New York Lawmakers Threaten To Ban Insurance for Fossil Fuel Projects
The bill would banish insurance companies from the state if they invest in companies profiting from oil and gas.
A new proposal in the New York Legislature would prohibit insurance companies from doing business in the state if they insure businesses that make over 10 percent of their money from fossil fuels. The bill, however, could backfire, encouraging insurers to vacate New York entirely rather than leave the lucrative industry.
"Within five years of the effective date of this article," the bill mandates, the "superintendent shall require any insurer doing business in the state to certify that they have divested" from "any company that derives ten percent or more of revenue from exploration, extraction, processing, exporting, transporting, and any other significant action with respect to oil, natural gas, coal, or any byproduct thereof."
Additionally, the law would force insurers to divest from any projects that are "intended to facilitate or expand" any "significant action with respect to oil, natural gas, coal, or any byproduct thereof."
New York is not the only state currently attempting to implement backdoor restrictions against fossil fuels by warding off insurers. Since last year, the Connecticut Legislature has debated a proposal to enact a fee against insurance companies for covering fossil fuel projects.
These pieces of legislation aim to kneecap fossil fuel companies by undercutting their funding. The New York bill threatens would-be insurers of fossil fuel projects—for instance, pipeline construction and natural gas power plant production—with economic exclusion from the state.
"There's no real magic bullet to stopping the oil and gas beast," Pete Sikora, a climate director at New York Communities for Change, told New York Focus, "but to the extent that there is, it could be insurance….No insurance, no projects."
"Insurance is a very powerful cudgel," added state Sen. Brad Hoylman-Sigal (D–Manhattan), one of the proposal's legislative sponsors.
New York's 2024 legislative session concluded on June 6, meaning the bill cannot be passed before the next legislative session begins in January 2025. But New Yorkers and beyond should hope that it never sees the light of day.
If the bill succeeds, it would increase insurance costs for energy production and potentially cause projects to proceed without insurance.
"Making insurance scarce or impossible to obtain for fossil fuel-related projects will not stop these projects from moving forward; it will only stop them from proceeding with the crucial protections provided by insurance," says Dave Snyder, the Vice President of the American Property Casualty Insurance Association (APCIA), in a comment to Reason.
Given the prevalence and profitability of fossil fuels, New York's "Insuring Our Future Act" could also backfire completely. It presents insurance companies with a choice: Leave the fossil fuel industry or leave the state. And many companies would likely pick the latter.
While New York lawmakers may think of fossil fuels as a thing of the past—perhaps belonging to some less happy time when gas stoves were still legal—they are here to stay, at least for the time being. Fossil fuels account for over 80 percent of total energy in the United States and 60 percent of our electricity. According to some estimates, oil and natural gas will comprise 60 percent of total energy consumption in the U.S. through 2040.
That makes fossil fuels a lucrative business for insurance companies. Northwestern Mutual, New York Life Insurance, State Farm, and six other companies each invested over $10 billion in fossil fuels in 2019, according to data compiled by the California Department of Insurance. Combined, insurance companies invest over $500 billion per year in the industry, and they raked in, according to one estimate, over $21 billion in revenue from the industry in 2022.
Many companies might decide that staying in the fossil fuel business is more important than staying in the Empire State, and if they do, then it will be New York businesses—not fossil fuel companies—that feel the brunt of the law's impact.
But all of this assumes that the proposal's sponsors actually intend to get the bill through the Legislature and are not simply trying to signal their willingness to go the extra mile on climate change by making a political statement.
"I cannot imagine this passing even in the fairly 'woke' atmosphere in the Assembly in Albany," John C. Coffee, a professor at Columbia Law School, tells Reason about the bill. "If it did, it still might face a veto from the Governor."
Hoylman-Sigal and state Rep. Phara Souffrant Forrest (D–Brooklyn), the bill's two legislative sponsors, did not immediately respond to Reason's request for comment.
