Department of the Treasury Secretary Janet Yellen appeared before the House Financial Services Committee Feb. 6 and the Senate Banking Committee two days later as part of regular hearings to examine Financial Stability Oversight Council activity and its 2023 annual report. She also delivered testimony outlining perceived risks to the financial system as well as FSOC’s ongoing work, which includes a focus on expanded nonbank financial institution oversight; climate-related financial risk; cybersecurity; artificial intelligence in financial services; and digital assets.
The hearings allowed committee members to press the secretary about actions happening under her purview, such as workstreams being carried out by the Federal Insurance Office.
The proceedings covered various topics ranging from illicit finance and national security to commercial real estate and fallout from 2023 bank failures. Notably, there were a handful exchanges related to the property/casualty insurance industry.
- Rep. Nydia Velazquez, D-N.Y., asked how FIO’s work with its climate data call differs from what the National Association of Insurance Commissioners and state regulators are doing in regard to climate risk data. Yellen suggested the office may change course and work with state regulators on a climate data call rather than pushing ahead on its own. “I think there’s a good chance that they will be able to collaborate and go out with a single collection in order to … collaborate and reduce burdens on insurance companies.”
- Rep. John Rose, R-Tenn., referenced insurance market developments in California and the importance of actuarially sound rates in his line of questioning. Yellen acknowledged that it would not be “commercially viable” for insurers to charge a premium that does not reflect risk and that companies would be “financially challenged if a risk event ever materialized” if they were forced to insure policies at rates that do not accurately reflect the market.
- Rep. Juan Vargas, D-Calif., who had previously worked for an insurer, spoke generally of the worsening impacts of storms and climate risk but stated, “there’s never a bad risk, only a bad price.” He went on to explain the risk has become too great for insurers to take on in certain areas of the country: “They’re not in the business of losing money. And they look at Florida; they look at these places and say, ‘we’re not going to lose money.’ That’s why they don’t want to insure there.”
- Rep. Barry Loudermilk, R-Ga., questioned Yellen as to why the state insurance regulator member of FSOC doesn’t enjoy voting privileges while other financial sectors have primary regulators sitting on the body with a vote. He further pressed the secretary on the insufficient time frame FIO offered to state regulators when they initially in fall 2022 set out with their climate data collection efforts.
On the other side of the Capitol, Sens. Bob Menendez, D-N.J., and Laphonza Butler, D-Calif., also inquired about the state of the property/casualty insurance market. They emphasized how, in their view, certain areas of the country are susceptible to limited homeowners insurance availability due solely to climate change. They also asked about integration of financial and climate data with respect to these recent developments. Yellen largely agreed with the senators’ views, failing to recognize the bevy of other factors influencing market dynamics – such as inflationary pressures on materials and labor costs, reinsurance rate hikes, unsound state regulatory environments, rampant legal system abuse, and mass migration to riskier areas of the country.
Yellen in both appearances stated that climate risks are harming the wellbeing of households, creating cost of living and financial stability risks that also leave banks exposed through loans presented by uninsured losses. The secretary repeatedly propped up FIO’s data call as a “very granular at the ZIP code-level” means to understanding insurance trends while concerningly claiming a climate-driven crisis could render congressional involvement or response “appropriate.” She also referenced ongoing collaboration with functional state regulators.
NAMIC continues to lead vocal opposition to FIO’s climate data call in Washington. The association was pleased to see some positive back and forth. However, NAMIC will continue its education efforts in defense of the industry related to the New Era of Risk and support for the time-tested state-based system of insurance regulation.
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Publish Date
February 12, 2024
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- Washington Weekly
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