By Ron Hurtibise, South Florida Sun Sentinel
The “wokeness” police are coming for Florida’s insurance industry.
At least that’s what Jimmy Patronis, the state’s chief financial officer, warned about in comments to the Florida Cabinet this week.
In a meeting of the Florida Cabinet on Tuesday, Patronis called on the Florida Office of Insurance Regulation to assess the role of “Environmental, Social and Governance” — or ESG — standards in insurance markets “so Florida can better fight back.”
ESG is a growing trend in the investment world that ties funding to corporate responsibility.
Curiously, one of the practices that Patronis cited as a product of “the cult of ESG” — providing favorable insurance rates to owners who protect their properties against hurricanes, floods and extreme weather events that scientists say are becoming more frequent because of climate change — has been required under Florida law for years.
And the Department of Financial Services, overseen by Patronis, is planning to launch a program that will provide $2 for every $1 that homeowners spend to protect against windstorms.
Asked if Patronis wants to prohibit insurers from offering discounts to property owners who invest money to protect against effects of climate change, spokesmen for his office declined to provide a yes or no answer. They said that the CFO’s comments were about asset fund managers imposing ESG criteria to force government action, which Patronis believes is “undemocratic.”
Patronis’ comments to the cabinet asserted that asset fund managers are requiring insurance companies to focus more on climate change, and warning of financial and legal consequences if they fail. That leaves open the potential, he said, that “woke businesses will get better insurance products while others who ignore ESG criteria may not get any coverage.”
Mark Friedlander, communications director for the Insurance Information Institute, a nonprofit funded by large national carriers, said insurers have long been involved in understanding and addressing ESG and other risk factors “as a fundamental part of doing business.”
“Florida is the most vulnerable state to risk,” Friedlander said in an email. “It is essential that Floridians are financially well-protected from the wrath of Mother Nature with the right types and amounts of insurance coverage. And it is paramount for property insurers to price this risk appropriately based on the potential hazards that may impact the state.”
What is ESG?
ESG is a framework through which to assess a company’s values relating to the environment, social issues and governance. The investment world, as well as governments that make financial investments, have begun to pay more and more attention to it, and alter their investments accordingly.
That attention is forcing companies to analyze how they are faring according to ESG criteria.
Across the internet, explanations of what ESG is are laden with terms seemingly intended to offend traditionalists and conservatives.
The website Corporate Finance Institute says ESG “takes the holistic view that sustainability extends beyond just environmental issues.” It’s best characterized, the site says, “as a framework that helps stakeholders understand how an organization is managing risks and opportunities related to environmental, social, and governance criteria.”
Robeco, an investment strategy website, describes ESG as a tool used to evaluate countries and companies “on how far advanced they are with sustainability.”
Of the three “pillars” of ESG, the site says environmental factors refer to the contribution a company or government makes to climate change through greenhouse gas emissions, waste management and energy efficiency.
The Social pillar involves evaluating how a company or government treats employees, customers and suppliers alike. Does it use illegal child labor? Is it well integrated with its local community? What are its workplace health and safety standards?
Governance typically refers to a set of rules or principles defining rights, responsibilities and expectations between different stakeholders. A well-defined corporate governance system, the site says, “can be used to balance or align interests between stakeholders and can work as a tool to support a company’s long-term strategy.”
A number of investment firms have developed ESG evaluation criteria to help investors decide which companies or countries best align with their values.
States are increasingly applying their residents’ values to decisions about which companies to include in their portfolios, the New York Times reported.
Maine, for instance, a Democratic Party-dominated “blue state,” passed a law last year to divest 200 publicly traded fossil fuel companies from its pension funds, citing environmental risks on potential investment performance, the story said.
Other blue states have introduced initiatives to divest their pension funds from gun and ammunition companies, the paper reported, while red states have ordered divestment from funds that boycott fossil fuel companies.
Patronis joins DeSantis’ fight against ‘woke’ corporations
Shortly after Patronis addressed the cabinet on Tuesday, Gov. Ron DeSantis announced that Florida would ban consideration of “social, political or ideological interests” in selecting investments for the state pension fund. Instead, the state will “prioritize the highest return on investment” without concern for “nonpecuniary beliefs or political factors.”
The announcement wasn’t a surprise. DeSantis has for months been criticizing “woke” or “leftist” corporations that he says are making investment decisions “to impose an ideological agenda” on the American people.
On Tuesday, Patronis said, “it appears it’s not confined to equities alone. It looks like insurance markets are beginning to write coverage based on ESG criteria.”
Patronis called on the Office of Insurance Regulation “to assess ESG’s role with insurance,” adding, “We need to fight ESG within the insurance markets because it’s another field of battle.”
He cited reports on how ESG standards are being utilized in global insurance markets by asset managers.
One of his examples, business and technology advisory firm Capgemini, said in a report that “30% of property and casualty insurers will offer preferential treatment to policyholders who adopt ‘sustainability initiatives.’ Meanwhile, 27% will refuse coverage based on this criteria.”
In another example cited by Patronis, “The New York Department of Financial Services is telling the insurers that they must take into account ESG risks. New York regulates 1,800 carriers who manage around $4.7 trillion in assets.”
Patronis continued, “That means a lot of woke businesses will get better insurance products, while others who ignore ESG criteria may not get any coverage. All of this means if you’re not woke enough, certain insurers will not cover you.”
