Regulators: ‘frustrating and slow’ progress on climate data from insurers

Image shows a scene of extreme weather. — Regulators say insurers are providing more climate data, but progress is slow.

By John Hilton

Insurance companies are making improvements in reporting climate data points, but progress is "frustrating and slow," as one Ceres researcher put it.

Ceres, a nonprofit advocacy organization, recently completed the second Climate Risk Disclosure Survey for the National Association of Insurance Commissioners. The survey relies on voluntary data submissions from insurers.

Responses submitted to the California Department of Insurance represent 516 insurance groups totaling nearly 1,700 individual companies, said Jaclyn de Medicci Bruneau, director of insurance, Ceres Accelerator for Sustainable Capital Markets. The insurers represent 80% of the U.S. insurance market and over $2 trillion in direct premiums written in 2022.

Ceres shared the data and analysis by Manifest Climate software during a Tuesday call by the NAIC Climate and Resiliency Task Force.

Climate problems accelerate

Insurers registered slight improvements across the board, de Medicci Bruneau said, but the climate problems are growing at a much faster rate. Several property and casualty insurers have pulled out of high-risk areas, making it very tough for some home and business owners to find coverage.

"Improvement and progress is always promising and we never want to let perfection get in the way of progress," de Medicci Bruneau said, "but [with] the severity and immediacy of climate risk impacts on the insurance industry, the progress is frustrating and slow."

In the first year of the survey, there were 494 participating groups and about 1500 individual companies. Reason for the growth in participation is twofold, de Medicci Bruneau said. More states particpated and the mandatory reporting threshhold was reduced from $250 million of premium written to $100 million.

The task force produced its own National Climate Resilience Strategy, with some regulators expressing their own frustration over the slow pace. The strategy contains no mandates for insurers.

Instead, 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."

Four broad categories

The Climate Risk Disclosure Survey is aligned with the Task Force on Climate-related Financial Disclosures (TCFD) framework that lays out four broad categories: governance, strategy, risk management and metrics and targets. The categories are then broken down into 11 specific recommendations of actions and processes companies should disclose.

Ceres released several "key findings" last month from the climate data analysis:

1. 94% of the 516 insurance groups are reporting on risk management, 86% on strategy, 81% on governance, and 29% on metrics and targets.

2. Just 26% of the 516 insurance groups reported on parameters across the four TCFD broad categories, while 44% disclosed on three of the four.

3. A year-over-year review of the disclosures from the same insurance groups shows improvement in some of the sub‑areas, including in reporting on how insurers are integrating climate-related risk into their risk management processes, how they are identifying climate-related risks and opportunities, and how they are reporting on scope 1, 2, and 3 GHG emissions.

4. The increasing adoption of climate scenario analysis by insurers is encouraging, as it demonstrates a growing recognition of the importance of assessing the potential long-term impacts of climate change on insurer’s business models and financial performance.

5. But the lack of transparency on greenhouse gas emissions reductions hinders the ability of regulators, investors, and other stakeholders to fully understand the carbon footprint of companies and their exposure to climate-related risks.

"We do see diverse strategies for climate risk management, across different lines of business, across company sizes, [and] specific area of geography that a company does business in," de Medicci Bruneau said. "Across all lines of business, carriers had the most level of detail provided and risk management and strategy. And for the second year in a row metrics and targets was the specific area where the industry seems to struggle most."

P&C industry tuned in

P&C insuers are on the front lines of climate change impacts. Not surprisingly, those insurers are contributing the most thorough data to the Ceres' effort.

"Property and casualty carriers have been farther ahead in incorporating climate risk into their overall risk managementstrategy and business models," de Medicci Bruneau said. "It's only fairly recently that health and life insurers are beginning to understand the full materiality of climate risk, and its impact to their business models.

Insurers might seem to be moving slowly on climate change adaptations, but there are positive signs, said Megan Hart, global head of analytics and collaborations, Climate Risk Advisory, AON. She reported plenty of "trepidation" when U.S. insurers were first confronted with TCFD standards.

Now those same insurers are getting more comfortable and starting to develop some "in-house expertise," Hart said.

"Now that they've kind of developed more of a comfort level with what they're observing, and starting to also think about opportunities for new products and services that comes with the transition to a low-carbon economy," Hart added.

"When we're talking about projections into the future, it is really important to recognize uncertainty. But these tools can help us to take a first step and think through options to adapt to climate change."

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.