Climate Change and the Insurance Sector
Founded in 1871, the National Association of Insurance Commission represents insurance regulators in all fifty states. It’s not a very woke group – the present president is the Director of the Idaho Department of Insurance. Nevertheless, the group has just issued a latest “voluntary” survey for insurance firms about climate risks. “Voluntary” is in quotes because about 80% of the insurance market is regulated by states that mandate the survey.
Climate risks have long been a priority for the foremost European reinsurance corporations; those are corporations that insure the insurance firms themselves against unexpectedly larger claims. The US insurance industry has been slower to catch on to the issue.
In 2018, CLEE partnered with the California Department of Insurance on a report in regards to the problem, TRIAL BY FIRE Managing Climate Risks Facing Insurers within the Golden State. After surveying climate-related extreme events, the report goes on to watch:
“Lots of the losses resulting from these events are insured. The added litigation events arising out of those and other climate-related events are creating liability exposure for the insurance industry of a magnitude that would ultimately swamp the property losses. Furthermore, insurers’ own assets (accrued to pay claims and shareholders) are vulnerable to climate impacts as well, creating the potential for serious systemic risks. Climate change has thus change into a multi-faceted material risk for the $4.6-trillion global insurance industry.”
Because the report points out, the danger is amplified because extreme events could be correlated with one another, because the identical risks can impact the worth of insurance company assets in addition to their claims exposure, and since individual catastrophic events could cause large and unpredictable increases in claims.
The brand new NAIC survey is aligned with recommendations from the federal Financial Stability Oversight Council (FSOC). It calls for information in regards to the insurer’s governance process regarding regarding climate-related risks; the actual and potential impacts of climate risk on the insurer’s business and financial planning; the insurer’s strategy for managing climate risks; and the metrics and targets used for risk assessment and management. There are also a series of yes/no questions, equivalent to: “Does your board have a member, members, a committee, or committees liable for the oversight of managing the climate-related financial risk?”
Survey results are public. The impact of the survey depends upon what people do with the data, including insurance regulators, investors, and the general public.