View source for Definition:Fossil fuel

🛢️ '''Fossil fuel''' refers to carbon-intensive energy sources — coal, oil, and natural gas — whose extraction, transportation, and use present a complex and increasingly contentious set of risks for the global insurance industry. Insurers interact with fossil fuels on multiple fronts: as [[Definition:Underwriting | underwriters]] of energy-sector assets and liabilities, as institutional investors holding fossil fuel-related securities in their [[Definition:Investment portfolio | investment portfolios]], and as companies exposed to the physical and transitional consequences of [[Definition:Climate change | climate change]] that fossil fuel combustion accelerates. The term has become central to debates over [[Definition:Environmental, social, and governance (ESG) | ESG]] strategy, [[Definition:Sustainability | sustainability]] commitments, and the long-term viability of traditional energy business within insurance portfolios.

⚙️ On the underwriting side, fossil fuel operations generate demand for a wide range of coverages — [[Definition:Property insurance | property]], [[Definition:Business interruption insurance | business interruption]], [[Definition:Marine insurance | marine cargo and hull]], [[Definition:Liability insurance | general and environmental liability]], [[Definition:Directors and officers insurance (D&O) | directors and officers]], and [[Definition:Construction insurance | construction all-risk]] policies for refineries, pipelines, rigs, and power plants. These are often high-[[Definition:Premium | premium]], high-[[Definition:Exposure | exposure]] placements arranged through the [[Definition:London market | London market]], [[Definition:Lloyd's of London | Lloyd's]], or specialized [[Definition:Energy insurance | energy]] pools. Simultaneously, a growing number of insurers and reinsurers — particularly in Europe — have adopted policies restricting or excluding new fossil fuel projects, driven by net-zero commitments, pressure from shareholders and regulators, and emerging [[Definition:Transition risk | transition risk]] frameworks. The UN-convened [[Definition:Net-Zero Insurance Alliance (NZIA) | Net-Zero Insurance Alliance]], launched in 2021, initially attracted major participants before several withdrew amid antitrust concerns, illustrating the tension between collective climate ambition and competitive market realities.

🌍 The insurance industry's relationship with fossil fuels matters far beyond the energy sector itself. As [[Definition:Climate risk | climate-related physical risks]] intensify — more severe [[Definition:Wildfire | wildfires]], [[Definition:Hurricane | hurricanes]], and [[Definition:Flood | flooding]] — fossil fuels sit at the center of a causal chain that feeds back into [[Definition:Catastrophe loss | catastrophe losses]] on insurers' own books. [[Definition:Regulatory | Regulators]] in several jurisdictions, including the UK's [[Definition:Prudential Regulation Authority (PRA) | PRA]] and the [[Definition:European Insurance and Occupational Pensions Authority (EIOPA) | EIOPA]], now expect insurers to conduct climate stress testing and scenario analysis that accounts for both the physical impacts and the [[Definition:Stranded asset | stranded-asset]] risk of fossil fuel investments. The resulting strategic choices — whether to continue underwriting fossil fuel clients, at what price, and under what conditions — are reshaping competitive dynamics across the global [[Definition:Reinsurance | reinsurance]] and [[Definition:Specialty insurance | specialty]] markets.

'''Related concepts:'''
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* [[Definition:Climate risk]]
* [[Definition:Environmental, social, and governance (ESG)]]
* [[Definition:Energy insurance]]
* [[Definition:Transition risk]]
* [[Definition:Catastrophe loss]]
* [[Definition:Stranded asset]]
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