New York State Climate and Environment

Could New York Force Insurance Companies to Drop Fossil Fuels?

As climate disasters threaten a home insurance crisis, a new state bill aims at the problem’s root.

Colin Kinniburgh and Julia Rock · June 10, 2024

A house damaged by a storm, set against a background of oil rigs.

In New York and across the country, major insurers have stakes in both sides of the climate crisis. | Photo: CSondi / Flickr | Illustration: Colin Kinniburgh

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Hurricane Ida cost Christina Pace in more ways than one. She’d been running a home daycare in South Ozone Park, Queens, for more than 15 years when the 2021 storm hit New York. Her basement was inundated with three feet of water, wrecking half the space she uses for the daycare and leaving mold that wouldn’t go away.

When she and her husband approached their home insurance company, Liberty Mutual, to help pay for the repairs, they were flatly rejected. Standard home insurance does not cover flooding. Nor could their plan cover damage to their roof, the company told them, because the roof had been improperly built. They ended up paying more than $25,000 out of pocket for repairs.

“It cleaned up our bank account,” Pace said. “What are we paying insurance for?”

Even though Liberty Mutual did not cover the Paces’ storm damage, the company has raised their premiums significantly since Ida. The couple say they now pay $5,700 per year — an increase of close to $2,000 in just the last few years.

What customers like the Paces might not realize is that Liberty Mutual is investing their premiums into oil and gas. As recently as 2019, the company had over $2 billion tied up in fossil fuels. It’s also propped up the industry by insuring major pipelines and drilling projects. (Liberty Mutual did not respond to a request for comment.)

In New York and across the country, insurers like Liberty Mutual, State Farm, and Allstate, among others, have stakes in both sides of the climate crisis. They have pared back coverage and hiked rates by more than 30 percent since 2019, in large part because the increasing frequency of storms and other extreme weather events is making damage to homes even costlier. And many of them have also been investing customer premiums in oil and gas and underwriting fossil fuel projects.

A new bill in New York aims to stop them. It was introduced late in the legislative session, which ended last week, and proponents knew it wouldn’t immediately advance, but they hope to pass it next year.

Christina Pace in the home daycare she runs in South Ozone Park, Queens. | Photo: Colin Kinniburgh

The legislation is sweeping. It would ban insurers from backing new fossil fuel projects and force them to phase out their support for existing ones. At the same time, it would create new protections for New Yorkers already seeing the costs of climate disasters in their monthly home insurance bills.

“We know that insurance companies are making money off of the same things that’s hurting us, and then collecting profits on top of the hurt,” said Phara Souffrant Forrest, the bill’s Assembly sponsor.

The New York bill would allow regulators to block insurance companies from dropping customers in the immediate aftermath of a storm. In other cases, insurers would have to give residents at least one year’s notice of a cancellation. The bill also includes a ban on “bluelining” — the practice of systematically denying insurance coverage in areas based on environmental risks like flooding.

Virtually all of the world’s major insurers do business in New York and would be subject to the law, so action in Albany could have substantial implications for fossil fuel projects across the globe.

“Insurance is a very powerful cudgel,” said Brad Hoylman-Sigal, the bill’s Senate sponsor. “If we don’t do this at the state level, I don’t think we’re going to see it happen anywhere else.”

Most large insurers are sitting on huge sums of money that they’ve collected from customers in premiums but haven’t yet paid out in claims. They put much of that money into financial markets. In total, major insurance companies invest more than half a trillion dollars — about a tenth of the US industry’s total assets — in fossil fuels.

The proposed legislation would require insurers to disclose their fossil fuel investments and begin to phase them out.

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But insurers are also keeping the industry afloat in a much more direct way: Pipelines, oil wells, and coal power plants cannot be built or operated without insurance. Underwriting those kinds of projects earned the insurance industry more than $21 billion in premiums in 2022, according to a recent report from climate groups. By banning the practice, the bill could rapidly slow down the rate at which new fossil fuel projects are built.

