A report in The Texas Tribune notes that insurers in the state can no longer account for environmental, social or governance criteria when setting rates for most forms of insurance following the passing a bill by the Legislature in May.
Senate Bill 833 has no penalties and allows companies to consider factors that are “relevant and related to the risk being insured”, even if those risks include ESG factors.
The original story, produced by Floodlight, notes that insurers who testified about the bill called it an overreach, highlighting potential negative consequences to the state’s and the nation’s insurance market.
Post the approval of the bill, Lee Ann Alexander, Vice President of state government relations for the American Property Casualty Insurance Association, told Floodlight, as reported by The Texas Tribune, “In the real world, we believe that any legislation of this type will put insurers in a Catch-22 situation, where they are forced by some states to utilize certain business models and quite possibly very different business models in other states. This, combined with additional constraints placed on the market by the legislation, introduces unnecessary and potentially expensive complexities into the insurance marketplace.”
ESG policies are designed to push corporations to reduce their carbon footprints and take ethics and social welfare into consideration. Some investors and shareholders have called on insurance companies to stop insuring new oil and gas projects altogether to comply with ESG standards. However, the bill says ESG factors are not based on sound actuarial principles.
Adrian Shelley, Texas Director of the advocacy group Public Citizen commented, “I think it’s reasonable to assume and expect that, based on the success of Senate Bill 833 in Texas, we’ll see very similar bills in (other states) in the future.”
Several organizations representing the insurance industry opposed the bill in hearings in March. Stating that the bill proposed a broad definition of ESG that would be hard to apply, interfere with the ability to accurately calculate risks and create insurance coverage policies. The bill applies to insurance lines such as property, health and life, but exclude crop insurance and fidelity, surety and guaranty bonds.
A statement published by the Texas Department of Insurance said that it is “currently reviewing all enacted legislation related to TDI and preparing for implementation,” although it offered no further details on how it would enforce the new law, which is effective from Jan 1., unless vetoed.
The Reinsurance Association of America also sees the bill as an overreach into insurance companies’ ability to carry out accurate actuarial analyses.
Sarah Knuth, Professor and researcher at Durham University in the United Kingdom said, “Globally, there are only a handful of these firms, and many of them support ESG policies, they’re unlikely to change their policies simply to do business in Texas when calls for ESG policies are gaining more traction in Europe and Asia. Say an insurance company [in the U.S.] says, ‘We’re going to continue doing oil and gas so Texas will let us do business.’ They’ll lose their ability to do business with reinsurers. And they can’t do without that, because they need that relationship to recapitalize after large disasters.”
