States Require Insurers to Respond to Climate Risk Survey
In September, when Ceres published a report on the preparedness of the insurance industry for the impacts of climate change, Sharlene Leurig of Ceres said, "2011 has been a painful and important reminder that changing climate will inflict damage across the US. Even before Hurricane Irene, insured losses in the US this year were 40% higher than in the entire year of 2010."
Extreme weather events such as storms and flooding, identified in November by the Intergovernmental Panel on Climate Change (IPCC) as an early warning signal of the effects of climate change, led to a record for catastrophe losses for insurers in 2011.
"That insurers are concerned about climate risk but don't understand what to do about it, underscores the need for sustained engagement by regulators and shareholders," Leurig continued.
A leader in regulatory engagement has been the National Association of Insurance Commissioners (NAIC), which since 2009 has required insurance companies with annual premiums of $500 million or more to complete its Insurer Climate Risk Disclosure Survey.
The survey, which is based on questions on performance and risks and opportunities posed to organizations by the Carbon Disclosure Project (CDP), states, "Disclosure of climate change risks is important because of the potential impact of climate change on insurer solvency and insurance availability and affordability across all major categories of insurance."
"As regulators, we are concerned about how climate change will impact the financial health of the insurance sector and the availability and affordability of insurance for consumers," Joel Ario, chair of the NAIC Climate Change and Global Warming Task Force, said in 2009. "This disclosure standard will give regulators the information we need to better understand these risks."
Yesterday, California joined the states of New York and Washington in raising the bar for disclosure of climate risks by insurers, when Insurance Commissioner Dave Jones announced that all insurers with annual premiums of at least $300 million will be required to respond to the NAIC survey.
"This multi-state effort will not only seek to strengthen this survey, but also to ensure the results of the survey continue to be made public," Jones said. "The result should be that insurers can implement best practices, and members of the public can study the impact on consumers."
"Climate change will have major implications for the insurance industry, yet few insurance companies are identifying their potential exposure and strategies for dealing with it," Andrew Logan, insurance program director at Ceres, said. "This weak disclosure means that investors, regulators and consumers have been flying blind without a solid sense of whether the industry is taking the steps necessary to understand and respond to this profound issue. The leadership demonstrated by Commissioner Jones and his colleagues today will go a long way toward closing this information gap."
This article originally appeared on SocialFunds.com.
Flood water photo via Shutterstock.