Activists Against Insurers

This post first appeared on Risk Management Magazine. Read the original article.

Activists have a new target in their fight to effect change
on social issues: insurers. How can risk management help the industry turn
outrage into opportunity?

In February 2017, Uber was under fire from activists and
consumers for two separate events. Then-CEO Travis Kalanick had joined
President Trump’s economic advisory council, which he eventually quit after
increasing public pressure and protests outside the ride-sharing company’s
headquarters. Separately, consumers accused the company of unfairly profiting
from a strike by taxi drivers at New York’s John F. Kennedy International
Airport as part of a protest against a White House immigration ban. While the
striking cab drivers remained idle, Uber continued to provide service, sparking
a social media campaign that called for users to #DeleteUber and more than
200,000 customers did just that. In the era of social media, activists were
able to spread their message quickly and effect change just as fast.

Uber is just one of many companies facing pressure from
activists. Hot-button issues like gun control and climate change have inspired
groups to look more closely at corporate practices and potential pressure
points to find other ways to further their agenda. And as the strategy proves
effective, companies across business sectors have found themselves in the
crosshairs, including in the insurance industry.

Activism, Redirected

In December 2017, an article in Foreign Policy
magazine asked, “Why is Lloyd’s of London insuring American guns?” The article
detailed the outcry from gun control advocates who argued that the company was
enabling gun violence by providing insurance for “NRA-endorsed firearms
policies” that included personal liability and gun show coverage.

Many gun safety activist groups echoed this question and the
pressure intensified as the number of mass shootings increased in the United
States. Subsequently, the insurer found itself facing mounting public scrutiny
over insuring guns, including online petitions in both the United States and
the United Kingdom. One group, Guns Down America, accused Lloyd’s in December
2017 of selling “murder insurance.”

In February 2018, MetLife severed its connection to the NRA.
Then in May 2018, the New York Department of Financial Services (NYDFS) may
have increased the pressure with its decision to fine insurer Chubb $1.3
million and broker Lockton $7 million for violations of several state laws
connected to Chubb’s “Carry Guard” gun owners insurance program. That same
month, Lloyd’s instructed its underwriters to terminate any insurance programs
tied to the NRA, and to not enter new ones with the organization.

Increasingly, activist groups are finding new ways to make
progress on old causes. Fueled by social media, activists are speaking out and
building a groundswell of support that insurers are hard-pressed to ignore. For
companies, straddling such volatile issues can be difficult. “Scholars of
social movements and organizations have shown again and again that activism
matters to business decisions,” said Sarah Soule, professor of organizational
behavior at Stanford Graduate School of Business and author of Contention
and Corporate Social Responsibility
. “Various forms of activism, from
boycotts to protests to shareholder resolutions, have been shown repeatedly to
impact firms’ bottom line—revenue, sales, stock price—and firms’ decisions on
policies and practices.”

The threat is twofold. “First, it can pose a direct threat
to operations (e.g., riots can lead to looting, picket lines can prevent people
from entering spaces, strikes prevent work from happening, etc.). Second, it
can pose a more indirect threat via reputational damage,” she said, noting that
stock price fluctuations resulting from negative media attention can impact
shareholder behavior. 

Other factors also make social activism a risk, including
the shifting nature of public opinion and the wide array of potential issues.
Still, sometimes the risks are easy to spot. For example, in February 2019,
activists protested the Guggenheim Museum in Manhattan over the museum’s
acceptance of donations from the Sackler family, owners of Purdue Pharma, maker
of the opioid OxyContin, which is responsible for tens of thousands of drug
overdose deaths every year in the United States.

Similarly, it came as little surprise when climate change
activists targeted Australian construction group BMD last year over the firm’s
contract with energy company Adani Australia, which operates Carmichael thermal
coal mine. What was surprising, however, was that insurer AIG found itself
under fire for its connections to the same mine. Advocacy group Sum of Us
pressured the company to drop its insurance coverage of the business. This was
part of a larger effort among activists to cut off capital flowing into the
fossil fuel industry from financial institutions.

