Insurers Feeling The Heat On Climate Data

The other day, I blogged about calls for insurers to collect and disclose information on the personal characteristics of their clients and prospects, but that wasn't the only controversial data demand issued at the recent NAIC meeting. Indeed, the heat was also placed on carriers to document their climate change exposures. Is this just a lot of hot air by critics on a fishing expedition, or is this a serious search for the truth about how secure the industry is when it comes to global warming?

(For more on this story, click here and here.)

In essence, as reported by our own Dan Hays, the National Association of Insurance Commissioners Climate Change Task Force is being asked to acknowledge the exposures to insurer books of business and investment portfolios from climate change–whatever the cause–and to demand greater disclosure from carriers on how they intend to deal with the risk.

Whether you believe in global warming or not, and regardless of whether you feel humanity is any way responsible, or can (or even should) do anything about the problem and its implications, is a moot point, as far as the NAIC is concerned.

Indeed, an NAIC white paper on climate change revealed the regulator group assumes global warming is occurring because there is ample evidence to back up that proposition.

In any case, the NAIC said climate-related risk–such as increased frequency and intensity of hurricanes and resulting flooding–creates regulatory concerns about solvency, especially when considering insurer financial stability is heavily dependent on its investment portfolio. So it is imperative we examine how climate change will impact the investments insurers hold and establish applicable regulatory standards for the investment practices of insurers.

As reported by Mr. Hays, the paper said “regulators need to know if insurers are adequately including climate in their risk assessment process, and should ask about data collection and computer model use.”

Oddly, the industry is very suspicious and resistant to such suggestions–odd for two reasons.

One is that insurers have actually been very progressive when it comes to acknowledging climate change and the impact on their business. (Read our March 10 cover story, “Insurers Brace For Global Warming,” if you have doubts. Click here and here for full coverage.)

Second, insurers make their living anticipating risk and quantifying it. Why should climate change exposures be any different?

Yet insurers were in anything but a cooperative mood when the data collection calls were debated at the recent NAIC meeting in Orlando.

Most said the data demands were unreasonable, or even punitive. Frank Nutter, president of the Reinsurance Association of America–and certainly no fear-monger–warned that in seeking such data, regulators should be careful what you wish for, because it could have a negative impact on insurance availability and affordability for coastal areas. I assume Mr. Nutter was alerting regulators to the risk that insurers, if forced, would err on the side of caution and perhaps overestimate their exposure, but it did sound like a threat of sorts.

Andrew Logan, director of Ceres–a coalition of investors and environmentalists–said insurers had a poor record of disclosing climate impact information to the Securities and Exchange Commission and others who sought the data. He said voluntary measures simply won't work. I would tend to agree, especially with publicly-held carriers sensitive to stock market reaction to their potential exposures.

I found the questions raised very reasonable and pertinent to insurer financial health, actually. Check out the following queries, and tell me which ones are unreasonable and why?

Are insurers adequately including climate in their risk assessment process?

How are computer models used to assess insurer climate risks?

Do insurers offer incentives for policyholders to deal with their climate exposures?

Are carriers informing their board members about climate risk?

What might the impact of climate change be on an insurers investment portfolio, especially if real estate holdings are involved in exposed regions?

What steps are insurers taking to mitigate their own risks?

Why are insurers being so defensive about this? Shouldn't any responsible board member of an insurance carrier be asking the same questions of their CEOs?

You tell me.