A consortium of Republican state attorneys general (AG) has penned a letter to insurers of the Net-Zero Insurance Alliance (NZIA) raising concerns about the legality of their commitments to collaborate with other insurers and asset owners in order to “advance an activist climate agenda.”
The targeted insurers are all NZIA members, while some are also members of the Net-Zero Asset Owner Alliance (NZAOA).
According to AG’s letter, “The push to force insurance companies and their clients to rapidly reduce their emissions has led not only to increased insurance costs, but also to high gas prices and higher costs for products and services across the board, resulting in record-breaking inflation and financial hardships for the residents of our states.”
The letter continues, “In January 2023, the NZIA released its first “Target-Setting Protocol,” which explains your responsibilities as a member.
“While this protocol insists that it is ‘nonbinding’ and that you are ‘free’ to meet the protocol’s requirements ‘independently and unilaterally,’ it goes on to instruct that NZIA members must follow its directions on a ‘comply-or-explain basis.’
“Likewise, the plain language of the document ultimately requires you to take several, concrete and coordinated actions to alter your business.
“Specifically, the NZIA protocol requires you to adopt one of the NZIA’s defined climate targets by this summer and requires you to commit to three of them by next summer.
“These targets are anything but aspirational—they require you to take specific courses of action over the next two decades.”
As an example, the letter suggests that “Meeting NZIA’s ’emissions reduction target’ means choosing either an overarching insurance-associated emissions reduction target of 34-60% by 2030 or targeting emissions on a sector-by-sector basis in line with a net-zero pathway for that sector.”
After outlining a host of other requirements, the letter notes, “We, the undersigned attorneys general, have serious concerns about whether these numerous requirements square with federal law, as well as the laws of our states, as they apply to private actors.
“Under our nation’s antitrust laws and their state equivalents, it is well-established that certain arrangements among business competitors are strictly forbidden because they are unfair or unreasonably harmful to competition.
“For example, ‘an agreement among competitors not to do business with targeted individuals or businesses may be an illegal boycott, especially if the group of competitors working together has market power.’
“Likewise, collective agreements to fix prices or ‘restrict production, sales, or output’ are illegal. This restriction extends to agreements among competitors to issue uniform pricing policies, conditions of sale, production quotas, or otherwise limit the identity of their customers if those agreements will ultimately raise prices.”
The letter adds, “To the extent that these targets are implemented in reinsurance business, they also have a direct, harmful effect on the American insurance market.
“Many state laws prohibit insurers from altering insurance terms for reasons not reasonably related to the risk or expense of providing the insurance, refusal to provide reinsurance for certain activities merely increases the costs for United States insurers and makes the market distribution of risk less efficient, while doing nothing to lower the emissions about which you express concern.
“Your conduct may also directly or indirectly violate other laws. To the extent that you directly insure activities in the United States or exercise control over an entity that does so, refusal to insure based only on the insured’s carbon emissions or compliance with the Paris Agreement’s environmental aspirations could violate state laws that expressly limit reasons for refusal to provide insurance.”
In light of the aforementioned concerns, the AG’s letter concludes with a request to the NZIA to see a range of documents and information.
This includes, though is not limited to: Please describe in detail all communications between you and members of NZIA related to commitments you made to NZIA, including communications related to how you would meet those commitments.
If you have joined NZAOA, please describe in detail all communications between you and members of NZAOA related to commitments you made to NZAOA, including communications related to how you would meet those commitments.
In April, German reinsurance giant Hannover Re announced that after careful consideration, it had opted to leave the NZIA, making it the third high-profile re/insurer to leave the UN-convened alliance in less than a month.
While Hannover Re didn’t provide a detailed reason for leaving the NZIA, Munich Re highlighted antitrust risks as limiting the scope of its decarbonisation goals, while Zurich noted a desire to focus its resources to support its customers with their transition.
