In 2020, the National Association of Insurance Commissioners (NAIC) formed the Climate and Resiliency (EX) Task Force to serve as the coordinating NAIC body for discussion and engagement on climate-related risk and resiliency issues, including dialogue among state insurance regulators, industry, and other stakeholders. Climate risks, natural catastrophes and resiliency are among NAIC’s key priority areas for 2023.
At the beginning of the Task Force’s meeting, an update on NAIC’s activities related to climate risks and resiliency was given, covering the development of the new climate risk disclosure survey in 2022 aligned to the Task Force on Climate Related Financial Disclosures (TCFD) to consider appropriate climate risk disclosures within the insurance sector. The survey is voluntary for states to use to collect information from their licensed insurers. The California Department of Insurance (DOI) provides a uniform reporting mechanism for insurers and a publicly available database containing each insurer’s response to the survey.
A discussion about state actions to incentivize pre-disaster mitigation and resiliency resulted in the identification of six key themes: 1) stakeholder coordination and risk assessment; 2) land use and building codes; 3) hazard mitigation; 4) resiliency funding; 5) consumer outreach; and 6) insurance access.
This was followed by a federal update of a NAIC’s representative which dealt with the current discussion about the U.S. Securities and Exchange Commission’s (SEC) proposal on climate-related disclosures. The SEC is planning to finalize the closely watched climate change disclosure rule soon. Unless the SEC cuts back on many of the controversial requirements, the commission is likely to face lawsuit from business associations. One of the most controversial issues in the SEC’s proposal is the disclosure of greenhouse gas emissions, particularly the inclusion of Scope 3 emissions.
The international update covered the efforts of the International Association of Insurance Supervisors (IAIS), including a slight revision of the Insurance Core Principles (ICP) guidance to explicitly indicate that insurance supervisors should require insurers to incorporate climate-related risks into their day-to-day operations, including governance, enterprise risk management (ERM), and disclosures.
Two presentations were given to highlight Canadian insurance solutions. One was about insurance solutions for flood risks from the National Association of Insurance Commissioners in Canada and the other one was held by a representative of the Canadian Council of Insurance Regulators (CCIR) regarding climate change, natural catastrophes, and consumer awareness. The CCIR identifies the following consumer awareness gaps: low awareness of one’s property-specific risk, available insurance coverage options (e.g. that additional insurance is required for earthquakes, flooding, etc.), actual coverage purchased. To address these gaps, CCIR recommends identifying and implementing best practices that insurers and intermediaries may use to communicate natural catastrophes related insurance options to customers. Ensuring that consumers understand the insurance product they are being offered, including a simplified approach to summarizing coverage, is one step.
The final presentation was held by representatives of the Catastrophe Modeling Center of Excellence (COE), which was established by the NAIC in 2022. Its mission is to provide state insurance regulators with the necessary technical expertise, tools, and information to effectively regulate their markets. It highlights the need for modelling risks arising from climate change. Therefore, COE will offer training for catastrophe modeling.
In summary, this meeting emphasized the number of activities and events by the NAIC to address the challenges accompanying climate change and provides assistance to the insurance industry.