“There’s no real magic bullet to stopping the oil and gas beast … but to the extent that there is, it could be insurance,” said Pete Sikora, climate and inequality campaigns director at the advocacy group New York Communities for Change, who worked on the new insurance legislation. “No insurance, no projects.”

The strategy has already had a major impact on the production of one fossil fuel. In recent years, major global insurance companies have announced they will stop underwriting coal. This has played a significant role in slowing down new coal development, said Ariel Le Bourdonnec, insurance campaigner at the French-based group Reclaim Finance. A 2022 study commissioned by the North Dakota government found that, partly as a result of the decision, insurance rates for coal producers in the state shot up by as much as 300 percent.

Insurance companies have been slower to move away from other fossil fuels. While 46 major insurers have said they will end or restrict insurance for coal projects, only 18 have said they will restrict underwriting for oil and gas, according to data from Insure our Future, a group pushing insurers to drop fossil fuels altogether.

New York isn’t the first state to target fossil fuel underwriting: Connecticut lawmakers are considering a fee on companies that insure dirty energy. But an explicit ban, as Hoylman-Sigal and Souffrant Forrest are proposing, “would set a precedent,” said Le Bourdonnec.

“The insurance industry really is the canary in the coal mine.”

—Dave Jones, UC Berkeley School of Law

New York took a first step to regulate insurers on this front in 2021, when the Department of Financial Services issued nation-leading guidance for how the companies should plan to address climate risks.

But since then, other governments have gone much further. In April, the European Parliament approved far-reaching new rules requiring all major corporations doing business in the 27-nation bloc to implement plans to help reduce global warming. The rules, which take effect in 2027, specifically target activities in coal, oil, and gas.

The New York bill could start to close the gap between US regulators and those overseas.

“It’s not in the interest of American industry and financial institutions to have different standards,” said Dave Jones, a former California insurance commissioner who now directs the Climate Risk Initiative at the UC Berkeley School of Law.

Two trade groups representing the insurance industry in Albany — the New York Insurance Association and the Life Insurance Council of New York — said they were looking into the new state bill but did not provide further comment. Allstate and State Farm did not respond to inquiries.

Homeowners in New York are already feeling the fallout of climate disasters in their insurance premiums, which have risen steadily in recent years. Lawmakers representing districts along New York’s coastline say they’ve been hearing for years about people struggling to find affordable insurance. Assemblymember Fred Thiele, who represents the eastern end of Long Island, says it’s no longer just major tropical storms driving the trend, but the drumbeat of stronger, more frequent nor’easters and other midsize storms.

David Bodenstein, board chair of the insurance agents trade group Big I New York, said insurers aren’t just hiking premiums, but also seeking to cut costs by putting more restrictions on the coverage they offer. Some are refusing to cover roofs older than 15 years, for instance.

That means that many homeowners aren’t adequately insured in the case of a severe storm.

Roughly a third of homes nationwide are underinsured relative to the risks they face from extreme weather, according to a national survey on insurance and climate risk published last fall by the think tank First Street. That includes upwards of 1 million homes in New York, or just over a fifth of all homes statewide, mainly concentrated downstate.

In Suffolk County — the eastern half of Long Island, which includes Thiele’s district — some 80 percent of homes fall into this category. If insurance companies were to start offering the appropriate amount of coverage for these homes, premiums would balloon even further.

Pace, whose basement was flooded during Hurricane Ida, said she and her husband were only able to pay for the repairs they needed because a contractor agreed to allow them to break up the payments over a year. Even so, Pace said, “we have deprived ourselves” to cover the expense.

Souffrant Forrest, the new state bill’s Assembly sponsor, points out that the emerging insurance crisis isn’t just hitting homeowners — it also spills over to tenants, whose landlords factor the cost of insurance into monthly rents.

The full scale of the threat that climate change poses to the US housing market has yet to come into view, but the more of the picture that emerges, the more daunting it looks.

“The insurance industry really is the canary in the coal mine with regard to climate change,” said Jones, the former California insurance commissioner. “When systemic risks get ignored, they can cause a lot of damage.”