NAIC expected to vote on climate strategy as data collection continues

As federal officials continue to push for more detailed climate data from insurers, the National Association of Insurance Commissioners (NAIC) is emphasizing climate concerns during its annual fall meeting this week in Orlando.

The Climate and Resiliency Task Force is expected to adopt a National Climate Resilience Strategy for Insurance in a bid to stabilize the insurance market. The task force meets Sunday at the NAIC fall meeting.

"It’s part of our overarching mission to manage risks, ensure the availability and reliability of insurance products, promote insurer solvency, and close protection gaps," the strategy reads. "Our work to identify, assess, and communicate risk and risk reduction solutions, as well as to improve oversight of the insurance sector, has positioned state insurance regulators to implement a climate resilience strategy."

Several major insurance companies abandoned or reduced coverage in areas hardest hit by natural weather disasters. For example, insurers representing 60% of the property & casualty market have stopped or reduced writing policies in California due to wildfire risks.

Both State Farm and Allstate said they would not issue new policies in the state, while Farmers capped the number of new homeowners policies each month, severely reducing the options for homeowners in high-risk areas.

Data collection ongoing

Meanwhile, various attempts to collect climate data from insurers are ongoing. The NAIC Climate Risk Disclosure Survey is administered by the California Department of Insurance. Fifteen states participated in the latest voluntary survey, with responses due by Aug. 31, 2023. CDI officials have not responded to multiple inquiries about the data availability.

In 2022, the NAIC adopted a new standard for insurers to report their climate-related risks, in alignment with the international Task Force on Climate-Related Financial Disclosures (TCFD). The TCFD standard is the international benchmark for climate risk disclosure, regulators have said.

The Department of the Treasury’s Federal Insurance Office is proceeding with its first-ever data collection from insurers to assess climate-related financial risk. The effort is opposed by NAIC regulators, but Treasury officials announced Nov. 1 that it will proceed.

“Americans are facing growing challenges from extreme weather events caused by climate change,” said Secretary of the Treasury Janet L. Yellen. “The Treasury Department’s insurer data collection is the first of its kind and will provide critical information at a local level to assess the increasing impacts of climate change on household budgets. The resulting data and analyses will help policymakers inform potential approaches to improving insurance availability and affordability for consumers.”

NAIC strategy details

The NAIC National Climate Resilience Strategy for Insurance will address the local risks, including flooding, extreme heat and cold, wildfires, hail, convective storms, atmospheric rivers, drastic snowfall, and hurricanes, according to the document.

"Insurance regulators have the role and responsibility for ensuring stable, competitive marketplaces and financially solvent carriers," regulators wrote. "Two crucial parts of this role are to make sure that insurance companies have the financial resources to make good on their promises to pay claims and to take steps to close insurance protection gaps."

The strategy "will set clear goals and direction, creating stronger cohesion" among the four task force workstreams: Solvency, Technology and Innovation, Climate Risk Disclosure, and Pre-Disaster Mitigation.

Five action plans are outlined in the document:

1. Identify and coordinate the measurement of protection gaps, maintain a dashboard to understand where protection gaps are widening, and measure progress in closing those gaps.

2. Create a blueprint for the future of flood insurance. We cannot only rely on the NFIP to close protection gaps to flood. We can coordinate on insurance regulator approaches to new strategies on innovative products, risk assessment tools, risk communication, and risk mitigation programs that can help close protection gaps for flooding.

3. Fill long-term insurance data gaps and utilize the Catastrophe Modeling Center of Excellence to improve understanding of how coverages are changing within and among jurisdictions. Continue to make the Catastrophe Modeling Center of Excellence a resource for all members to understand mitigation priorities.

4. Create and coordinate new resilience tools to assist all state regulators in developing state level mitigation grant programs and expanding incentives for pre-disaster mitigation. A growing number of states are implementing or proposing science-based mitigation grant programs, either linked to FEMA funds or state level funds. The creation of a common resource, or roadmap for state insurance commissioners to contribute to risk mitigation programs would reduce future losses and promote insurance availability in member jurisdictions.

5. Expand insurance regulators’ leadership on new solvency tools. Solvency oversight is a critical part of insurance regulation. Preparing insurance regulators to better adapt to climate change requires new scenario analysis tools. Testing catastrophe models, scenario analyses, and risk mitigation factors will all contribute to more resilient communities. Simultaneously, it will require our Departments of Insurance to build knowledge in preparation for the emerging challenges of climate and the use of sophisticated models.

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.