Agency Information Collection Activities; Proposed Collection; Comment Request; Federal Insurance Office Climate-Related Financial Risk Data Collection
Notice and request for comments.
Citation: "87 FR 64134"
Page Number: "64134"
"Notices"
Agency: "Federal Insurance Office,
SUMMARY: Pursuant to the Federal Insurance Office Act of 2010 (FIO Act), the Federal Insurance Office (FIO) of the
DATES: Submit comments on or before
ADDRESSES: Submit comments electronically through the Federal eRulemaking Portal: http://www.regulations.gov, or by mail to the Federal Insurance Office, Attn:
FOR FURTHER INFORMATION CONTACT:
SUPPLEMENTARY INFORMATION:
Background Under the FIO Act, FIO's authorities include monitoring all aspects of the insurance sector, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance sector or the
FOOTNOTE 1 FIO Act, 31 U.S.C. 313 (c)(1)(B). END FOOTNOTE
FOOTNOTE 2 FIO Act, 31 U.S.C. 313 (d)-(e). END FOOTNOTE
On
FOOTNOTE 3 Executive Order on Climate-related Financial Risk, E.O. No. 14030, 86 FR 27967 (
FOOTNOTE 4 See Section 3(b)(i) in E.O. 14030. E.O. 14030 at 27968. END FOOTNOTE
FOOTNOTE 5 Federal Insurance Office Request for Information on the Insurance Sector and Climate-Related Financial Risks, 86 FR 48814 (
FOOTNOTE 6 86 FR 48814 at 48815. END FOOTNOTE
Overview of Analysis
In response to E.O. 14030, one of FIO's climate-related priorities is to assess the potential for major disruptions of private insurance coverage in
FOOTNOTE 7 86 FR 48814 at 48815. END FOOTNOTE
FOOTNOTE 8
FOOTNOTE 9 When an insurer underwrites a policy and receives premiums, it undertakes a potential obligation to settle valid claims. The estimate of the insurer's obligation to pay future claims is reflected as a liability on the insurer's balance sheet. END FOOTNOTE
FOOTNOTE 10 See, e.g.,
FIO is proposing to collect data relating to insurers' underwriting metrics and related insurance policy information. The proposed data is needed in order for FIO to identify and more accurately assess the financial impact of weather-related events on insurers' exposures and underwriting over time. FIO's analysis would assess insurance availability and its effects on policyholders, particularly in regions of the country with the potential for major disruptions of private insurance coverage due to climate-related disasters. This proposed data collection would also allow FIO to analyze the affordability of insurance, both nationwide and in regions of the country with the potential for major disruptions of private insurance coverage due to climate-related disasters. FIO's analysis would not focus on measuring the impact on earnings or capital to assess profitability or solvency of individual insurance companies.
FIO's proposed data collection leverages the format of data regularly reported on the annual statutory filings submitted by
Proposed Scope of Data Collection
FIO's proposed data collection attempts to limit the burden of data collection on the insurance industry while also providing FIO with sufficient data to achieve its assessment of climate risks as set forth in this notice. Below, this section describes the rationale and main elements of FIO's proposed data collection, which include: (1) a focus on insurer underwriting, (2) insurance lines of business, (3) insurers, (4) data elements, (5) reporting framework, (6) reporting period, (7) geographic granularity, (8) geographic scope, and (9) reinsurance impact.
