Reinsurance Association Issues Public Comment on Treasury Notice

WASHINGTON, Nov. 20 -- The Reinsurance Association of America has issued a public comment on the Department of the Treasury notice entitled "Federal Insurance Office Request for Information on the Insurance Sector and Climate-Related Financial Risks". The comment was written on Nov. 15, 2021, and posted on Nov. 16, 2021:

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Thank you for the opportunity to provide input as part of Treasury and the Federal Insurance Office's (FIO) future work relating to the insurance sector and climate-related financial risks. We welcome the opportunity to work with you on this critical issue and applaud President Biden and his Administration for his commitment to addressing it.

The RAA is a national trade association representing reinsurance companies doing business in the United States. RAA membership includes reinsurance underwriters and intermediaries licensed in the U.S. and those that conduct business on a cross-border basis. The RAA also has life reinsurance affiliates and insurance-linked securities (ILS) fund managers and market participants that are engaged in the assumption of property/casualty risks. The RAA represents its members before state, federal and international bodies.

INTRODUCTION

The RAA's longstanding policy recognizes climate change and the impacts of climate change, and the RAA is committed to working with policymakers, regulators, and the scientific, academic, and business communities to assist in promoting awareness and understanding, as well as addressing the risks associated with climate change./1

At the federal, state, and local levels, it is especially critical that the private sector address significant climate change and natural disaster risks associated with floods, wildfire, earthquakes, or other devastating natural disaster events. Urgently addressing these risks is particularly important as the frequency, severity, and costs of many natural disasters continue to increase due to climate change.

The U.S. Department of Commerce National Oceanic and Atmospheric Administration's (NOAA) National Centers for Environmental Information reported that, "The U.S. has sustained 298 weather and climate disasters since 1980 where overall damages/costs reached or exceeded $1 billion (including CPI adjustment to 2021). The total cost of these 298 events exceeds $1.975 trillion."/2

According to NOAA, "Each state has been affected by at least $1 billion-dollar disaster since 1980."/3

Tables 1-4, by Aon's Catastrophe Insight division, demonstrate the increase in the number of natural disaster events and overall and insured losses in the U.S. and globally from 1980 to 2020. In 1980, the U.S. had 59 natural loss events that resulted in $57 billion in overall losses, including $5 billion in insured losses, compared to 203 natural loss events globally that resulted in $180 billion in losses, including $7 billion in insured losses./4

Fast forward to 2020, and the U.S. had 86 natural loss events that resulted in $129 billion in overall losses, including $81 billion in insured losses, compared to 352 natural loss events globally that resulted in $289 billion in losses, including $105 billion in insured losses./5

Tables omitted: https://downloads.regulations.gov/TREAS-DO-2021-0014-0023/attachment_1.pdf

Insurance is a critical component for economic and social recovery from the effects of extreme weather and climate driven events. In the financial services sector, property casualty insurers and reinsurers are the most exposed to natural disasters, especially those impacted by climate and weather. The industry would be at great financial risk if it did not understand global and regional climate impacts, variability and developing scientific assessment of a changing climate. Integrating this information into the insurance sector is an essential function. Insurance pricing also is a mechanism for conveying the consequences of decisions about where and how we build and where people choose to live. These risks are well managed and understood by insurers through annual underwriting to incorporate increasing physical and transition risks, so the emergence of sudden climate-related losses impacting financial market or insurance market stability is remote. That said, addressing risks arising out of a changing climate on a macro level is an important societal mandate.

Our industry is science based. Blending the actuarial sciences with the natural sciences is critical to providing the public with the financial resources needed to recover from natural catastrophic events. As the scientific community's knowledge of climate change continues to develop, it is important for (re)insurers to incorporate that information into the exposure and risk assessment process and that it be conveyed to stakeholders, policyholders, the public and public officials that can or should address adaptation and mitigation alternatives. Developing an understanding about climate and its impact on various risks - for example, wildfires, droughts, heat waves, the frequency and intensity of tropical hurricanes, thunderstorms, and convective events, rising sea levels and storm surge, more extreme precipitation events and flooding - is critical to our role in translating the interdependencies of weather, climate risk assessment and pricing.

Climate-related and natural disaster risk exposure is broad-ranging. These risks are widespread, geographically diverse, and include a range of natural disaster perils impacting homeowners and renters, farmers, commercial property owners, servicers, mortgage investors, taxpayers, and communities. It is important to ensure that these risk exposures are addressed and mitigated. Natural hazard mitigation includes physical enhancements and insurance to better protect residential properties and other infrastructure against damage caused by natural disasters. For government programs, government-sponsored enterprises, private sector financial institutions, and taxpayers, financial mitigation also is important to protect against any mortgage credit default risk associated with natural disaster risk.

The RAA believes a variety of solutions should be used to improve community resilience to the benefit of all those in the value chain of climate and natural disaster risk exposure. The RAA also believes that it is important to address geographic, natural disaster peril, and socioeconomic diversity. Some traditional solutions, like property insurance protections for homeowners certainly can and should be utilized, but new analytical capabilities that increasingly and intelligently can help reduce risk and direct resources to achieving that goal also should be pursued.

View full comment at https://downloads.regulations.gov/TREAS-DO-2021-0014-0023/attachment_1.pdf

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Footnotes:

1/ https://www.reinsurance.org/Advocacy/RAA_Policy_Statements/

2/ https://www.ncdc.noaa.gov/billions/

3/ https://www.climate.gov/news-features/blogs/beyond-data/2010-2019-landmark-decade-us-billion-dollar-weatherand-climate

4/ Catastrophe Insight division, Aon plc, July 2021

5/ Catastrophe Insight division, Aon plc, July 2021

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The notice can be viewed at https://www.regulations.gov/document/TREAS-DO-2021-0014-0001

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