US insurance regulating body, National Association of Insurance Commissioners (NAIC), now demands insurance companies to disclose how climate change will affect them. NAIC is aware of the huge risk that environment change entails, however it lacks information of how the insurance industry is planning to respond. Concerns are the availability and affordability of insurance policies for consumers, as well as the health of the insurance industry.
NAIC’s financial risk disclosure requirement is broad, as climate change impacts insurers through a plethora of risk issues. Extreme weather events, government controls & effects of carbon emissions, rising water levels are just some of these issues.
Insurance companies are to report on how climate change will affect their business, in terms of financial risk plus their intended measure to manage this risk. Specifically, the climate change risk reporting requirements of insurance companies include:
- Altering risk-management and catastrophe-risk modeling vis-a-vis the challenges caused by climate change;
- Action plans to engage and educate policymakers and policyholders on the risks of climate change;
- Changes in investment strategies.
Insurers, are not required to offer quantitative, forward-looking information nor commercially sensitive data.
“Climate change will have huge impacts on the insurance industry” said Joel Ario, chairman of the NAIC Climate Change and Global Warming Task Force of NAIC.
By bringing such focus on climate change, the insurance commissioners are leading the attention of insurers directly and policy holders indirectly to where it is due. The US insurance regulating body is also suggesting that insurance companies to tailor new products to the reality of climate change, such as insurance policies that curb emissions from policyholders, with auto coverage that tracks how many miles are driven and discounts for driving less.
Every insurance company whose annual premiums exceed $500 million will be required to lodge such an annual Insurer Climate Risk Disclosure report. The first report is due May 1, 2010.
The NAIC is a voluntary organization of the chief insurance regulatory officials for all 50 of the United States, the District of Columbia and five U.S. territories. Formed in 1871, the NAIC serves the needs of consumers and the industry. It has an overriding objective of supporting state insurance regulators as they protect consumers and maintain the financial stability of the insurance marketplace.