Since January 2016, California Insurance Commissioner Dave Jones has been calling on all insurers doing business in the state to divest from their coal investments.
While Jones’ request is voluntary, he says he will publicize the names of companies that do not comply with it. Jones is calling for divestment in companies that derive more than 30 percent of their revenues from coal and from utilities using coal to generate 30 percent of their energy. The directive applies to all insurers doing business in the state. The state says the divestment request is grounded in the concern coal is becoming increasingly disfavored in a regulatory atmosphere that prizes low carbon emissions and prefers renewable energy, and Jones contends insurers with coal investments are putting their policyholders at risk.
According to a recent study by Steven Greenhut, the Western region director for the R Street Institute, available data do not support Jones’s concerns. Coal represents less than 1 percent of the California insurance industry’s investments, Greenhut’s July policy study shows, so even for the insurer that is most heavily invested in fossil fuels—life insurer TIAA-CREF—its coal investments constitute a meager 1.76 percent of its assets.
“It’s hard to make the case the divestment request is based in solvency concerns, not political ones, when coal-related investments pose such a small risk to insurers’ fiscal health,” Greenhut said.
The California insurance commissioner is responsible for making certain insurers are solvent and capable of paying the claims of the insured, but with so little investment in coal, Greenhut says Jones’ call for coal divestment does nothing to further that goal.
“The insurance commissioner has a legitimate authority to ensure solvency, but, as my white paper clearly shows, this really isn’t a legitimate solvency issue,” Greenhut said.
Greenhut says insurers hold safe, stable investments—primarily bonds, rather than stock—and as a result, even if the coal industry were to go belly-up, it would have little to no impact on California’s insurers.
For instance, while California’s life insurance sector has $58 billion invested in coal, it represents just 1.59 percent of life insurers’ invested assets and less than 1 percent of their total assets. The $7.4 billion property and casualty insurers have invested in coal represents just 0.49 percent of their invested assets and 0.41 percent of their total assets.
While insurers are not required to comply with Jones’ call for divestment, his threat to publicize their coal holdings and the broad authority the California insurance commissioner has over insurance rates has some questioning whether, in practice, the request for divestment is actually mandatory.
“The insurance commissioner is an elected position with a lot of power since California voters passed Proposition 103, which increased the authority of the insurance commissioner,” said Greenhut “I can’t comment on anyone’s motives, but in my view, this clearly is a political play [considering] the weak evidence [attempting to show] insurance companies face any solvency danger.”
“For CA Insurance Commissioner Dave Jones to threaten insurance companies with exposing their names if they do not comply with his order to voluntarily divest the majority of thermal-coal investments from their portfolios is coercion,” said Sally Pipes, president of the Pacific Research Institute. “By divesting these stocks, the return on investment to shareholders will decline, reducing the incentive for future stockholders to invest in these profitable companies.
“The thermal-coal sector is a major employer in the United States, providing employment opportunities for millions of Americans,” Pipes said. “Environmentalists want to eliminate this productive industry, thereby eliminating jobs in favor of expensive alternatives, such as wind and solar power, a tactic that must be exposed for what it is.”
Greenhut’s research says even if insurers do divest from their coal holdings, there will be little appreciable benefit to the environment because coal investments are often only one part of energy investment bundles, which often also include renewable-energy investments.
“If insurance companies have to sell their investments, someone will have to buy them,” said Greenhut. “I can’t see how it would fundamentally reduce climate change. It’s political symbolism.”
Ann N. Purvis ([email protected]) writes from Atlanta, Georgia.
Steven Greenhut, “Coal Divestment and the California Insurance Industry,” R Street Institute, July 26, 2016: https://heartland.org/publications-resources/publications/coal-divestment-and-the-california-insurance-industry