Summary
FIO's proposed analysis of physical risk would focus on P&C insurers' underwriting. For its analysis, FIO proposes to collect insurance underwriting data from insurers constituting the top writers (by premiums written on a national basis) in the homeowners' multi-peril line of business, as well as insurers with the greatest market share in certain states that are potentially vulnerable to climate-related disasters. /11/
FOOTNOTE 11 FIO is using the term "climate-related disasters" to refer to the type of weather-related events (such as wildfires, floods, hurricanes, etc.) that may be produced or exacerbated by climate change, as distinct from non-weather related, natural events (such as earthquakes and tsunamis). References to "catastrophic events" may include both weather-related and non-weather-related events; similar (or synonymous) terms used by the insurance industry include "natural catastrophes" and "natural disasters." END FOOTNOTE
FIO proposes to collect data from: (1) nationwide insurers writing above a premium threshold of
FOOTNOTE 12 An insurance company is said to be "domiciled" in the state that issued its primary license. Once licensed in one state, the company may seek licenses in other states and most insurers write policies in multiple states. END FOOTNOTE
FIO proposes collecting underwriting data for the Representative Sample Insurers. This data would include information regarding claims, premiums, and losses that correspond to data fields reported by
Data would be collected from insurers in a specified Excel template to be provided by FIO (Template). A copy of the proposed Template is available at https://home.treasury.gov/system/files/311/FIO-Proposed-Climate-Data-Call-Template.xlsx and instructions for filling out the template are available at https://home.treasury.gov/system/files/311/FIO-Proposed-Climate-Data-Call-Instructions.pdf. Under the proposed collection, each of the Representative Sample Insurers would need to aggregate and report the data requested by the template at a ZIP Code level for all of the policies that they have written nationwide during the Accident Year Reporting Period.
Underwriting Focus
Insurers face climate-related impacts and risks on both sides of their balance sheets: underwriting and investments. Consistent with the FIO Act and with FIO's direct tasking under E.O. 14030, this data collection focuses on obtaining data necessary to analyze the climate-related impacts on insurers' underwriting, including any effects on whether coverage is available to policyholders. Recent data and events indicate that insurers' underwriting is directly impacted by the physical risks of weather-related events. For example, by one estimate,
FOOTNOTE 13 "Facts + Statistics:
Insurance Lines of Business
Multiple lines of insurance may be impacted by climate-related risks, such as commercial multi-peril, standalone fire, and flood policies. FIO's proposed data collection focuses on homeowners' multi-peril insurance because this is the largest personal line of business impacted directly by weather-related events and is the most relevant in determining potential effects on policyholders. /14/ Multi-peril policies provide coverage for more than one hazard and can bundle together several property and liability insurance lines of business. Homeowners' multi-peril is often offered by insurers as an all-in-one insurance coverage package and may include coverage for property damage from a variety of perils (including wind, hail and fire, loss of use, theft, mold, explosion, and vandalism; however, flood is typically excluded).
FOOTNOTE 14 See, e.g.,
Insurers
FIO's selection of insurers was based on two considerations: (1) a premium threshold of
FIO's proposed premium threshold of
To determine the Potential Climate-Vulnerable States for purposes of this proposed data collection, FIO used the
FOOTNOTE 15 "Learn More," FEMA National Risk Index, https://hazards.fema.gov/nri/learn-more. END FOOTNOTE
FOOTNOTE 16 The National Risk Index uses the term Expected Annual Loss; FIO understands that
FOOTNOTE 17 "Climate Mapping for Resilience and Adaptation,"
FOOTNOTE 18 Insurance stakeholder comments on the National Risk Index appeared in response to a FEMA Request for Information on "FEMA Programs, Regulations, and Policies," which sought feedback to ensure they are meeting
resource for understanding risks. /19/
FOOTNOTE 19 "Reduce Your Risk Against Climate-Related Losses," NAIC,
FIO aggregated the National Risk Index's Expected Annual Loss data across 15 hazards that were determined to be in scope. /20/ Figure 1 shows the 10 states with the highest Expected Annual Loss from those 15 climate-related hazards based on FIO's use of the National Risk Index. FIO identified the 10 Potential Climate-Vulnerable States as an additional selection mechanism to ensure sufficient market coverage and to support more comprehensive geographic coverage. The results indicate that potential climate impacts are geographically dispersed throughout
FOOTNOTE 20 FIO included the following 15 hazards that may experience impacts from climate change: avalanche, coastal flooding, cold wave, drought, hail, heat wave, hurricane, ice storm, landslide, lightning, riverine flooding, strong wind, tornado, wildfire, and winter weather. Many, but not all, of these hazards may be covered under homeowners' multi-peril policies (coastal and riverine flooding are typically covered through separate policies). FIO excluded earthquakes, volcanic activity, and tsunamis from its analysis because they are not considered to be impacted by climate change based on review of both the Fourth National Climate Assessment, https://nca2018.globalchange.gov/, and IPCC's Sixth Assessment Report, https://www.ipcc.ch/assessment-report/ar6/. END FOOTNOTE
