Should insurers make moral judgements?
That is the question after Chubb joined the growing list of (re)insurers understood to have decided to restrict the insurance of thermal coal assets around the world.
Insurance, morality and society have had an interesting and sometimes complicated historical relationship.
The modern insurance sector that developed in Western Europe from the 17th century has its roots in sound moral principles.
The idea of indemnity is to put back what has been lost, but no more. Unless you submit a fraudulently inflated claim, you cannot profit by buying insurance. Insurance cannot therefore be speculation.
Insurance is governed by contract law, which can only enforce things that are legal. (If I pay you to murder someone I can’t sue you for my money back if you don’t fulfil the contract.)
Yet insurance has fallen foul of moral arbiters in some societies, notably Islamic ones, where it may land the wrong side of prohibitions on usury and gambling. There is also a widely dispersed idea that the act of insurance may entail man setting himself up against the will of the gods. If God has decided to burn my house down, how dare I or my insurers defy the deity’s will and rebuild it?
We also forget that insurance has caused its fair share of moral panic and outrage in its time. Cuthbert Heath may have been the founder of modern Lloyd’s and a great pioneer, but some of his progressive thinking was too far-sighted for the genteel Edwardian society in which he operated.
His invention of theft insurance caused much consternation. Surely such financing was an incentive to commit crime and would legitimise wrongdoing? Polite segments of society thought such a development distasteful at best.
A similar moral crisis emerged with the invention of kidnap and ransom (K&R) insurance in response to the ransom-heavy 1970s. Yet in both circumstances we got used to the idea and moved on.
No-one today would consider fire insurance a worrying incentive to arsonists, but someone was bound to have done so when such a product was first minted.
We should be relieved that level-headed UK legislators allowed Lloyd’s to carry on with its theft and K&R experiments unhindered. We certainly wouldn’t have standalone terrorism insurance today if they had interfered.
Into this moral cauldron we drop the current political debate about a transition to a low-carbon economy and the continued burning of the highest-carbon fossil fuels, notably coal.
Here the industry is self-regulating, partly according to its own beliefs and partly in response to intensive environmental lobbying.
And here is where the insurance industry is making a mistake. Acting above and beyond what is legally required is a political act and insurers should steer well clear of politics.
Insurers do not make the law – this is a job for elected legislatures. Neither do insurers interpret the law – this is what an independent judiciary is for. Insurers exist to respect and comply with the law and legal rulings, and cannot live without either being paramount.
For this reason the industry shouldn’t make moral judgements – it has no authority to do so. Such moves set precedents and once set the moral judgements come thick and fast.
If an insurer refuses to cover thermal coal assets if they constitute more than 30 percent of an insured’s business, an extension of that logic would dictate that they must not insure the cars, lives or houses of the people working there. Is that fair?
The logic would then cascade. Insurers might refuse to insure the suppliers serving the companies with the coal assets, and so on.
Should insurers refuse to insure prominent climate change deniers?
And what about the carbon-heavy aviation industry? Should travel insurance be withdrawn as a line because of its reliance on aeroplanes to exist? How about hotels and tour operators? They can’t live without planes in this day and age.
How about manufacturers of much-maligned single-use plastic goods?
Once you have started making moral judgements the moral questions become endless.
The correct answer is therefore that insurers should leave their customers’ lives alone and stick to insuring what is legal – anything else is to descend a horribly slippery slope.
However, that is not to say that as long as shareholders approve, insurers should not lobby politicians for a lower carbon world – they are uniquely well placed to do so.
But we have to let the law and legislature do their jobs.
We cannot try and do it for them, no matter how sound our motives.