Should insurers be required to serve, in effect, as “environmental traffic cops,” forced to cough up substantially more data about how climate change might impact their clients' exposures, and thus, their own operations? Chuck Chamness, president and CEO of NAMIC, argued forcefully against such mandates in the “Final Say” column of this week's edition of NU. Click on to read Chuck's take and feel free to offer your own opinion.

Dont Turn Insurers Into
Environmental Traffic Cops

By Charles M. Chamness

Im all for the health of the planet and its people, but I call into question recent calls for a regulation to make the property-casualty insurance industry an environmental traffic cop.

Last October, a subcommittee of the U.S. Senate Committee on Banking, Housing and Urban Affairs held a hearing on Climate Disclosure: Measuring Financial Risks and Opportunities. Several experts testified, including Mindy Lubber, president of Ceres (pronounced series), an organization whose mission is to integrate sustainability into capital markets for the health of the planet and its people.

Ms. Lubber's testimony focused on why corporate climate risk disclosure is essential for investors, and she made some good points. For example, she noted that shareholders have an interest in knowing that an energy company is about to build a coal-fired power plant.

But I was astonished when that point was directly followed by a reference to the insurance industry and its “painfully low [climate risk] disclosure rate.” In one brief statement, she linked coal power–the poster child of greenhouse gas emissions–to insurance.

What motivates Ceres to apply the same broad brush to insurers and energy companies when painting a picture of corporate climate risk disclosure? And what policies will result if Ceres persuades lawmakers and regulators insurance is no different from the energy and automotive industries with respect to global warming?

The premise behind the view Ms. Lubber expressed to Congress is as simple as it is wrong–that property-casualty insurers, as regulated financial entities that assess and manage risk, should be compelled to take on special responsibilities to leverage better environmental behavior among the people and corporations they cover.

In other words, its easier to regulate the causes of global warming through a one-off approach using the insurance industry, than it is to regulate them directly.

Now this view is beginning to play out in policy and regulation, as Ceres has clearly captivated the National Association of Insurance Commissioners Climate Change and Global Warming Task Force.

Earlier this year, the task force released a draft Climate Risk Disclosure Proposal that would require all U.S.-domiciled insurers to answer a lengthy set of climate risk disclosure interrogatories–drafted largely by Ceres–to be included in the Annual Financial Statement. The following questions are typical:

What actions have you taken to assess the impact of climate risk and global warming on your operations?

What are the results of your assessments of the impact of climate risk and global warming?

Robert Detlefsen, Ph.D, vice president of public policy for the National Association of Mutual Insurance Companies, said these highly tendentious questions assume insurers have knowledge of things that are, in fact, unknowable.

While many property-casualty insurers face challenges and uncertainties due to the risk posed by large-scale natural disasters, no company is in a position to assess the risk posed by climate change per se, he added. Given the current state of climate science, insurers can do no more than speculate about the nature and extent of risks attributable to climate change.

NAMIC and others in the industry have long advocated smarter land-use planning, stronger building codes, and robust building code enforcement to mitigate the losses caused by natural disasters.

NAMIC is, in fact, the leader of the building code coalition in Washington, D.C.–a coalition that helped produce legislation recently introduced in the U.S. House of Representatives (HR 3926) that would provide incentives for states to strengthen and enforce building codes.

In addition, more than 15 months ago, NAMIC established a Web site (www.climateandinsurance.org) as a resource for industry professionals to learn more about climate change and its possible implications for the p-c industry.

But our advocacy and implementation of such meaningful and practical measures seem unlikely to satisfy Ceres and its allies at the NAIC.

Considered from another angle, if investors require additional information to assess the impact of climate change on publicly-traded companies, let it be required through securities regulation or the shareholder proxy process.

However, regulators should not require the insurance industry–including the greater than 30 percent share of mutual/non-public insurers–to be subjected to these rules.

As for the NAIC, if it wishes to play a constructive role by establishing a dialogue with insurers about climate change, a logical starting point would be to ask insurers, in a voluntary survey, questions such as:

Do you consider climate risk to be separate and distinct from windstorms, wildfires and other weather-related risks that you insure?

Are there instances in which insurance regulation hinders your ability to manage or mitigate these risks?

NAMIC and its sister p-c trade associations suggested this approach to the Climate Change Task Force when it met at the NAICs recent spring meeting. Im cautiously optimistic the group, led by Wisconsin Insurance Commissioner Sean Dilweg and Pennsylvanias Joel Ario, will consider helpful alternatives to the agenda-laden inquisition authored by Ceres and company.

The climate challenges we are grappling with are embedded in the tension between economic growth and environmental impact, as measured by uncertain science. Proposed solutions come from public policy decisions at all levels of government, from the United Nations' Kyoto protocol to local government land-use planning.

Regulators should not use the property-casualty insurance industry as the fulcrum to leverage environmental behavior.

Charles M. Chamness is president and CEO of the National Association of Mutual Insurance Companies in Indianapolis, representing some 1,400 member companies that underwrite 40 percent of the nations property-casualty insurance premium.

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