The nation’s insurance industry has gone haywire in recent years amid a succession of floods, fires, and other climate-fueled disasters. These catastrophes have forced carriers to pay out billions in claims, and many have responded by raising premiums in disaster-prone states like Florida and Oregon or leaving certain markets altogether.

But many of these companies also provide coverage for fossil fuel projects, like pipelines and natural gas power plants, that would never be built without their backing. This gives the insurance industry a unique role on both sides of the climate crisis: Insurers are helping make the problem worse by underwriting the very projects that warm the Earth even as they bear the costs of mounting climate disasters and pass them on to customers.

Legislation in Connecticut, the capital of the American insurance industry and home to several of its largest carriers, could make insurers pay for that contradiction. If passed, the bill, which just cleared a committee vote in the state Senate, would move toward imposing a fee for any fossil fuel projects companies insure in-state. That revenue would go into a public resilience fund that could underwrite sea walls and urban flood protection measures.

“It’s important to begin to hold [insurers] accountable for how they’ve played it both ways in terms of climate change,” said Tom Swan, the executive director of Connecticut Citizen Action Group, an economic justice nonprofit that has joined several environmental organizations in lobbying the legislature to pass the bill. “People are seeing skyrocketing rates, or they’re pulling out of different areas, and they continue to underwrite and invest in fossil fuels at a pace much greater than their colleagues across the globe,” he said. 

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The group pushed a more aggressive proposal last year that would have charged insurers a 5 percent fee for any fossil fuel coverage they issued in the United States, but that bill failed after critics raised several legal questions. In particular, the industry argued that the Constitution’s interstate commerce clause prohibits taxing a company’s out-of-state business.

The new version, attached as an amendment to a climate resilience bill proposed by Democratic Governor Ned Lamont, would only require the state to produce a proposal for an insurance mechanism. The surcharge would apply only to fossil fuel projects these companies insure in Connecticut, avoiding that constitutional challenge.

The assessment would apply not only to new pipelines and fuel terminals, which require ample insurance to attract lenders and investors, but to current coverage for existing infrastructure as well. This means anyone covering the state’s dozens of oil- and gas-fueled power plants would be contributing to the resilience fund. A report from Connecticut Citizen Action Group and several other environmental nonprofits found that the state’s insurers have together invested $221 billion in fossil fuels.

Supporters argue the reduced fee would still raise tens or hundreds of millions of dollars for climate resilience. Connecticut received about $318 million in FEMA disaster aid between 2011 and 2021, or about $149 in spending per capita, according to the climate adaptation nonprofit Rebuild by Design. That puts the state well below disaster-prone locales like Louisiana, which saw $1,736 in federal disaster aid per capita, but far above those like Delaware that haven’t experienced a major disaster in the past decade.

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Eric George, the president of the Insurance Association of Connecticut, the state’s largest insurance trade association, said the organization would “strongly oppose” any surcharge, but added that he was still studying the bill.

The legislation comes as other states, including Vermont and Maryland, introduce “polluters pay” bills to hold oil producers accountable for climate damages. Connecticut’s proposed law is an iteration of that effort focused on an area where state regulators wield significant influence, said Risalat Khan of the Sunrise Project, a nonprofit focused on energy transition policy. 

“People are very directly seeing their premiums rise, in relation to climate disasters,” he said. “There’s a direct question there of, why aren’t state level regulators using more of their power to take local action?”

The significance of this financing mechanism could vary from state to state, says Benjamin Keys, a professor of economics at the University of Pennsylvania and an expert on climate insurance risks. 

“One major issue is that the fuels are collected and burned everywhere, but the pain of natural disasters is local in nature,” he said. Because of that, he questioned whether the financing mechanism “would be feasible for all communities to emulate, because many places have [lots of] disasters hit, but very little in the way of fossil fuel production.” Florida, for instance, doesn’t have much more fossil fuel infrastructure than Connecticut, but faces extreme weather and other catastrophes far more often.

Even though the legislation is weaker than the previous version, supporters say passing it in the home of the country’s insurance industry would send a message to big companies that are still underwriting oil and gas projects.

“I think it’s a good policy, but from a narrative-setting perspective, it’s really important,” said Swan.