Patronis did not identify which elements of ESG, including measures addressing climate change, might align with Florida’s storm preparedness priorities, and which should be rejected as unacceptably “woke.”
“Meanwhile, as certain insurance companies have joined the cult of ESG, Florida is experiencing a hardening insurance market,” he said. “If insurance companies are charging a premium for ESG, then we need to know about it. We know that asset managers are telling insurers to focus more on climate change, or they’ll lose money, or be sued. Or both.”
Patronis then quoted an insurance expert at PricewaterhouseCoopers as saying that property insurers “will also be working harder on influencing how governments react to, mitigate, and monitor drivers of climate risk.”
“That,” Patronis said, “means insurers are planning to increase rates, or reduce coverage, to force governments to address ESG standards. By their own admission, insurance is being used for social engineering, and I am concerned that Florida policyholders may be footing the bill for this woke-ism. In the same way families are paying for Joe Biden’s inflation tax, Florida policyholders may be paying an ‘ESG fee’ in their policies.”
When asked whether the Office of Insurance Regulation, which Patronis’ office also oversees, has any standard to evaluate elements of “wokeness” or “ESG fees,” a spokeswoman said by email that the office reviews policies and rate filings to ensure they comply with requirements of the Florida Insurance Code and are not “excessive, inadequate or unfairly discriminatory.”
“OIR will continue to work with members of the Florida Cabinet and provide any requested data or information as they continue to look into the issue. OIR remains committed to consumer protection and the promotion of a stable, competitive insurance market for consumers,” the spokeswoman said.
Florida already woke?
Within that Florida Insurance Code are requirements that insurers give discounts to consumers who install improvements to protect against windstorm damage, such as impact windows and doors and improved fastening of roof trusses to structure frames.
In May, the governor and Legislature approved $115 million to revive a program that will incentivize homeowners into investing in those and other storm-hardening improvements. The My Safe Florida Home program, administered by the Patronis-led Department of Financial Services, will pay homeowners $2 for every $1 they spend on improvements, up to $10,000.
The program was revived as part of a package of reforms during a special legislative session aimed at slowing or stopping insurance rate increases. Homeowners who complete the improvements should see discounts in their insurance premiums.
Severe weather becoming more frequent and costly
Insurance companies blame rate increases on mounting financial losses they have experienced over the past several years because of more frequent extreme weather events — floods, tornados, hail, hurricanes — that climatologists attribute to the warming of the planet.
Insured losses caused by natural disasters have grown by nearly 700% annually in the United States since the 1980s, Friedlander said. “Four of the five costliest natural disasters in U.S. history occurred over the past decade. In just the past 19 months, we have incurred nearly 30 $1 billion weather/climate loss events across the country.”
Increased frequency of those losses has prompted the financial industry to urge insurance companies to more accurately project long-term losses, and reward policyholders who reduce the potential for costly claims. Rewards for risk reduction have always been a basic tenant of underwriting: the least risky risks get the best prices.
The progressive nonprofit Center for American Progress identified five different risk categories that climate change poses to insurers. In addition to increased damage from extreme weather, the center noted a potential for increased litigation against policyholders that fail to mitigate or adapt to climate change.
Spokesmen at Patronis’ office declined to directly respond to the question of whether the CFO’s statements meant he favored prohibiting insurers from offering discounts to property owners who invest in measures to reduce potential impacts from climate change, such as raising sea walls, elevating living areas of new construction, hardening doors and windows, and adding insulation.
Patronis spokesman Frank Collins said in an emailed statement, “ESG adds costs. Policyholders pay for these added costs. The CFO believes policyholders come first, not global asset managers. The CFO’s comments cite a number of facts on how ESG is being used to force government action, which the CFO believes is undemocratic.”
Later, Collins provided another statement: “We’ve been in a hardening market, so I’m unaware of ESG’s benefit to the Florida market OR whether discounts are actually tied to ESG vs. normal actuarial analyses (I think you’ll agree discounts existed long before ESG entered the boardrooms).”
He added, “Assessing ESG’s role in insurance is important. Ultimately, the CFO wants the insurer to offer competitive prices that are good for the consumer. He supports discounts, rebates, and anything else that helps policyholders. The CFO opposes ESG actions that try to influence governments and cost consumers more money.”
What those ESG actions might be — and what costs Patronis and Collins are concerned about — is apparently up to the Office of Insurance Regulation to identify.
Sha’Ron James, former Insurance Consumer Advocate under three CFOs, including Patronis, said about Patronis’ comments: ”I have not talked with him and need to better understand his comments and how ESG in financial ratings differs from using premium discounts to encourage owners to mitigate their property from damage before commenting.”
James said she believes Patronis is referring to financial stability ratings agencies “using ESG standards thereby impacting an insurance company’s access to capital, credit etc., which is different from insurance ‘ratemaking’ which is the process of setting the price paid by consumers.”
Friedlander said insurers’ increased focus on minimizing risks from climate change is having positive effects.
“The insurance industry’s focus on resilience is starting to pay dividends as more Americans recognize the very real risks their residences and businesses face from hurricanes, floods, and other natural disasters,” he said.
Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at email@example.com.
This piece was first published in the South Florida Sun Sentinel, which is a member of the Invading Sea media collaborative.