Climate change issues have raised substantial challenges for insurers' investment departments, according to a study by the National Association of Insurance Commissioners.
The NAIC's Global Warming and Climate Change Task Force issued its study earlier this month at the commissioners spring meeting and asked for comments to be submitted during the next 30 days.
The report noted that insurers invest heavily in real estate. "Many of these assets are located in areas within coastal areas most at risk for hurricanes, or low-lying areas subject to flooding," the report said.
Moreover, additional reserves are secured by investments in assets that are in turn secured by real estate. "In the event of another climate-driven catastrophe, increased mortgage defaults can be expected as owners struggle to make mortgage payments under stressful circumstances," the report said.
Increased property insurance costs or lack of capacity could lead to concerns that mortgage lenders may become property insurers of last resort, as holders of mortgages are required to obtain insurance on property for which they hold mortgages, the report said.
David Snyder, assistant general counsel for the American Insurance Association, said the report contained the traditional calls for more regulation.
He said the report neglects sensible remedies to the risks global warming poses to the insurance industry, such as strong building codes and the ability to charge higher rates and deductibles for properties prone to catastrophe loss.
The report does call for insurers to "encourage policymakers to make the hard decisions to limit development in fragile areas such as coastal areas and forest fringes through participation in the global process."
Insurance producers are encouraged to contact clients to review the current status of their client's property coverage to ensure they have enough coverage to withstand any catastrophe.
"While following a catastrophic event, property owners tend to insure to value, this is not a desirable outcome for regulators, insurers or specific property owners, whose property is currently underinsured," the report said.
After the 30-day comment period the regulators will review with an eye to possible revision, NAIC said.
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