Insurers face new calls for action in light of $140B in climate-related losses

Warmth-intensified hurricanes, floods and heat waves pushed the industry's climate-related losses above $100 billion for the fifth year in a row, according to London-based reinsurance broker Gallagher Re.

That, in turn, pushes up insurance rates for homeowners and increasingly putting insurance out of reach for those in the climate "danger zones" -- including the 61 percent of Connecticut residents who live in coastal areas.

Major insurers have stopped selling new homeowner's policies in California due to wildfire losses, and Florida's costly hurricanes have driven most insurers out of the state's market.

The insurance companies that still call Connecticut home, several of which focus on the especially hard-hit property insurance sector, have made statements of concern about climate change and vowed to do what they can to help.

But the insurance industry's role in the response to climate change came under new scrutiny last week with the release of a report calling for more data from insurers and tighter state regulation of the industry.

The Federal Insurance Office, a unit of the U.S. Treasury Department, issued a report on June 27 calling efforts to monitor insurers' actions related to climate change "fragmented across states and limited in several critical ways."

States need to bring climate risk into their regulation of insurers, ask for more data from the companies and develop their own tools to analyze climate-related hazards, the report found.

Modeling that action, FIO last year proposed a new data effort that would ask insurers for detailed risk-analysis information on homeowners at the ZIP code level.

Response from insurers to the new report was muted. Industry group the American Property Casualty Insurance Association called for more investment in infrastructure and climate research.

"Climate risk is exacerbated by many aspects that go beyond the ability of insurers to control and so insurers alone cannot resolve climate-related risk issues," said Nat Wienecke, APCIA's senior vice president of federal government relations.

Connecticut's Insurance Department, which rolled out its own rules for state insurers on managing climate risks last September, said the report validated its approach to guiding the industry, which plays a major role in the state's economy. In addition to employing more than 40,000 people, insurance companies provide nearly half of the business for financial institutions in Connecticut.

"Our work in the area of climate risk and resiliency has focused on identifying risk, exploring solutions that reduce risk, improving financial oversight of the industry, and educating consumers," Commissioner Andrew Mais said.

Homeowners need to study their insurance policies carefully and look for gaps in coverage in the event of increasingly likely disasters like floods, earthquakes, wildfires and wind storms, the state suggests.

Oversight or overreach

Calls for more data and "financial oversight" from the states and other public entities have generated pushback from some insurers, who balk at the amount of information required by an ever-growing list of players.

In addition to FIO, the Securities and Exchange Commission has proposed requiring more data of insurers relating to climate, along with the federal Task Force on Climate-related Financial Disclosures and the nonprofit Sustainability Accounting Standards Board.

Speaking at a conference on climate change hosted by the Connecticut Insurance Department in October, Terence Shields, head of corporate law at The Hartford, questioned the relevance and scope of some of the data being sought. One agency is asking for emissions reporting on all of its customers and all of the companies that The Hartford invests in, he said.

"There's massive data challenges associated with that," Shields said. "Mom-and-pop shops aren't necessarily reporting that information."

Shields raised what he called "the attribution problem, whether a particular loss or potential loss is attributable to climate change or is it attributable to just normal weather patterns or overpopulation in a wildfire-prone area or poor land-use planning?"

Kelly Hereid, director of catastrophe R&D at Boston-based Liberty Mutual, warned that the expanded call for information from insurers could create confusion.

"We run the risk that we're going to generate this very large churn of data that is, in a sense, maladaptive, that causes us to make decisions that in some senses can make the risk worse," Hereid said at the conference.

Shields of The Hartford spotlighted the pressure on insurance companies to divest from both covering and investing in oil and gas companies and other firms doing business in the fossil fuel sector. Much of the cutting-edge research on green technology is happening at big energy companies, he said.

Connecticut-based activists protested outside The Travelers Insurance Cos. annual shareholder meeting at the Hartford Marriott in May to pressure the company to cut ties with the fossil fuel industry.

"A cold-turkey approach doesn't work," Shields said, explaining the insurance industry's perspective on the divestiture movement. "Abandoning those sectors, in our view, is not going to help our society get to net-zero and it's not going to help The Hartford as we balanced our climate goals with our other obligations to create value for our stakeholders."

Connecticut Citizen Action Group, which organized the Travelers protest in May, supported calls for both additional data from insurance companies and immediate divestment from fossil fuels.

"Insurers have been having it both ways -- underwriting and investing in the fossil fuels climate disaster, while trying to limit coverage for policyholders who are suffering from the climate disaster," the group said in a statement. "Action is needed now -- we are seeing the impact of climate change more starkly every day. It's time to hold insurance companies accountable."

Insurance industry at risk

Industry experts warn that climate change threatens the survival of the property insurance sector itself -- a business that got an early start in the U.S. with the establishment in Connecticut of The Hartford Fire Insurance Co. in the capital city in 1810.

Major losses incurred by global insurers in the wake of a series of catastrophic weather events last year undermine the sector's stability and puts the world economy as a whole in danger, Eric Andersen, president of global broker Aon PLC, told a U.S. Senate committee in March.

"Climate risk is a global, systemic risk and the insurance industry is a bridge between public risks and private capital," Anderson told the senators. "Just as the U.S. economy was overexposed to mortgage risk in 2008, the economy today is overexposed to climate risk."

Concluding the Connecticut Insurance Department's October conference, Commissioner Mais urged more aggressive measures to confront the issues around climate change and insurance.

"If there is one takeaway from this, it is a need for action, not just words," Mais said. "Recognizing the dangers we face is just the beginning, now we need to act."