Convincing any company to change business practices can be a
tough sell, but for insurers doing business with activist-targeted companies,
the issue can be even more complex. For instance, just within the fossil fuels
industry, the 40 largest U.S. insurers hold $450 billion in fossil fuel stocks
and bonds, according to the activist website 350 Colorado, an affiliate of the
global organization, which supports climate change initiatives.

Such efforts are proving remarkably effective. The success
they are achieving by focusing on insurers and financial institutions is
delivering change more rapidly than traditional methods of protest. By
attempting to stanch the flow of funding to specific industries, activists are
inhibiting some organizations’ ability to conduct business as usual. Insurers
are beginning to address environmental issues by examining their business
practices and financial ties. Just as they did with guns, some insurers are now
shying away from investing in fossil fuel-related business.

One of the first U.S. insurers to change its practices was
Chubb, which announced in July 2019 that it will no longer underwrite new
coal-fired plants or their construction. Additionally, it will not underwrite
new risks for companies that get more than 30% of their revenue from coal or
coal-related energy production. By the end of that month, 16 other global
insurers had followed suit, either phasing out their fossil fuels coverage and
investments or putting plans in place to do so.

In October 2019, AXIS Capital also announced its new policy
on fossil fuels—the company became the first U.S.-based insurer to restrict
insurance for coal and tar sands projects and the companies that operate them.

For Ross Hammond, such moves by insurers mean his efforts
are working. Hammond, senior strategist for the Sunrise Project, an
environmental group focused on reducing the use of fossil fuels globally,
pointed out that insurers play an essential role in keeping businesses
operating, including those connected to the fossil fuels industry. He said
insurers became prime targets for activism “because of the particular role that
insurance plays” as the managers of risk. “If you want project financing or if
you want government approval, you have to be able to show insurance. And there
are a lot fewer insurers than there are banks or other places to get
financing.” Armed with that knowledge, Hammond’s group contacts companies
directly and asks for a conversation. Some insurers are more responsive and
open than others but these discussions can be a productive first step.

Are Insurers Already There?

While most insurers contacted for this article declined to
comment, Dr. Andries Willemse, vice president of the Specialty Loss Group and
executive general adjuster for Engle Martin & Associates, said that
insurers are taking fossil fuel-related climate issues seriously. Because many
scientific and economic models have suggested “unprecedented negative impact”
stemming from extraction and processing, insurers already see negative
financial impact “both on the asset and liability side of the balance sheet,”
Willemse said.

In fact, Chubb has adopted a broad definition of climate
change—one that “represents an extremely high risk on many fronts, including
first-party business interruption, general liability claims for third-party
bodily injury, property damage and even directors and officers (D&O) claims
regarding non-disclosure of potential impact,” he said.

Hammond believes that insurers may already be
well-positioned to address the fossil fuel issue. “Insurers have this critical
but sort of largely unnoticed role in facilitating the expansion of fossil
fuels,” he said. “But the other side of it is, for the fossil fuel industry,
insurance is absolutely critical. For the insurance industry, fossil fuels are
just another client, and not even that big of one.”

The data supports Hammond’s point. According to the
California Department of Insurance, few insurers have more than 10% of their
assets under managements in fossil fuels. The department has tracked data on
insurers’ investments in gas, oil, coal and utilities since 2016, when
Insurance Commissioner Dave Jones implemented the Climate Risk Carbon
Initiative, which was designed to “address climate change-related ‘transition
risk’ faced by insurer investments in fossil fuels,” according to a department
press release.

Hammond believes that underwriting has already pinpointed
the risks and the costs overall from a property/casualty perspective. Because
they understand the risk, “they don’t have blinders over their eyes,” he said.
“They have leverage, which they haven’t used.”

He thinks now may be the time for insurers to be proactive.
Each insurer he approaches says their employees are asking how to get involved
and help effect change. It is a growing concern of employees in many business
sectors, not just insurance. For example, the Amazon Employees for Climate
Justice protest of September 2019 demonstrated the increasing willingness of
some employees to put pressure on their own companies to address climate

According to Celia Cazayoux, senior vice president and
senior investment strategist for People’s United Bank, this lateral approach
may be a sound strategy. Referring specifically to gun-related activism, she
said, “If you make the price of insurance so expensive, or if you make it so
painful for someone to write it, then what happens? Will companies be able to
self-insure, and what would the ramifications of that be?”

