Are Insurers Required to File Climate Risk Reports Under California’s SB 261?

Key Takeaways

1. Insurance companies are fully exempt from California’s new SB 261 climate risk reporting mandate. California’s climate disclosure law excludes insurers because they already undergo extensive climate-related oversight through state insurance departments and the NAIC.
2. Existing NAIC and Department of Insurance reporting frameworks remain the primary climate disclosure requirements for insurers. Even though insurers do not need to comply with SB 261, they must continue filing annual climate risk surveys and meeting ongoing DOI expectations.
3. SB 261 applies broadly to large companies doing business in California—but not to insurers. The exemption covers any business regulated by the Department of Insurance or engaged in the business of insurance in any U.S. state, even if they operate in California.
4. The exemption may change as climate-related losses grow and policymakers reassess disclosure rules. While insurers are not currently subject to SB 261, evolving climate impacts and market pressures could prompt future legislative or regulatory changes.

California’s SB 261, passed in 2023, has a rapidly approaching compliance deadline of January 1, 2026. This law requires U.S. companies that do business in California and have annual revenues over $500 million to publicly disclose their climate-related financial risks, as well as their mitigation and adaptation strategies.

For one sector though, they are exempt from this reporting requirement: insurance companies.

This landmark regulation for climate risk disclosure was enacted with the goal of increasing transparency for large companies and to help businesses, regulators, and investors better understand climate-driven financial exposures across industries. An important note on the act is that it extends beyond companies with headquarters in California to any company that does any business in California. Legal and ESG commentators have described SB 261 as one of the most sweeping state-level climate risk disclosure programs in the country. California has a history of setting precedents for other states, and with the likely broad influence and significant impact of the act, this law is no different.

SB 261 is not alone when it comes to California’s new requirements for climate risk reporting. It is one of two laws that California passed in 2023 to help with higher transparency. Its companion law, SB 253, is the Climate Corporate Data Accountability Act which requires large companies to disclose their greenhouse gas emissions through a third-party assurance process. The threshold for SB 253 is higher, as a company must have revenues of over $1 billion annually as its disclosure benchmark. Between these two laws, California has created a comprehensive reporting system as SB 253 covers emissions data and SB 261 focuses on financial risks.

Regarding convenience, insurance companies can benefit from the statutory exemption of not having to assemble and disclose their financial climate risk information. According to HSC § 38533, the Health and Safety Code that codifies the SB 261 requirements, this act “does not include a business entity that is subject to regulation by the Department of Insurance in this state, or that is in the business of insurance in any other state.” Therefore, insurance companies are excluded from this upcoming deadline and may continue meeting their climate risk reporting obligations through existing processes such as the National Association of Insurance Commissioners (NAIC) surveys and Department of Insurance (DOI) requirements.

This exclusion is likely tied to the fact that the state DOI already heavily regulates insurance companies. Also, the NAIC is instrumental in coordinating eventual state decisions for insurance companies in many states – including California – to annually file a climate risk survey.  The survey is a tool that lets insurers disclose their annual assessments of their management of SB 261 related risks. This gives input on how insurance companies are managing these risks and helps the NAIC and DOI to better understand the impact across all business operations, underwriting, and reserves. It is important that insurers note that just because they are exempt from SB 261, they must continue with their other obligations for climate risk reporting while staying alert and monitoring any changes the California Air Resources Board makes.

For now, insurers doing business in California can stay the course on their current reporting processes without scrambling to comply with the SB 261 deadline. However, this exemption is not guaranteed to go unchallenged forever. Climate change philosophies and concepts are constantly reshaping the economy in California, and the state’s requirements for disclosure will continue to evolve. While climate change is not always the cause of wildfires, many of which are sparked by human activity, climate-related conditions can heighten their scale and impact. In this environment of escalating losses, policymakers may question whether the exemption from climate-risk disclosures remains appropriate. An insurers reevaluation of coverage availability in California in the wake of a natural disaster can often be a direct indication of climate-related economic impacts. The ever-changing climate controversy is something corporations, governments, and individuals should monitor closely, and potential policy changes are always something of which they should be aware.

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