UK campaigners urge regulators to act on climate risk, fossil fuel underwriting
Environmental campaigners have urged Britain's financial regulators to enforce consumer duty rules for insurers exiting high-risk markets and to raise capital requirements for underwriting fossil fuels. They want insurers to transparently exit markets and for regulators to consider increased capital requirements for new fossil fuel business.
A coalition of environmental campaigners has signed an open letter calling on Britain’s financial regulators to enforce Consumer Duty rules when insurers exit high-risk markets and to raise capital requirements to reflect transition risks on insurers' balance sheets. The letter, published on Monday and written by Lorna Powell, co-director of Mothers Rise Up, was addressed to Nikhil Rathi and Katharine Braddick, chief executives of the Financial Conduct Authority and Prudential Regulation Authority, respectively.
It also urged stronger action on the insurability challenges facing flood-prone communities in the UK, and pressed for measures to address broader climate-related financial instability. Powell cited Tenbury Wells as a case study for the “uninsurability trap”, saying residents faced prohibitive premiums, market withdrawal from mainstream insurers and stranded 21 Under the UK’s Consumer Duty rules, firms must deliver good outcomes and avoid “foreseeable harm” to retail customers. The letter said the foreseeable harm framework should be applied not only to product suitability, but also to conduct around capacity withdrawal in high-risk areas.
It urged the FCA to enforce the Consumer Duty so insurers cannot make silent exits from the market or use “hidden” flood policy exclusions, and instead should withdraw capacity transparently while treating existing customers fairly. The letter also said the FCA should define what good outcomes look like in foreseeably uninsurable communities, and should require insurers to assess individual property-level flood defences rather than abandoning entire communities because of their postcode.
In a section headed “Stress Testing And Capital Requirements”, Powell said the PRA should protect the British economy from the risks linked to continued fossil fuel underwriting, saying those activities are in direct tension with SS 5/25, which requires climate-related risk to be managed alongside credit. Signatories urged the PRA to require reverse stress tests on insurers' underwriting books to identify a rapid, disorderly move to net zero that would leave a carrier's portfolio of new fossil fuel business non-viable. They also said the PRA should fully reflect transition risks in insurers' own risk and solvency assessments.
In the letter, signatories said continued underwriting of new fossil fuel capacity should be treated as a material exposure needing higher capital requirements because of the probability these assets become stranded, and said the adjustment would price the long-term transition risk on the firm's balance sheet.
The letter, also sent to Secretary of State for DEFRA Angela Eagle, Minister of State for DEFRA Emma Hardy, Secretary of State for DESNZ Miatta Fahnbulleh and three committee chairs, called on DEFRA and HM Treasury to reform Flood Re by shifting the statutory levy away from a flat market share fee and adding a climate risk surcharge for insurers that underwrite new fossil fuel projects. The move would follow recommendations from the European Insurance & Occupational Pensions Authority to impose extra capital charges on European insurers’ transition-exposed assets on the underwriting side of the balance sheet.
Applying the same prudential logic to underwriting would ensure those driving long-term physical risks pay their fair share toward protecting vulnerable communities such as Tenbury Wells. Flood Re declined to comment on the calls for regulatory reform. Among the 10 cosignatories were Dave Jones, former California insurance commissioner and founding chair of the Sustainable Insurance Forum, and Louise Pryor, former president of the Institute and Faculty of Actuaries.