For years, investors have asked insurance companies to report on how they’re aligned with the Paris Agreement on climate change and a world of net zero emissions. Now there’s a new twist.

Shareholder advocate As You Sow maintains that investors should know how durable an insurance company’s customer base is, given the warming planet. Specifically, As You Sow is asking Travelers Companies TRV “to report on the expected impact of climate-related pricing and coverage decisions on the sustainability of its homeowners’ insurance customer base under a range of climate scenarios in the near, medium, and long-term.”

You can read the proposal, which is up for a vote at Travelers’ May 21 annual meeting, here. Travelers’ board recommends rejecting the proposal.

An Interesting Proxy-Voting Proposal

“This is an interesting proposal. I’ve not seen one like it before,” says Lindsey Stewart, director of stewardship research and policy for Morningstar Sustainalytics. “It seeks to prompt the company to disclose a lot more on an issue of concern to many: how the increasing frequency of extreme weather events in a changing climate could affect the insurability of residential property in the United States.”

Insurance companies insure and finance projects that create the greenhouse gas emissions that cause global warming. Usually, insurers have been asked to report on these emissions. Indeed, such a proposal by As You Sow won 14.66% of the Travelers’ shareholder vote last year. Chubb CB faces a similar proposal on May 15.

But this particular proxy-voting proposal underscores how insurance companies also insure assets that are affected by global warming. A growing number of weather-related disasters is causing insurers to pull back, either withdrawing from the market or making policies prohibitively expensive for certain customers. That could affect profitability “if the companies need to keep dropping policyholders and make policies so expensive they can’t get new policyholders,” says Michael Passoff, CEO of Proxy Impact.

Many homeowners in California, Florida, and other states have seen their insurance rates increase by double digits as insurers try to stem losses from higher claims. A recent US Treasury survey covering 2018-22 showed that homeowners’ insurance is becoming more expensive and harder to get. According to a survey by Insurance.com, California and Florida were most affected by policy cancellations.

In early January, the Palisades and Eaton fires in Los Angeles burned more than 37,000 acres and 16,000-plus structures, causing insurance industry losses of $25.2 billion-$39.4 billion, according to consulting and actuarial firm Milliman. Travelers is one of California’s largest home insurers, and it won approval to increase California rates by an average of 15% in 2024.

A board member on giant insurer Allianz ALIZY recently said the climate crisis poses major financial and economic risks. Günther Thallinger, who also chairs Allianz’s investment board, wrote that as the world grows hotter, “insurers will no longer be able to offer coverage for many of these risks. The math breaks down: the premiums required exceed what people or companies can pay. This is already happening. Entire regions are becoming uninsurable.” He writes that a lack of insurance will make other financial services unavailable, creating a “climate-induced credit crunch” in housing, infrastructure, transportation, agriculture, and industry.

Travelers Stock Up Ahead of Annual Meeting

Going into the annual meeting, Travelers stock has outperformed the market. Brett Horn, who follows the company for Morningstar, says the strength of the commercial insurance business gives Travelers a narrow economic moat, or competitive advantage. Indeed, first-quarter results might have been even stronger had the California wildfires not happened. Travelers estimates catastrophe losses from the wildfires of $1.7 billion pretax ($1.3 billion aftertax) on a preliminary basis, including losses from personal and commercial segments.

Horn believes the outlook for profitability looks bright because of the commercial operation. Homeowners insurance accounts for about 15% of premiums, and “strong pricing in homeowners is an additional boost to this side of the business, although somewhat necessary to combat increased claims,” he writes.

In a separate, unrelated proposal, shareholder John Chevedden asks that Travelers seek shareholder approval of any named executive officer’s pay package that provides severance or termination payments whose value exceeds 2.99 times the sum of the executive’s base salary plus the target short-term bonus. Travelers recommends rejecting the proposal.

Counting the Cost of Catastrophe Losses

As You Sow requests that Travelers provide the expected impact of climate-related pricing and coverage decisions on the sustainability of its homeowners’ insurance customer base under a range of climate scenarios in the near, medium, and long term.

It also asks Travelers to project the percentage of policies not insurable due to climate risk, climate-related policy nonrenewals and rate increases, related profitability impacts, and risks to Travelers and its investments for each time frame. Travelers recommends rejecting the proposal, saying its current disclosures and climate risk mitigation have “proven effective,” and that the requests don’t align with current industry practices. The firm suggested that people look at its report, which shows its “significant investments in technology, data and analytics and personnel to refine its view of—and effectively manage—weather- and climate-related risks and to inform its business strategy.”

Moreover, Travelers says it already uses “various analyses and methods, including proprietary and third-party modeling processes and geospatial analysis, to evaluate our climate-related risks and make underwriting, pricing and reinsurance decisions designed to manage the Company’s exposure to catastrophe events.” In 2016, Travelers began considering how it might need to shift underwriting practices due to climate change. It also maintains its share of property catastrophe losses relative to total property catastrophe losses has declined significantly.

‘If Pricing Isn’t Adequate, It’s Best for Insurers to Walk Away’

“I can appreciate why Travelers would not want to disclose this information, as climate change risks are evolving and difficult to quantify exactly,” says Horn. “Publicly disclosing their views would potentially be useful information for competitors.”

Recent insurance industry pricing shows that “the industry is growing more disciplined,” Horn continues. “This is creating issues in some areas, as price increases and insurers retreating from some areas create problems for policyholders. But, in our view, if pricing isn’t adequate, it’s best for insurers to walk away.”

Danielle Fugere, president of As You Sow, says: “We thought it was fair to ask the company what we should expect as investors. Tell us what you know so we have more information on which to base our investment decisions.”

Support for this proposal may be low initially, as with many environmental, social and governance proposals. Stewart expects “a clear majority” of Travelers shareholders to reject the resolution, “as is increasingly the case with shareholder proposals on the environment, but it will be interesting to see how many shareholders support the proposal, and whether these kinds of requests become more common in the future.”

Says Fugere: “Truly we hope that Travelers gives the report that we requested, no matter what the vote is because it’s an important issue. We’re in that stage of truly looking into this issue and trying to assess what investors need to know and what companies need to know … We expect to be engaging with other companies on this very issue as we go forward. There’s a willingness [among market participants] to suspend disbelief and think there’s some way to insure properties that are increasingly uninsurable. The bigger crisis that is there for anybody to see is that we really just need to address climate change.”