Regardless of the issue, this overarching trend should be a
wake-up call for business, particularly for insurers. “I believe that we are at
the beginning of an increasing trend of consumer activism and will continue to
see changes in underwriting practices as public awareness around personal
rights continue to develop,” Willemse said.

The sticking point is in how insurers address both activist
concerns and those of their stakeholders. “[Insurers] have to really be focused
still on their fiduciary duty,” Cazayoux said. “There are laws and rules around
that, and people, investors and companies have to stay true to that.” Many
organizations are already being more thoughtful about the business they write,
which has become easier to do. “Just with technology, transparency, and the
ability to drill down and see more level of detail in terms of either the
business, the business component, the risk or how portfolios are invested, you
have the ability to see much more now,” she said.

Still, insurers have to make a profit. “Mitigating risk is a
delicate balance for insurance companies,” Willemse said. “Unfortunately, they
are not immune to basic economics. They need policies issued, but must
continuously adapt to changing markets in order to mitigate their own
exposure.” That ability to adapt could be beneficial not only in terms of
positive publicity, but economically as well. He said it is likely that the
industry will see an increase in litigation stemming from climate-related
incidents, which would be a direct hit to insurers’ bottom lines.

How Risk Management Can Lead

To address these risks, Hammond’s initial focus is showing
decision-makers how they can divest from controversial lines of business
without creating a material difference in the company’s overall financial
health. “We’re very careful not to try to tell the insurance industry what
their business is,” he said. “When I’m sitting in the room with people with
decades of experience, I’m not there to tell them what their finances are. I am
there to tell them what they can do that isn’t really going to impact the
business. We’re there to encourage them, to show them what’s been done in other
parts of the world, and to serve as a bridge if they want it.”

That means relying on risk management data regarding such hot-button
issues. Cazayoux said insurers can stay on the right side of public opinion by
“spending more time and effort in their risk management groups, and in the ways
that they are providing disclosure and transparency about what they do and how
they do it, by being prepared to react, and just understanding their

The best course of action is for risk management and upper
management to be proactive, Soule argued. She recommends risk managers pay
attention to the social, political and ethical issues that are trending on
social media. “What do public opinion surveys say about these issues?” she
said. “If others in your industry are being targeted by protesters, what are
you doing that is similar and thus making you vulnerable?”

She suggested that companies make sure to get multiple
perspectives on marketing and advertising campaigns. Risk management should
particularly be watching for company actions that could be perceived as
hypocritical by the public. “Activists are quick to pick up on hypocrisy,” she

Companies should also welcome a conversation with activists.
“Oftentimes, entering into dialog with protesters can help preempt a larger
crisis,” Soule said. “Better yet, learn to learn from protesters. Protesters
can be an amazingly accurate bellwether of broader public opinion.”

Encouraging the C-suite to look critically at these issues
and understand how to mitigate against both the negative publicity and the
financial impact on the company should be a risk management priority. However,
insurers should exercise caution when considering changes to the investment
portfolio. Insurers and their risk management teams need to continuously expand
their risk lens to ensure they have a full understanding of the vulnerabilities
in their portfolio, Cazayoux said. Reacting just to appease activists could be

An organization’s fiduciary duty is to its stakeholders, so
risk managers must balance the needs of society with the responsibility to
their investors. “They have to take it from a broader view of incorporating all
levels of risk and really evaluating impact on the portfolio, how that’s going
to impact how they invest and the risk and return of the portfolio,” Cazayoux

While the larger issues that garner public attention are
cyclical, risk management should be recognizing first and foremost that there
are plenty of emerging risks that could impact business. Today’s developments
could well be tomorrow’s activist issues, so risk managers are best advised to
look at activist-driven risks as ongoing issues. “Risk management is a
continuum and the end is not in sight,” Willemse said. “The best we can do is
continue to act in a responsible manner.”

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