Maryland commissioner on NAIC climate effort: It’s time to take action

State insurance regulators are moving ahead with a "National Climate Resilience Strategy" but industry lobbyists are not sure what it means.

"We're not sure what a model looking out to the years 2040 and 2050, that assumes no change whatsoever in a company's book of business and the policyholders it's servicing, the geographical areas it's in, [any] mitigation and adaptation efforts, we don't see any kind of a clear connection between those results and a company's current exposure to hurricane and wildfire," said Stephen Broadie, vice president, financial and counsel for the American Property Casualty Insurance Association.

Broadie spoke last week during a call by the Climate and Resiliency Task Force. The task force is scheduled to meet again Monday at the spring meeting of the National Association of Insurance Commissioners.

The NAIC said its climate resiliency proposal, "provides for a unified approach, data collection and utilization, and resiliency actions, including the launch of a comprehensive NAIC Climate Risk Dashboard to measure and evaluate protection gaps. Among its actions, the NAIC will also seek to create new resilience tools, advocate for pre-disaster mitigation funding, and develop scenario analysis resources for state regulators."

Insurers pulling out

Major insurance companies are opting out of offering coverage in high-impact weather states such as Florida and California. Both State Farm and Allstate pulled out of California, while Farmers capped the number of new homeowners policies each month, severely reducing the options for homeowners in high-risk wildfire areas.

Gov. Gavin Newsom recently signed an executive order aimed at stabilizing the California property insurance market and luring insurers back. Florida lawmakers also tried similar strategies with Gov. Ron DeSantis.

One thing the NAIC proposal does not include is tough new mandates, which Broadie acknowledged. For example, it is not being used to develop a risk-based capital charge or any additional capital requirement. In addition, company data and responses are being kept anonymous.

Maryland Insurance Commissioner Kathleen Birrane, vice chair of the task force's solvency workstream, told industry lobbyists that the time has passed for doing nothing.

"What we're not going to do is just sit and do nothing," she said. "So what we also need to do is make sure that we're having constructive dialogue as we are moving forward, and that your ideas are concrete. So if you don't like this, what's your alternative?"

Joseph Sieverling is senior vice president and director of financial services for the Reinsurance Association of America. His members just want clarity, he told the task force.

"It's unclear to us what would trigger a concern, what companies should be worried about," he said.

'Very sensitive to climate risk'

And there is a cost concern, Sieverling added. To provide hurricane and wildfire data relies on fewer variables, so it's more difficult and costly to do, he explained.

"The RAA is very sensitive to climate risk today and into the future," Sieverling said. "It's a very core part of our members' business. We would just like more information about mostly the costs and benefits from this specific proposal. We may need to consider other alternatives to get the same kind of information that regulators and supervisors need."

One group that does like the climate strategy is Ceres, a nonprofit sustainability advocacy organization based in Boston.

"We agree that comparing varied time horizons of hurricane and wildfire loss projections alongside the current RCAT framework provides regulators with important predictive data on potential climate impacts, without being overly prescriptive or requiring additional capital requirements," wrote Ceres' executives Steven Rothstein and Jaclyn de Medicci Bruneau in a letter to the task force.

Amy Malm is administrator for the Wisconsin Division of Financial Regulation. She pointed to the hidden benefits of the climate proposal.

"The small- to medium-sized companies aren't thinking about this. This will help get them thinking about it," said Malm, adding that she often speaks with company executives who aren't thinking about concentration of risk until she mentions it.

"If doing this prevents one insolvency from happening, that's another benefit," she said.

InsuranceNewsNet Senior Editor John Hilton covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.