Figure 1-Top 10 Potential Climate-Vulnerable States
1 Texas.
2 California.
3 Florida.
4 Louisiana.
5 North Carolina.
6 New Jersey.
7 Missouri.
8 Illinois.
9 Iowa.
10 Oklahoma.
Source: "National Risk Index," FEMA, https://hazards.fema.gov/nri/; FIO analysis.
FIO proposes collecting nationwide data from additional insurers operating in each of these states that do not meet the first consideration in order to capture at least an 80 percent market share within each of these 10 states.
Data Elements
The Template requests underwriting income and claims data elements. While some of the data elements in FIO's proposed collection are reported by insurers either to statistical agents and/or in the Exhibit of Premiums and Losses (State Page) and Schedule P of their annual statutory filings, not all of the fields are reported in one consistent template, using the same accounting methodology, and at the level of granularity proposed for this data collection. Annual statutory filings are done at a national or state level (depending on the element), while the proposed Template seeks these data elements aggregated at a ZIP Code level to more accurately assess localized trends and vulnerable communities, including minority and low- and moderate-income populations.
FIO's proposed data collection includes financial information from elements that also may appear in annual statutory filings, including: insurer identifying information (Template cells C5 through C9), total year-end net admitted assets (as of 12/31 for year of reporting) (Template cell C10), total year-end policyholder surplus (as of 12/31 for year of reporting) (Template cell C11), and premiums, claims, and losses data (Template cells H15 through R15).
FIO's proposed data collections also includes additional fields that are not in statutory filings, including: (1) the number of policy in-force exposures (Template cell D15), (2) total dollar value of coverage for dwelling and/or other structures and personal property (Template cell E15), (3) total dollar value replacement cost value (Template cell F15), (4) total dollar amount of insurance deductible (Template cell G15), and (5) amount of direct premiums written renewed or retained (Template Cell P15). The data for these fields will help FIO assess how trends in underwriting and exposures have changed over time, as well as help provide information on potential protection gaps.
FIO's proposed data collection will only assess exposures that are directly impacted by weather-related events. Therefore, this data collection aims to only include data associated with weather-related hazards, including, but not limited to, convective storms, drought, hail, hurricanes, ice, sleet, snow, tornados, wildfires, and windstorms, but would explicitly exclude:
1. Liability exposures (i.e., the proposed data collection will include only property-related exposures);
2. Flood insurance policies by the National Flood Insurance Program (NFIP) and private insurers because
3. Earthquake coverage, intentional losses caused by the policyholder or his agents (such as arson), acts of terror, or war since these are not considered weather-related events.
FIO is not proposing at this time to collect data by type of peril. While loss events may include the impact of multiple perils, there may not currently be consistency in how insurers maintain or allocate loss data by peril.
Finally, FIO recognizes that the impact of weather-related events may also cause an increase in claims related to additional living expenses. FIO will focus this proposed data collection on claims associated with physical damage to capture the most direct physical risk impact of weather-related events. While FIO acknowledges that additional living expenses claims can account for an increasing portion of weather-related losses, this form of coverage is not always a standard part of homeowners' insurance policies. Therefore, the inclusion of this expense in the analysis could distort metrics reflecting the direct impact of weather-related events. FIO may consider the inclusion of additional elements, including such expenses, in subsequent analyses.
