US NAIC Prioritizes Climate Risk and Resilience with a Focus on Related Disclosure
On February 9, 2021, the US National Association of Insurance Commissioners (NAIC) announced its strategic priorities for 2021, and these included Climate Risk and Resiliency. The NAIC noted that it is committed to working with state, federal and international stakeholders to coordinate climate-related risk and resiliency assessments, disclosures and evaluation initiatives so that each state has the information, policies and tools that promote resiliency and ensure stable insurance markets for its citizens. The NAIC also stated that it looks forward to working with the new administration and Congress on the critical work of addressing climate and resiliency issues facing insurance consumers and insurance markets.
The NAIC’s Climate and Resiliency (EX) Task Force (Task Force) coordinates the NAIC’s domestic and international efforts on climate and resiliency issues, including dialogue among state insurance regulators, the industry, insurance consumers and other stakeholders. The Task Force addresses national issues and provides states with information and tools to support their individual markets.
At the February 10, 2021, public meeting of the Task Force, detailed presentations were made by a sustainability organization and two insurance carriers regarding climate risk disclosure. The subject of disclosure has been under discussion for some time, as some constituencies push for mandatory quantitative disclosure to supplement or in lieu of the current NAIC climate risk disclosure survey (adopted in 2009), which some have criticized as being opaque due to the Yes/No questions and narrative responses and lacking comparability. A November 2020 NAIC Center for Insurance Policy and Research (CIPR) report titled “Assessment of and Insights from NAIC Climate Risk Disclosure Data” recommended:
[T]he existing survey could be strengthened by incorporating key information from the narrative responses in a quantitative format. This type of revision could make the survey easier to complete and to analyze. These changes would make the survey’s results more useful for stakeholders and would not require eliminating the existing questions. Some state insurance regulators have expressed concern about retaining the ability to compare the survey across years. It could be useful to retain the existing questions to enable this type of comparison while adding additional questions, especially questions that bring the NAIC survey in line with the TCFD’s [Task Force on Climate-Related Financial Disclosures] guidelines.
At the upcoming NAIC Spring National Meeting, the Task Force will focus on major issues facing state regulators, including pre-disaster mitigation, solvency (from both an underwriting and an investment perspective), climate risk disclosure, innovation and technology.
Within these work streams, the Task Force will consider risk reduction measures and the role insurance regulators can play in advancing these efforts to ultimately better protect and prepare policyholders and insurance markets to withstand the physical and economic consequences of climate risk; evaluate financial regulatory approaches to climate risk and resiliency; consider appropriate climate risk disclosures for insurers; consider innovative solutions and strategies within the insurance sector; and review the use of predictive modeling to better assess and evaluate climate risk exposures.
While the oft-quoted saying “If you cannot measure it, you cannot manage it” may not be true—there are many things (including some insurance risks) that cannot be, or cannot be easily, measured but still must be managed—better measurement does make something more manageable, so it is significant that NAIC has determined to revisit the complex subject of climate risk disclosure and to better prepare insurance regulators to protect policyholders and the insurance markets generally against the financial consequences of climate risk.
