Globally Thinking

Charles M. Chamness | President & CEO, NAMIC

Much is happening in the world today. Oil has inched its way to $100 a barrel; total value of world exports continues to climb; and the property/casualty insurance industry is acknowledging that global trends are developing.

We are in the midst of a new economic age, and because it is built upon a global economy, whatever happens here in the states could very well impact our friends elsewhere in the world. Similarly, what happens in foreign lands could become our industry’s next cause célèbre.

For the past few years, our European counterparts have been doodling with a new framework for solvency capital and supervision of insurance and reinsurance undertakings, known as Solvency II. The European Commission has proposed a major revision of the EU insurance law. Under the new system, insurers would be required to identify and interpret all types of risks to which they are exposed and manage those risks more effectively. In addition, supervisors would monitor the group as a whole.

While this possible reporting requirement concerns us, our greatest angst comes from the very real possibility that Europe will move from a rules-based to a principles-based insurance system, and what happens in Europe doesn’t always stay in Europe.

In May, New York Gov. Eliot Spitzer signed an executive order creating the New York State Commission to Modernize the Regulation of Financial Services. This commission was created, in part, to promote a more principles-based regulatory environment. Likewise, the NAIC is pushing to move toward a principles-based system, “principles” which seem more like rules.

And, when you come down to it, that’s the crux of the problem with principles-based anything. The system becomes a moving target…nothing is ever concrete…”principles” are ever changing.

Writing of change, the debate continues about the climate and whether it is changing. Is it caused by humans or the unstable weather caused by normal cyclical patterns? We don’t know. However, there are advocacy groups promoting the need for the insurance industry to provide “enhanced disclosure” on climate-change risk in annual reporting through mandatory interrogatories.

In a letter to the NAIC’s Climate Change Working Group, David Tuft of the Natural Resources Defense Council, Andrew Logan of CERES, and Birny Birnbaum from the Center for Economic Justice promoted this idea of “enhanced disclosure related to climate change risks” because the “vast majority of insurers today perform little or no analysis of the impact of climate change on their business and companies… it is clear that new and improved disclosures related to climate change risks are needed.”

Possible questions that every property/casualty insurance company will be required to answer every year include: “What actions have you taken to assess the impact of climate change and global warming on your operations?” “What are the results of your assessments of the impact of climate change and global warming in the following areas for the short term (up to three years), medium term (3 to 8 years), and long term (9 years or more)?”

But, with each question, the same answer could be applied: “N/A” as climate change has not been definitively recognized. The industry is well aware that eccentric weather patterns are forming, and we are strategizing the best course to take, something we have been doing for years.

Has the NAIC forgotten that regulators already have an abundance of information regarding insurers’ exposure to natural catastrophe risks? Come on. In evaluating company solvency, insurers and regulators focus on hazard exposure.

Robert Detlefesen, Ph.D., NAMIC’s vice president of public policy, explained in testimony to the NAIC that mandatory disclosures of this kind are a thinly veiled attempt to coerce companies into adhering to a particular agenda for dealing with climate change.

The audacity of these groups to ask us to take a position on climate change is like asking us to take a position on the weather. It’s virtually impossible.

Posted: Monday, January 21, 2008 12:00:00 AM. Modified: Monday, January 21, 2008 3:14:49 PM.

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We are 1,400 property/casualty insurance companies serving more than 135 million auto, home and business policyholders, with more than $196 billion in premiums accounting for 50 percent of the automobile/homeowners market and 31 percent of the business insurance market. We are the largest and most diverse property/casualty trade association in the country, with regional and local mutual insurance companies on main streets across America joining many of the country’s largest national insurers who also call NAMIC their home. More than 200,000 people are employed by NAMIC members.