Reporting Framework
FIO proposes to use Accident Year reporting for its data collection. /21/ In Accident Year reporting, underwriting financial data is arranged such that the premiums earned in a given year can be compared with losses associated with claims that occurred in that same year. In this reporting method, the claims and any subsequent changes in reserves are attributed back to the period in which the loss event occurred and not when the loss is reported or paid. Many insurers and State Insurance Regulators use Accident Year underwriting financial data to facilitate actuarial analysis for the purposes of rate-making (or setting policy premiums), reserving, and analyzing losses. In its data collection, FIO proposes seeking Accident Year underwriting-related financial data to monitor the development of claims from the same occurrence throughout the Accident Year.
FOOTNOTE 21 Accident Year reporting is one of two common methods in
Reporting Period
FIO proposes asking for five years of data (2017 through 2021), primarily on an Accident Year reporting basis to evaluate underwriting trends, including before and after periods corresponding to weather-related events. FIO also considered capital planning cycles and potential time lags in the collection of claims from weather-related events when considering the time horizon for the proposed data collection. Additionally, 2017 was a year of record natural catastrophe losses in
FOOTNOTE 22 Natural catastrophes in this estimate are defined as natural disasters, which are significant, destructive events with atmospheric, geological, and hydrological origins (e.g., hurricanes, earthquakes, and floods), that cause at least
Geographic Granularity
FIO considered multiple geographic levels at which insurance data could be collected for this proposed data collection. At the broader end of the range, FIO considered collecting data from insurance companies at the national or state level. In the middle of this spectrum, FIO considered a range of options including collection by ZIP Code, county, public use microdata area, or census tract. At the narrower end of the spectrum, FIO considered that collecting data related to specific latitude and longitude coordinates or building addresses could help pinpoint specific policies. This section outlines why FIO's proposed data collection includes collection at a ZIP Code level.
State-wide information collected on statutory filings would not provide a sufficient level of granularity for FIO's data analysis. First, the physical risk assessment related to weather-related events is complicated and many weather-related events, especially secondary perils, have localized effects, with risk levels and loss impacts differing widely within a state. Collecting more granular data than at a state level would allow FIO to assess the effects of such localized events on insurance markets. For example, one industry source found that secondary perils caused more than 70 percent of insured losses from all natural catastrophes (
FOOTNOTE 23
FOOTNOTE 24 See, e.g.,
FOOTNOTE 25
Second, insurers generally price policies based on the risk in a localized area and such risk assessment may not be uniform for an entire state. Collecting ZIP Code data will allow FIO to understand local differences in
FOOTNOTE 26
FOOTNOTE 27 CDI Wildfire Coverage Report, 2. END FOOTNOTE
Third, in order to fulfill its statutory mandate to assess both the availability of insurance products and the affordability of such products for vulnerable communities, including minority and low- and moderate-income populations, FIO plans to consider pairing underwriting data with demographic data. Demographic data such as socioeconomic status and average home prices can be readily obtained at a ZIP Code level. Existing statutory annual statement filings with state level data assist State Insurance Regulators in the prudential regulation of insurance companies and are not primarily intended to assess trends regarding whether such products are available or affordable. Analyzing ZIP Code information will allow FIO to understand variations in the availability of insurance within a given state and whether the available insurance within that state is affordable. These issues could potentially be obscured by state level averages.
Fourth, using ZIP Code information could be less burdensome for insurers as they may collect ZIP Code information as part of the insured property address when underwriting homeowners' multi-peril policies, making it easier for them to aggregate data at a ZIP Code level for FIO's proposed data collection.
