Lloyd’s of London, the world’s largest insurance market with a capacity of more than $10 trillion, stuck in the heart of the City, is hindering decarbonisation through its continued support for the expansion of fossil fuels.
He reports it report “For a few dollars more” published at the end of October 2024 by the French NGO Reclaim finance which analyzed the climate policies of the 51 managing agents (managing agents) responsible for monitoring the work of the unions that manage the market. Of these, 46 (corresponding to 93% of Lloyd’s potential) do not have policy of exclusion for new oil and gas projects and 28 have no limitation on financing fossil fuels, including coal. All this despite the scientific evidence that new fossil fuel extractions are not at all compatible with the ecological transition. And in stark contrast to the climate neutrality goal declared by the same group.
“Lloyd’s of London likes to present itself as a supporter of the transition – explained Ariel Le Bourdonnec, Insurance and reinsurance campaigner of Reclaim finance-, but in reality they allow the fossil fuel industry to continue to expand. They have the power and responsibility to control their market, but they have chosen not to, giving their managing agents the ability to turn the climate neutrality pact into an empty promise. As a result, they have become the go-to insurer for the expansion of fossil projects. If the Lloyd’s market wants to be taken seriously as a protagonist of the transition, its managers must immediately adopt appropriate policies.”
There is a very strong link between insurance and the climate crisis. For the fourth consecutive year, insured losses resulting from natural catastrophes exceeded the symbolic threshold of $100 billion. “What was once exceptional has become the norm. While these figures may seem significant, they are only the tip of the scale.iceberg”, recalls Reclaim finance. The cost to society from extreme events as a whole is much higher, exceeding $300 billion with just 31% of losses insured, according to estimates by insurance companies Aon, Swiss Re and Munich Re.
A risk that Lloyd’s has been aware of for some time: already in 2015 the then governor of the Bank of England Mark Carney had issued a warning to the English giant right in the heart of the Lloyd’s building: “once climate change has become a crucial issue for financial stability, it may already be too late,” he warned. “One might have thought that the increase in claims due to natural catastrophes would have led the sector, and Lloyd’s, to react and prevent climate risks in the long term – continues Reclaim finance – But things went differently. Nine years later the same institution to which Mark Carney issued his warning remains a prime venue for ensuring fossil fuel expansion.”
The group’s choice was to take advantage of the worsening of extreme climatic conditions by deciding to significantly increase the cost of coverage against natural disasters. Between 2022 and 2023, the price of catastrophe reinsurance treaties increased across major markets, with an increase of more than 20% in the UK and a doubling for those underwritten by US insurers. With more than 30% of its $52 billion in premiums coming from reinsurance, the Lloyd’s market is benefiting from these “favorable” trading conditions. “We should see the climate as an opportunity and not as a threat. Climate is the biggest opportunity I will see in my insurance career, both on the underwriting and investment side,” Lloyd’s 2021 chief executive John Neal said in an interview with the magazine Insurance Insider.
And business plan which is reflected in the choices in terms of projects covered. If some of the main European insurers such as Munich Re, Allianz and Swiss Re have timidly started to implement preventive measures in favor of the climate, this trend does not seem to have crossed the Channel.
Since 2020, Lloyd’s has invited its managing agents to no longer cover new plants and coal mines, oil sands and energy exploration activities in the Arctic, but in an optional and non-binding way. It is therefore not surprising that the French NGO’s analysis finds the climate policies of 46 of the 51 managers insufficient.
There are only five (who together cover just 7.1% of the market) managers considered “innovators” who have not only excluded any risk underwriting for coal mines and plants but also for fossil gas and oil deposits. These are Argenta syndicate management, Axa XL underwriting agencies, Munich Re syndicate, Probitas managing agency and SCOR managing agency, which in many cases follow the regulations of their companies (as in the case of the French giant Axa). Another 18 entities have banned coal support but allow project insurance oil&gas, the remaining 28 have none policy on the subject.
However, not even one of the 51 managers has implemented it policy of exclusion for new ones terminal for the export of liquefied “natural” gas (LNG) even though these projects, according to the International Energy Agency (IEA), are a threat to the achievement of the net zero to 2050. This serious lack has led to the financing of projects that are harmful not only to the climate but also to the health of local communities. This is the case of Freeport LNG terminal for the export of US liquefied gas. With three liquefaction trains and a capacity of approximately 16 million tonnes (Mtp) per year, it is the country’s third largest LNG export point and emits approximately 75 million tonnes of carbon dioxide per year (MtCO₂/year) .
These figures are expected to increase to 21 Mtp per year of LNG and 100 MtCO₂ per year if the planned fourth compartment is brought into production. The investment in Freeport is not only dangerous for the environment but also poses a threat to the health of communities living nearby. The Texas Commission on Environmental Quality fined Freeport LNG $150,000 in 2024 for violating state air pollution rules by repeatedly emitting excessive levels of toxic gases between 2019 and 2021. In June 2022, an explosion in the plant caused a giant methane combustion, releasing tons of toxic gas into the air.
All this did not prevent a broad pool of insurers to provide the risky export site with liability insurance that covers it against potential claims of up to $400 million. And among these there are operators linked to Lloyd’s.
“Lloyd’s is responsible for controlling the type of risks allowed in its market and would have full power to regulate its management agents. However – concludes Recalim finance – it has decided to rely exclusively on voluntary initiatives to implement climate commitments”. A terrible policy for the Planet.
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