NAIC ADOPTS MANDATORY REQUIREMENT THAT INSURERS DISCLOSE CLIMATE CHANGE RISK
On March 17, 2009, the National Association of Insurance Commissioners (NAIC) adopted a requirement that insurance companies disclose to regulators the financial risks they face from climate change, as well as actions the companies are taking to respond to those risks. "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. “As regulators, we are concerned about how climate change will impact the financial health of the insurance sector and the availability and affordability of insurance for consumers. This disclosure standard will give regulators the information we need to better understand these risks.”
The stated goal of the survey is to provide regulators, shareholders and the public with substantive information about the risks posed by climate change to insurers and the actions that insurers are taking in response to their understanding of the risks. The NAIC believes that disclosure of these risks is important because of their potential impact on insurer solvency and insurance availability and affordability across all major categories of insurance, property, casualty, life and health. The Insurer Climate Disclosure Survey contains a set of questions to help regulators assess insurers’ risk assessment and management efforts, and to provide information to consumers to incorporate into their purchasing decisions. The survey responses will be public information and will be made available for public review.
All insurance companies with annual premium revenue of $500 million or more will be required to complete an Insurer Climate Risk Disclosure Survey every year, with an initial reporting deadline of May 1, 2010. According to the NAIC, the scope of issues covered by the new disclosure requirement is broad, reflecting the many ways in which climate change will impact the insurance industry. In addition to reporting on how they are altering their risk-management and catastrophe-risk modeling in light of the challenges posed by climate change, insurers will also need to report on steps they are taking to engage and educate policymakers and policyholders on the risks of climate change, as well as whether and how they are changing their investment strategies. Insurers will also be asked to disclose steps they are taking to assess and reduce emissions in their own operations.