NAIC Requires Disclosure Of Climate Change Risks

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March 23, 2009

794 words

NAIC requires disclosure of climate change risks; Measure mandates annual questionnaire for largest insurers

MEG FLETCHER

The National Assn. of Insurance Commissioners last week adopted a mandate that large insurers disclose the climate change risks to which they are exposed and how they are responding to those risks.

Property/casualty and life/health insurers with annual premiums of $500 million or more are required to disclose their climate-related risks by providing answers to an annual eight-question survey, which must be filed by May 1, 2010, covering 2009.

The survey must be submitted to the state where the insurance company is domesticated. Other insurers may be asked to voluntarily answer the survey, according to the NAIC.

The risk disclosure survey, a compromise developed over several months, garnered support from regulators and consumer groups but drew a mixed response from insurer trade groups.

``Climate change will have huge impacts on the insurance industry and we need better information on how insurers are responding to the challenge,'' said Pennsylvania Insurance Commissioner Joel Ario, who chairs the NAIC Climate Change and Global Warming Task Force, after the final NAIC vote taken March 17 during the organization's spring meeting.

Eight broad questions ask how an insurer is altering its risk management and catastrophe risk modeling, steps it has taken to engage and educate policymakers and policyholders as well as changes in its investment strategies due to the challenges presented by climate change.

The disclosure requirement was the second time this month that the NAIC emphasized the importance of insurers disclosing climate change risks.

``It is challenging for regulators to determine how well-prepared the industry is for the challenges of climate change,'' because many insurers omit that topic in their Securities and Exchange Commission filings, Sean Dilweg, Wisconsin insurance commissioner, testified March 12 before the U.S. Senate Committee on Commerce, Science and Transportation.

It is ``imperative'' regulators examine how climate change affects insurers' investments that include coastal real estate subject to weather-related losses. Regulators also are interested in whether insurers provide incentives to mitigate losses for themselves and policyholders, he said.

``The Insurer Climate Change Disclosure Survey is the first of its kind'' and could help financial institutions ``to gain insight into the impact of climate change on their industries,'' Mr. Dilweg testified.

Two consumer-oriented groups supported the regulatory proposal: Boston-based Ceres, a group including investors and environmental groups, as well as the Austin, Texas-based Center for Economic Justice.

``Today's vote is a wake-up call about the vast challenges climate change poses for the insurance industry and the overall global economy,'' Ceres President Mindy S. Lubber said in a statement.

Jack Ehnes, a major insurance industry investor and chief executive officer of the nation's second-largest public pension fund, called the NAIC action timely and essential. ``One painful lesson of the current economic meltdown is the need for increased attention to corporate risk management,'' Mr. Ehnes, who heads the California State Teachers' Retirement System, said in the Ceres statement. ``These disclosure requirements will finally create consistent and comparable information for investors to determine the real steps insurers have taken to assess important risks.''

The NAIC survey ``represents a significant compromise by both industry and advocates,'' according to the two consumer organizations.

The compromise removed proposals that would have required top executives to attest to the information and file it as part of an insurer's annual statement.

Two Washington-based trade associations, the American Insurance Assn., which represents property/casualty insurers, and the American Council of Life Insurers, also supported the survey. However, two Midwestern property/casualty associations continue to oppose it.

``We think it is highly inappropriate for insurance regulators to be prying into such areas, especially given that they intend to make the insurers' responses public,'' Robert Detlefsen, vp-public policy for the National Assn. of Mutual Insurance Cos. in Indianapolis, said in a statement.

Uncertainties in climate science and related modeling capability suggest it is ``premature and inappropriate at this time'' to seek substantive information from insurers' answers, David Kodama, director of policy analysis for the Property Casualty Insurers Assn. of America in Des Plaines, Ill., said in a statement.

In other business last week, NAIC regulators:

* Adopted revisions to a property/casualty model guaranty fund act.

* Took steps to expand the NAIC's accreditation programs from regulation of insurers' financial data to include market conduct.

March 26, 2009