A panel of state insurance commissioners has voted to adopt a controversial white paper that establishes what one key regulator characterized as a "baseline" for spurring and monitoring insurance industry and regulatory action on climate change issues.
Insurance trade groups–which at previous sessions of the National Association of Insurance Commissioners blasted the project as unwarranted, intrusive and the groundwork for a legal fiasco–were largely silent as the NAIC accepted a paper on May 31 that included changes the groups objected to at a session the previous day.
While property-casualty carriers are upset over the document, a life insurance group said it was happy with how regulators modified plans to ask climate change questions in a proposed supplement to the Annual Statement required of insurers.
Among the latest changes included in the white paper on "The Potential Impacts of Climate Change on Insurance Regulation" was a provision offered by consumer representative Dan Schwarcz, a University of Minnesota law professor, encouraging the use of mileage-weighted insurance rates.
The language, as unanimously adopted here by the NAIC Climate Change and Global Warming Task Force, states in part that insurers "can further encourage reduction of greenhouse gas emissions as well as exposure to loss, by providing incentives for consumers to drive less. A most effective way to do so would be to give much greater weight to the miles that policyholders drive as a rating factor."
The white paper–adopted at the full plenary session of all the commissioners last week–said "insurers can measure the amount that their policyholders drive in a variety of ways. Indeed, at least one insurer (Progressive) already makes use of GPS technology for some policyholders."
The paper also mentions that pay-as-you drive insurance is available in Europe, Israel and Asia, and that Travelers offers a discount to hybrid car owners.
Wisconsin Insurance Commissioner Sean Dilweg, the task force chair, said the white paper provides a baseline for action, and told the panel it was "important to move ahead on adoption."
The white paper concludes that regulators need to ask insurers about climate risk in their internal risk-assessment process, how they inform and provide incentives for policyholders to deal with climate risk, how insurer boards are informed on climate risk, and what steps carriers are taking to mitigate their own and policyholders' climate risks.
It also calls for convening an NAIC summit on climate change.
Dave Snyder, vice president and assistant general counsel at the American Insurance Association, said his group endorses efforts to reduce greenhouse gases, but that science clearly relating the impact of climate change to the insurance industry is at issue.
Before the vote, he urged the task force not to give greater weight to insurance based on miles driven as a rating factor.
Mr. Dilweg said the task force will take written comments until June 30 on its proposals for climate change questions. He noted during the May 30 session here that there has been some industry agreement and some opposition, and he would like to get both sides to the table for discussion.
In July, he said the task force will assess the possibility of adopting such disclosure requirements by September.
Rather than sworn responses to interrogatories, the NAIC now proposes to have insurers answer climate change impact questions as part of a forward-looking managerial discussion and analysis.
Michael Monahan, director of accounting policy for the American Council of Life Insurers, said his organization had been surprised to find life and health insurers mentioned in the white paper. He called the removal of climate questions from the sworn interrogatories a "huge victory for the industry." Life insurers in the white paper are advised to prepare for the impact of climate change on real estate investments.
But Mr. Snyder of AIA and Rey Becker of the Property Casualty Insurers Association of America saw no triumph for the industry in the task force action. PCI and AIA said they believe any management responses on underwriting questions, in addition to revealing trade secrets, could be the basis for policyholder lawsuits if insurers disclosed they were not writing or canceling coverage based on climate change.
Neil Alldredge, vice president of state and regulatory affairs for the National Association of Mutual Insurance Companies, noted that the white paper references no climate science, and wondered how insurers could make assessments on the impact of climate change when scientists are in disagreement on the topic.
Mr. Becker said before the May 31 vote that the NAIC's climate change initiative was "social engineering," and wondered how it was the business of insurance regulators to involve themselves with environmental practices.
Among other points covered in the 749 lines of white paper text, the document notes that insurers can provide discounts for use of "green" building items in construction and reconstruction after loss.
The paper says states should strongly consider catastrophe reserving as a means to encourage "sound enterprise risk management to help ensure adequate capital is available for catastrophic loss potential impacted by climate change."
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