The nation’s insurance industry has become muddled in recent years amid a succession of floods, firesand others climate-driven disasters. These disasters have forced carriers to pay out billions in claims, and many have responded by raising premiums in disaster-prone states such as Florida and Oregon or to exit certain markets altogether.
But many of these companies also provide coverage for fossil fuel projects, such as pipelines and natural gas power plants, that would never be built without their support. This gives the insurance industry a unique role on both sides of the climate crisis: insurers are helping to exacerbate the problem by underwriting the very projects that are warming the earth, even as they bear the costs of increasing climate disasters and pass them on to customers.
Legislation in Connecticut, the capital of the U.S. insurance industry and home to several of its largest carriers, could make insurers pay for that discrepancy. If approved, the bill, which just passed a committee vote in the state Senate, would move toward imposing a fee on any fossil fuel projects insuring companies in the state. That revenue would go into a public resilience fund that could underwrite seawalls and urban flood protection measures.
“It’s important to start holding on [insurers] accountable for how they played it both ways in terms of climate change,” said Tom Swan, the executive director of Connecticut Citizen Action Group, an economic justice nonprofit that joined several environmental organizations in lobbying the legislature to pass the bill along with various environmental organizations. “People are seeing rising rates, or they’re moving out of different areas, and they’re continuing to underwrite and invest in fossil fuels at a much greater rate than their peers around the world,” he said.
The group pressed a more aggressive proposition last year it would have charged insurers a 5 percent fee for any fossil fuel coverage they issued in the United States, but that bill failed after critics raised several legal questions. In particular, the industry argued that the Constitution’s interstate commerce clause prohibits the taxation of a company’s out-of-state business.
The new version, attached as an amendment of a climate resilience bill proposed by Democratic Gov. Ned Lamont, would only require the state to submit a proposal for an insurance mechanism. The surcharge would only apply to fossil fuel projects these companies insure in Connecticut, avoiding that constitutional challenge.
The assessment will not only apply to new pipelines and fuel terminals, which require sufficient insurance to attract lenders and investors, but also to current coverage for existing infrastructure. That means anyone covering the state’s dozens of oil- and gas-fired power plants will contribute to the resilience fund. A report by Connecticut Citizen Action Group and several other environmental nonprofits found that the state’s insurers together $221 billion invested in fossil fuels.
Supporters argue the reduced fee would still raise tens or hundreds of millions of dollars for climate resilience. Connecticut received about $318 million in FEMA disaster relief between 2011 and 2021, or about $149 in per capita spending, according to the climate adaptation nonprofit Rebuilding by design. That puts the state well below disaster-prone places like Louisiana, which received $1,736 in federal disaster aid per capita, but well above those like Delaware, which hasn’t experienced a major disaster in the past decade.
Eric George, the president of the Insurance Association of Connecticut, the state’s largest insurance trade association, said the organization would “strongly oppose” any surcharge, but added that it was still studying the bill. The state’s insurance commissioner did testify in favor of the legislationand says it has his department’s “full support.”
The legislation comes as other states, including Vermont and Maryland, introduce “polluters pay” bills holding oil producers accountable for climate damage. Connecticut’s proposed law is a repeat of that effort focused on an area where state regulators wield significant influence, said Risalat Khan of the Sunrise Project, a nonprofit focused on energy transition policy.
“People are seeing their premiums go up very directly, related to climate disasters,” he said. “There’s an immediate question, why aren’t state-level regulators using more of their power to take local action?”
The importance of this financing mechanism may vary from state to state, said Benjamin Keys, a professor of economics at the University of Pennsylvania and an expert on climate insurance risks.
“One big problem is that the fuel is collected and burned everywhere, but the pain of natural disasters is local in nature,” he said. Therefore, he questioned whether the funding mechanism would be “feasible for all communities to follow, because many places have [lots of] disasters, but very little in the way of fossil fuel production.” Florida, for example, doesn’t have much more fossil fuel infrastructure than Connecticut, but faces extreme weather and other disasters far more often.
Even though the legislation is weaker than the previous version, supporters say passing it in the home of the nation’s insurance industry will send a message to major companies that still underwrite oil and gas projects.
“I think it’s a good policy, but from a narrative perspective it’s very important,” said Swan.