Fifth, ZIP Codes have unique, numerical identifiers, making them easier to analyze than other sub-state boundaries such as counties, and are more stable over time. Historically, county demarcations have changed more frequently than ZIP Code demarcations. /28/
FOOTNOTE 28 "Substantial Changes to Counties and County Equivalent Entities: 1970-Present,"
Finally, the use of ZIP Code level data by seven states in certain circumstances (
FOOTNOTE 29
FOOTNOTE 30 Citizens, Corporate Analytics Business Overview (
FOOTNOTE 31
FOOTNOTE 32
FOOTNOTE 33 "Statistical Reports,"
FOOTNOTE 34
FOOTNOTE 35
Geographic Scope
FIO is proposing to collect data from Representative Sample Insurers for all
Reinsurance Impact
FIO is excluding the impact of reinsurance from this proposed data collection. Allocating reinsurance data for the various types of reinsurance (including treaty and facultative) to policy and ZIP Code level would require a consistency of assumptions across reporting insurers which is not currently available. To avoid potential double counting, all reporting will focus only on direct business written by insurers without considering the effects of reinsurance. FIO recognizes that the availability of reinsurance affects the availability of insurance for policyholders. Similarly, FIO recognizes that how reinsurance is priced will affect how much policyholders will pay for insurance and impacts insurers' financial results.
Estimate of Burden for Representative Sample Insurers
FIO estimates that the number of Representative Sample Insurers required to provide information under this data collection will be approximately 213. FIO also estimates that it will take each Representative Sample Insurer between approximately 100 to 350 hours total to provide all of the data that the proposed data collection seeks for the five years (2017 to 2021).
The overall estimated annual burden would be between approximately 21,300 and 74,550 hours (213 Representative Sample Insurers x 100 hours and 213 Representative Sample Insurers x 350 hours). At a blended, fully loaded hourly rate of
FOOTNOTE 36 Based on data from "Insurance Carriers and Related Activities: NAICS 524,"
The majority of Representative Sample Insurers belong to insurance groups. As a result, such insurers may experience synergies and efficiencies when completing the Template. Thus, the total number of hours that it may take all Representative Sample Insurers to collect, process, and complete the Template may be less than the number of hours that FIO has estimated here.
Efforts To Collect Data From Other Sources
The FIO Act requires FIO to coordinate with State Insurance Regulators, relevant federal agencies, and publicly available sources in accordance with procedures set forth in the Act before FIO seeks to collect the data directly from insurers. /37/ FIO has determined that the data it seeks is either not available or cannot be obtained in a timely manner from State Insurance Regulators, relevant federal agencies, or publicly available sources, and therefore proposes to use its data collection authorities under the FIO Act.
FOOTNOTE 37 31 U.S.C. 313(e)(4) provides that "Before collecting any data or information under paragraph (2) from an insurer, or affiliate of an insurer, the Office shall coordinate with each relevant Federal agency and State insurance regulator (or other relevant Federal or State regulatory agency, if any, in the case of an affiliate of an insurer) and any publicly available sources to determine if the information to be collected is available from, and may be obtained in a timely manner by, such Federal agency or State insurance regulator, individually or collectively, other regulatory agency, or publicly available sources. If the Director determines that such data or information is available, and may be obtained in a timely manner, from such an agency, regulator, regulatory agency, or source, the Director shall obtain the data or information from such agency, regulator, regulatory agency, or source. If the Director determines that such data or information is not so available, the Director may collect such data or information from an insurer (or affiliate) only if the Director complies with the requirements of subchapter I of chapter 35 of title 44, United States Code (relating to Federal information policy; commonly known as the Paperwork Reduction Act), in collecting such data or information. Notwithstanding any other provision of law, each such relevant Federal agency and State insurance regulator or other Federal or State regulatory agency is authorized to provide to the Office such data or information." END FOOTNOTE
On
With regard to relevant federal agencies and publicly available sources, FIO understands that no federal agency currently collects the ZIP Code level data described in the Template for all of the relevant entities. While some insurance policy level data is available from statistical agents that aggregate data obtained by State Insurance Regulators from insurance companies, such data is generally available only after paying a significant fee. Additionally, while statistical agents do collect some ZIP Code level data, that data is not uniformly collected in every state. Moreover, this data is not collected in a standardized format and, in some instances, lacks elements necessary for FIO's analysis of climate-related risk. Therefore, FIO cannot obtain comparable and sufficiently granular nationwide data for its analysis through statistical agents.
