By Amal Ahmed, Floodlight
“Lawmakers passed a bill to stop insurers from considering ESG criteria in setting rates” was first published by The Texas Tribune, a nonprofit, nonpartisan media organization that informs Texans — and engages with them — about public policy, politics, government and statewide issues.
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Insurers in Texas can no longer account for environmental, social or governance criteria when setting rates for almost all forms of insurance under a bill passed by the Legislature last month.
While the measure, Senate Bill 833, has no penalties and still allows companies to consider factors that are “relevant and related to the risk being insured” — even if those risks include ESG factors — insurers who testified about the bill called it an overreach, with potential negative consequences to the state’s and the nation’s insurance market.
“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,” Lee Ann Alexander, vice president of state government relations for the American Property Casualty Insurance Association, told Floodlight after the bill was approved. “This, combined with additional constraints placed on the market by the legislation, introduces unnecessary and potentially expensive complexities into the insurance marketplace.”
The bill is part of a broader, national push by the Republican Party to limit the effectiveness of ESG measures. After Texas passed an anti-ESG investing bill in 2021, four other states followed suit, with more considering putting similar laws on the books.
When introducing the bill in a March House hearing, state Rep. Tom Oliverson, R-Cypress, the chair of the House Insurance Committee, said he expected that in the near future, some states would mandate ESG policies while others would prohibit them.
“That’s something that insurers will have to adapt to,” Oliverson said. “The state of Texas is taking a position on this, and it is, we are not in favor of it. And furthermore you won’t be doing this if you are doing business in the state of Texas.”
The bill, which still needs Gov. Greg Abbott’s consent to become law, was introduced in response to groups including the Sunrise Movement, a youth-led climate organization that advocates for divestment from fossil fuel investments, according to bill analyses. In a letter to the White House, Abbott also touted the bill as part of an effort to curtail the Biden administration’s “war on the American energy sector.”
“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,” said Adrian Shelley, the Texas director of the advocacy group Public Citizen.
ESG policies typically push corporations to reduce their carbon footprints and take things such as ethics and social welfare into consideration. In some cases, investors and shareholders have called on insurance companies to stop insuring new oil and gas projects altogether, according to analyses. The bill says ESG factors are not based on “sound actuarial principles.”
Several organizations representing the insurance industry opposed the bill in hearings in March, saying that the bill proposed a broad definition of ESG that would be hard to apply, and that it would interfere with the ability to accurately calculate risks and create insurance coverage policies. The bill applies to almost all forms of insurance, including property, health and life insurance. The only types of insurance not covered by the measure are crop insurance and fidelity, surety and guaranty bonds.
In a statement, the Texas Department of Insurance said that the agency is “currently reviewing all enacted legislation related to TDI and preparing for implementation,” but offered no further details on how it would enforce the new law, which will apply to all policies beginning Jan.1 unless Abbott vetoes it.
The Reinsurance Association of America also sees the bill as overreach into insurance companies’ ability to carry out accurate actuarial analyses. Reinsurers essentially provide insurance policies to other insurance companies. Globally, there are only a handful of these firms, and many of them support ESG policies, said Sarah Knuth, a professor and researcher at Durham University in the United Kingdom. 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, Knuth said.
For example, the world’s second largest reinsurer, Swiss Re Group, has said it won’t insure any new oil and gas projects unless they provide plans to make their operations carbon neutral.
“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,’” Knuth says. “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.”
SB 833 was supported by groups such as the Texas Public Policy Foundation, a conservative, free-market think tank that has promoted pro-oil and gas industry policies for years and spread climate disinformation. In early March, the foundation hosted a panel discussion titled “ESG = Everyone’s Suffering Guaranteed.” Featured speakers included state lawmakers and state Comptroller Glenn Hagar.
Two years ago, the Legislature first set its sights on anti-ESG policies by targeting investment firms that had implemented such policies. State retirement funds are now prohibited from working with firms that “boycott” fossil fuel stocks. The law was written so broadly that even firms that offer a few environmentally conscious investment options to customers could be penalized.
State Sen. Phil King, R-Weatherford, authored SB 833 and sponsored last session’s bill targeting investment firms. King’s office did not respond to a request for comment.
“It’s hard to explain the insanity of these laws,” said Danielle Fugere, chief legal counsel for As You Sow, a shareholder advocacy group that promotes social corporate responsibility. “On one hand, these legislators say they support the free market. But the market is making these decisions about what companies are going to make money, and which ones are creating risks. What this is — it’s political theater.”
Disclosure: The Texas comptroller of public accounts and the Texas Public Policy Foundation have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune’s journalism. Find a complete list of them here.
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This article originally appeared in The Texas Tribune at https://www.texastribune.org/2023/06/12/texas-legislature-insurance-esg-rates/.
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