NAMIC Responds to Regulators’ Climate Survey Announcement
California Insurance Commissioner Dave Jones announced February 1, 2012 that the insurance departments in California, Washington state, and New York will “require insurers to respond to the Climate Risk Survey adopted in 2009 by the National Association of Insurance Commissioners.” The announcement came in the form of a news release issued by the California Department of Insurance.
The announcement failed to note that at the insistence of a majority of state regulators, the NAIC subsequently withdrew the 2009 survey, replacing it with a version that made insurer participation voluntary and ensured that individual company responses would be kept confidential.
Moreover, both versions of the NAIC survey specified that the instrument would be administered only to insurer groups with direct written premium over $500 million. In addition, the survey was to be administered solely by the domestic regulator overseeing the largest company within the group.
Yesterday’s CDOI announcement did not make clear whether the three named states would follow those instructions, or ignore them by administering the survey to all insurers doing business in those states regardless of their size or where they are domiciled.
“For more than three years, a handful of insurance regulators and global warming activists have been trying to use this survey as a tool to prod the insurance industry into taking unspecified action to address the issue of climate change,” said Robert Detlefsen, Ph.D., NAMIC's vice president of public policy. “Their approach has a number of problems, not the least of which is that it doesn’t specify what constitutes a ‘climate change-related risk.’ Nor does it give any precise indication of what regulators expect insurers to do about climate change.”
To illustrate, Detlefsen pointed to remarks attributed to top regulators from the three states cited in the California department’s news release. According to Jones, the survey will “explore the actions insurers are taking in response to their understanding of climate risks.” New York Deputy Superintendent Robert Easton stressed the need for insurers “to share their views of the risk of climate change so that we can be sure that the industry and regulators are appropriately prepared.” Washington Commissioner Mike Kreidler added that “our job as regulators is to confirm that companies are adequately addressing the impact of climate change on their risk profiles.…” (Emphases added.)
"Unfortunately, the NAIC survey instrument sheds little light on what the regulators have in mind by these statements,” Detlefsen said. “It has never been clear to us what they mean by ‘climate change’; what constitutes a proper ‘understanding’ of climate risks; what constitutes ‘appropriate preparation’; or what criteria they will use to determine whether insurers are ‘adequately addressing’ climate change.”
A typical question in the survey instructs insurers to “describe your company’s process for identifying climate change-related risks and assessing the degree that [sic] they could affect your business, including financial implications.” “Note the absence of a question mark at the end of that sentence,” Detlefsen said. “The clear implication is that companies ought to have some sort of special ‘process’ in place, and that there is a common understanding throughout the insurance industry as to what constitutes a ‘climate change-related risk.’ But no such consensus exists.
"If the California, New York, and Washington insurance departments are intent upon administering the survey on a mandatory basis, they could help insurers provide meaningful responses by providing some useful guidance,” Detlefsen added. At minimum, according to NAMIC, each department should:
- Define what it means by ‘climate change.’ The term could refer to naturally occurring multi-decadal climate variability. Alternatively, it could refer to catastrophic anthropogenic global warming. Or something else. It is crucially important that insurers know what the term means to the regulator.
- Describe the process the department believes companies should use to identify and assess climate change-related risks. Insurers have been criticized by Ceres [the global warming activist group identified by the New York Times as the author of the 2009 NAIC survey] for not “‘taking the steps necessary to understand and respond to this profound issue.’ The department should describe what it regards as the necessary steps.
- Provide detailed guidance that includes specific actions the department believes companies should take to address climate change-related risks. For example, should property insurers charge higher premiums and/or stop writing coverage in regions that are thought to be especially prone to these risks? Should they invest a certain percentage of their surplus in green technologies and renewable energy? Should they divest their holdings in carbon-intensive industries? Anything else?
Director of Communications