiums.

So insurance companies are looking forward to saying they’re going to stop insuring coal-fired power plants because that increases the risk of natural catastrophes, which destroys the insurance business altogether?

It’s about long-term self-interest, but of course it’s also very bad for the image if you’ve been warning about climate risks for 50 years and at the same time insuring new coal-fired power plants. This is not well received by customers, but also by the company’s own staff.

Do climate or damage claims also play a role?

Possible. Such lawsuits would be aimed at the oil or coal companies, but of course they have taken out insurance. It would therefore be possible for the insurance companies to be asked to pay. And if you still insure such a project today, you almost have to reckon with the fact that legal costs will be incurred at some point.

So insurance companies prefer to cut their business right away?

Insurance is very important for coal and oil companies, the reverse is not true. The industry is doing very well without the bonuses from these companies.

And what do the energy companies say? A current argument is that we still need new oil. Because over the past year, the world has seen what happens when part of the oil and gas supply suddenly collapses.

No one is demanding that existing production be shut down overnight. We are talking about stopping the expansion and shutting down the existing production. This will be painful for individual companies. But politics and business have already wasted too much time in conducting a painless move away from these energy sources. The longer we wait, the more painful it becomes.

Clara Pfeffer and Christian Herrmann spoke to Peter Bosshard. The conversation has been shortened and smoothed for better understanding.