SOME years ago, I found myself at a dinner sitting next to a member of the Bank of England’s Monetary Policy Committee and took the opportunity to ask whether, in their yearly projections, they ever factored in the multiple threats of climate change.
 
He said they never accounted for climate breakdown in their risk modelling as the possibilities were too dire to contemplate, at most, a “black swan” event, so they tended to file the threat under stochastic (unpredictable) modelling based on variations found in historical data rather than a future well-signposted by peer-reviewed science.
 
Similarly, the government’s ideological resistance to European collegiality has resulted in a drastic weakening of insurance industry regulations which will directly impact those facing losses from climate-related disasters.
 
Following the 2008 market crash, global governments implemented robust regulations, notably Solvency 2, the EU directive, which sets out regulation for insurance and reinsurance companies with the aim of ensuring the adequate protection of policyholders and beneficiaries.
 
This regulatory framework was recognised as a global governance system. It emphasised cross-border risk management, crucial for addressing global concerns like climate change and ensured adequate capital for insurers to meet future claims and incentivised prudent risk management practices.
 
However, the Financial Services Act of 2021, which has effectively repealed Solvency 2, has compromised market integrity and stability by prioritising “competitiveness” over a collaborative response to the climate crisis, and financial regulators are now impelled to prioritise shareholders over policyholders. This will inevitably result in catastrophic consequences for victims of future severe weather events.
 
Furthermore, the Act has subordinated regulators to the Treasury, making them susceptible to the influence of lobbyists, and grants the Treasury discretionary rule-changing powers, bypassing the need for new legislation.
 
And who voted for this?
 
Among them were the 70 MPs and 134 peers who are, or have been, employed in the financial sector.
 
Although Andrew Bailey, governor of the Bank of England, has emphasised the major threat climate change poses to financial stability and underscored the vital role of regulators in addressing these risks, the Act does not require that the freed-up capital be directed toward green investments.
 
So, where is this freed-up capital heading now that the leash is off?
 
In defiance of warnings from the Intergovernmental Panel on Climate Change (IPCC), the International Energy Agency (IEA), and The Energy Transitions Commission, whose 2023 report, Fossil Fuels in Transition, explicitly advises that further exploitation of fossil fuel reserves is “incompatible with limiting global warming to safe levels, and that there is no necessity for exploring new oil and gas fields,” the British governments, both past and current, have nevertheless greenlit continuing oil and gas fields in the North Sea with tax relief and subsidies as icing on the cake.
 
And in their supporting role, Lloyd’s of London continues to act as the world’s largest consortium of underwriters for the fossil fuel industries, with an estimated annual premium range of $1.6-$2.2 billion. Among the top insurers in this domain are Aegis, Chubb, Allianz, AXA, Fairfax Financial, Zurich, WR Berkley, and AIG.
 
Joanna Warrington, campaigner with Fossil Free London, warns: “London’s banks and finance sector have been ignoring all the warning signs while pouring billions into fossil fuel expansion. Their profit is our loss. Financing new fossil fuel developments is incompatible with a safe future.”
 
Insurers act as the white blood cells of the economic ecosystem, and the potential of their withdrawal of coverage should theoretically alleviate the risks associated with the harmful “disease” of an extractive economy.
 
To push the analogy, the Financial Services Act might be considered a new “virus” which threatens to overwhelm the immune system of a healthy economy.
 
We are now in danger of the virus taking hold and terminal decline. The Institute and Faculty of Actuaries has long warned that, as fossil fuel assets inevitably become stranded, we risk a market crash so damaging as to be irreversible.
 
By supporting contributors to climate breakdown, the insurance industry is playing a pivotal role in fuelling this crisis and will eventually be forced to stop underwriting affected businesses.

This will cause widespread economic fallout as well as the invalidation of the industry itself. One is put in mind of Lenin’s dictum: “When it comes time to hang the capitalists, they will vie with each other for the rope contract.”
 
However, since October last year, when Extinction Rebellion and Fossil Free London jointly occupied 10 Lloyd’s of London insurers, and through a series of direct actions in March across Britain and in 30 cities globally, significant shifts have occurred.
 
Zurich, ranked sixth among fossil fuel insurers, pledged to cease insuring new oil and gas projects, and 28 major insurers have declined to cover the East African Crude Oil Pipeline (EACOP). Probitas also confirmed its refusal to insure two significant “carbon bomb” projects: the EACOP and the proposed West Cumbria coal mine.
 
Although climate activists have functioned as the white blood cells of the body politic, identifying the risks that my dinner party companion failed to, and combating contagion, it will ultimately fall to a new administration to enact a cure.
 
Once again, starting on October 28, Extinction Rebellion will launch a week of nationwide actions to call out the insurance industry for its role in flooding and illustrate how failing food systems, rising prices, shortages, hunger, and fear could become a reality in Britain, just as they already are in parts of the global South.