Submission of Data
Entities classified as Representative Sample Insurers would submit data using the provided Template. Such insurers would be expected to submit the completed Template through a secure web portal provided by FIO within a specified time period, such as 60 days.
Given the sensitivity of the requested data,
FOOTNOTE 38 FIO Act, 31 U.S.C. 313(e)(5). END FOOTNOTE
FOOTNOTE 39 FIO Act, 31 U.S.C. 313(e)(5). END FOOTNOTE
All data collection is expected to be done through a secure portal maintained by
Request for Comments
To ensure efficient and accurate completion of the forms, FIO is requesting public feedback on the content of the proposed data collection outlined in this Notice and Request for Comments and on associated matters. In particular, FIO seeks comments on the following issues:
1. Focus on Underwriting: FIO proposes to focus this data collection on insurers' underwriting for homeowners' policies to assess the impact of physical risk on the availability of insurance coverage for policyholders as well as whether the available insurance coverage is affordable for policyholders. Please provide your views on FIO's focus on insurers' underwriting.
2. Selection of Insurance Lines: FIO proposes collecting information on homeowners' multi-peril policies. Should FIO consider data collection for any other lines of business? To what extent should FIO's assessment include NFIP policies and private flood insurance policies?
3. Selection of Insurers: FIO proposes selecting insurers that meet either of the following criteria: (1) insurers writing
4. Inclusion of Data Elements: The data template includes elements related to insurers' policies, claims, premiums, and losses. Are there any additional data elements you would propose to include? Are there any data elements you would propose to exclude? How should FIO's analysis consider other potential elements such as additional living expenses or reinsurance?
5. Use of Accident Year Information: FIO proposes collecting ZIP Code level information in the Template on an Accident Year basis, rather than Calendar Year basis. Please provide any additional comments on FIO's proposed use of an Accident Year reporting framework for its proposed data collection.
6. Selection of Reporting Period: FIO proposes collecting data for each year from 2017 through 2021. Please provide your views on the appropriateness of this reporting period and whether it should be modified by FIO.
7. Collection at ZIP Code level: Please provide your views on FIO's proposal to collect data at a ZIP Code level.
8. Collection across all Jurisdictions: FIO is proposing to collect nationwide data for identified insurers to allow for a nationwide understanding and assessment of
9. Methodology for Selection of Potential Climate-Vulnerable States: FIO used the FEMA National Risk Index to select the ten states that potentially may be vulnerable to climate-related disasters. Please provide your views on FIO's use of the National Risk Index to select the Potential Climate-Vulnerable States. Are there other data source(s) that FIO should consider in this methodology?
10. Burden Estimate: Please provide your views on whether FIO's burden estimate is accurate and whether there are further ways to minimize the burden of this proposed data collection.
11. Annual Collection: Please provide your views on whether FIO should collect this information from
12. Analysis of Availability: Please provide your views on how FIO should assess the impact of climate-related risks on the availability of insurance.
13. Analysis of Affordability: Please provide your views on how FIO should assess the impact of climate-related risks on the affordability of insurance.
14. Additional Comments: Please provide any additional comments that may be relevant to FIO's proposed data collection and analyses.
Procedural Requirements
Paperwork Reduction Act. The collection of information contained in this Request for Comments will be submitted to the
Comments are being sought with respect to the collection of information in the proposed FIO climate-related data collection.
Dated:
Director, Federal Insurance Office.
[FR Doc. 2022-22880 Filed 10-20-22;
BILLING CODE 4810-AK-P
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