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The US government has no systemic approach for assessing whether
insurance is available or affordable to its communities most
exposed to climate risks, several trade and nonprofit groups said,
adding that more reliable data is needed to provide a holistic
picture of the problem.
Responding to the US Department of Treasury's Federal Insurance
Office (FIO) August request for comment on the
insurance sector's response to climate-related risks and its
impacts on marginalized populations, Public Citizen said most of
this information is residing with states, which are the primary
regulators of the insurance sector, or gleaned through anecdotal
reports.
In that 31 August request, the FIO,
responding to President Joe Biden's directive on climate financial
risk, asked for factors it should consider when identifying and
assessing the potential for major disruptions of insurance coverage
in US markets that are particularly vulnerable to climate change
impacts.
The FIO acknowledged that climate-fueled risks pose a threat to
the financial system as a whole and is attempting to get a handle
on how best to address this threat through this data collection
request.
Dual role
The insurance sector plays a dual role as an investor and
underwriter of risk in the financial market. An S&P Global Sustainable1
analysis showed that the insurance sector maintains significant
investments in carbon-intensive and climate-vulnerable industries,
while at the same time facing liability risks from underwriting
property and assets that are damaged by climate-fueled wildfires,
hurricanes, droughts, and flooding.
While FIO does not possess or claim to have regulatory authority
over the insurance sector, most commenters agreed that the US
Congress authorized the agency to collect data and to highlight the
information gaps about climate risks that marginalized communities.
Some like the National Association of Professional Insurance Agents
(PIA) objected to this request, saying this is the domain of state
insurance regulators.
Incomplete picture
Groups like Public Citizen and American Property Casualty
Insurance Association (APCIA) are aware that FIO's authority is
limited.
"But it can lead by highlighting the gaps that exist and
recommending how to fill them," Public Citizen Climate Program
Managing Director David Arkush and Policy Counsel Yevgeny Shrago
wrote in their comments.
The National Association of Insurance Commissioners (NAIC) has
developed an Insurer Climate Risk Disclosure Survey that six
states—California, Connecticut, Minnesota, New Mexico, New
York, and Washington—use to collect information from insurance
companies that annually report $100 million or more in premiums and
annuity considerations.
But Shrago said this survey doesn't provide a complete picture
of the costs incurred by consumers. The survey provides information
about the steps a company is taking with respect to its governance
and operations.
'Fine-grained' data
Public Citizen recommends FIO use the authority that US Congress
gave it under the 2010 Dodd-Frank Wall Street Reform and Consumer
Protection Act to request data, Shrago told Net-Zero Business
Daily.
It added that FIO can do so by working with the states to
collect data from insurers on rate increases, rates of nonrenewals,
and claims denials and underpayments in climate-impacted areas.
Moreover, Public Citizen said the data should be "fine-grained"
enough to provide information at the census-tract or community
level.
"If states do not cooperate, FIO should issue a data call to
gather this information itself," the group said.
New York, Connecticut paving the way
The APCIA, which is the primary national trade association for
home, auto, and business insurers, said collaborating with the 15
states that already require reporting in line with the guidelines laid out by the Task
Force on Climate-related Financial Disclosure, is "a good starting
point" to determine the sufficiency of data.
New York State became the first to issue climate risk guidelines for the
insurance companies operating within its boundaries. In those
guidelines, the New York Department of Financial Services urged
insurance companies operating within its precincts to go beyond
business-as-usual assessments in factoring climate impacts.
The Connecticut General Assembly in June became the first
legislature to pass a law requiring insurers to
factor climate risk and incorporate the state's 45% GHG reduction
target by 2030 into their decision-making. The state is still in
the process of writing the rules to implement the law.
According to the APCIA, the most significant disclosure
challenge is the lack of consistent and reliable emissions data
from other business sectors such as banking and sources that
prevents insurers from properly pricing risks. The group also
suggested the FIO harmonize its data collection efforts with the US Securities and Exchange
Commission that is expected to propose a rule for disclosing
climate risk by the year's end.
Treat affordability and availability separately
While equally supportive of collecting data, Boston-based
Liberty Mutual cautioned FIO against lumping availability and
affordability of insurance together.
Liberty Mutual agrees that the FIO should identify those
insurance market areas with what it calls an "outsized exposure to
climate-related perils," but then it should identify where coverage
is "truly unavailable" or not sold at all.
When assessing affordability, the company reminded FIO that
affordability considerations for consumers must be balanced against
solvency concerns.
"Pricing is driven by a myriad of factors including competition
in Property & Casualty markets (which are typically highly
competitive), the risk of loss, insurer solvency considerations,
and state rate review," Liberty Mutual wrote.
The APCIA and Liberty Mutual contend that the federal government
should work with state and local governments on policies to
identify the most significant climate-related risks and take steps
to mitigate them so they become insurable.
Boost resilience
APCIA gave the example of business and housing development
patterns that it said have exacerbated climate-related risks
through policies encouraged by all levels of government.
In the short-term, Liberty Mutual said the federal government
should consider community-based investments in climate resilience
to mitigate the effects, while APCIA said the government should
consider a risk-based pricing framework as an efficient
market-based tool for encouraging mitigation efforts.
As noted by the attorneys general of New York, Connecticut,
Massachusetts, Maryland, and Oregon, the FIO's focus on vulnerable
communities is both consistent with Biden's May 20 order on climate
financial risk and the administration's broader commitment to
addressing environmental justice in the climate change context, as
spelled out in the
27 January directive on tackling climate crisis.
The attorneys general said "increasing, and increasingly costly,
climate harms threaten consumers' access to affordable private
insurance options, putting greater pressure on states and the
federal government to act as insurers of last resort or to cover
uninsured losses."
Ripple effects
They also noted that rising premiums and withdrawn coverage
could also have ripple effects that adversely affect the US
financial system as a whole.
From 1987 to 2004, the attorneys general wrote, "property
insurance losses due to natural disasters averaged $23 billion per
year; in 2005, losses rose to $83 billion, of which $60 billion was
due to hurricanes Katrina, Rita, and Wilma alone."
As of 8 October, the US had experienced suffered 18 weather and
climate-related disasters this year—such as wildfires,
flooding, severe storms and cyclones and drought—with losses
exceeding $1 billion, the National Oceanic and Atmospheric
Administration National Center for Environmental Information
reported.
As the chart below shows, people living along the Gulf Coast and
southeastern part of the country suffered most from tropical storms
and hurricanes. People living in California suffered from heat
waves and wildfires. They also happen to be low-income, belong to
minority groups, lack a high-school education, or are aged 65 and
above, as EPA's climate justice report
shows.
Source: NOAA
Posted 03 December 2021 by Amena Saiyid, Senior Climate and Energy Research Analyst
RT @SPGlobal: Many nations have set #NetZero Emissions by 2050 as their climate goal. Will be enough minerals to meet the requirements? Joi…
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