NAIC Task Force Adopts Climate Change Survey To Help Assess Impact On Insurers

Originally, the survey was supposed to be part of the annual financial statements that insurers are required to file. Industry associations objected, arguing the annual statement was not an appropriate vehicle for the questions, as it is designed for financial condition assessment, not as an aggregator of company information. Insurers also cited the possibility of exposure to lawsuits.

Over the course of negotiations, the survey was removed from the annual statement, and some survey questions that concerned insurers were altered.

Still, some insurer associations–such as the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America–remain opposed to the survey because the answers will be made public and could expose insurers to lawsuits depending on how those responses are perceived and used by interested parties.

In the teleconference, Pennsylvania Insurance Commissioner and Task Force Chair Joel Ario praised the involved parties for coming up with a compromise.

However, while many of the comments during the teleconference were also supportive of the compromise, Alabama Insurance Commissioner Jim Ridling objected to the nature of the questions.

"With all due respect to the committee's work and the openness of this whole discussion, I think we're asking people to answer questions that are unanswerable in the long term–highly speculative is another term," he said, adding that "quite frankly, having run a couple of companies, I don't know how I'd answer them, and as a regulator, I don't know what I'd do with the answers."

Florida Deputy Insurance Commissioner Belinda Miller responded that the questions are meant to give companies an opportunity to show what they are doing to prepare for climate change. She also said the questions can be altered in the future, if need be.

"I don't think we see this as an ended project that will never change," she said. "I think that it's a beginning that we ask these questions. And if they become problematic or unanswerable, then they can always be changed."

David Kodama, director of policy analysis at PCI, asked if the NAIC will be providing guidance, citing concern from his member companies about what exactly the NAIC expects to learn from survey answers.

Mr. Ario said the task force is considering whether it should offer guidance, or let answers come in first to see how insurers respond, or do a survey "trial run" with some companies for evaluation of the questions and answers.

Bob Detlefsen, vice president of public policy for NAMIC, said if the "trial run" option is used, participation should be voluntary and confidential, as companies may still be confused about how to answer some of the questions.

In the vote to adopt the survey questions and send it to the NAIC Executive Committee, Alabama voted no, while Minnesota and New York abstained.

A representative for the New York Insurance Department stated concerns that survey answers may not truly reflect a company's program if they are made public.

Expressing the need for such a survey during a Dec. 17, 2008 conference call, Wisconsin Insurance Commissioner Sean Dilweg, then chair of NAIC's Climate Change and Global Warming Task Force, said it is clear to regulators that climate change is occurring–whatever the cause–and that its consequences touch all lines.

He said regulators, consumers and carriers should begin to understand how climate change is affecting the risks insurers underwrite–citing as examples intensified hurricanes off the African coast and the dryness of a Georgia summer, which could spark more fire losses.

NAMIC's Mr. Detlefsen blamed one public advocate group–Ceres (pronounced "Series")–for pushing the public disclosure aspect of the climate change survey. (On its Web site, Ceres characterizes itself as "a national network of investors, environmental organizations and other public interest groups working with companies and investors to address sustainability challenges such as global climate change.")

It remains to be seen how many states will actually choose to administer the survey under the revised proposal, Mr. Detlefsen noted. Larger states will likely administer it, but it is possible only a handful of states would choose to do the same, he suggested.

Aside from removing the survey from the annual statement, David Snyder, vice president and assistant general counsel of the American Insurance Association, was relieved the language for some of the questions was revised. Some of the original questions, he said, "would have called for forward-looking information of the type insurers are not able to provide."

The questions also do not call on insurers to disclose sensitive financial information, noted Mr. Snyder, who said that in general, the new proposal is responsive to insurer litigation concerns and is "more within the capability of insurers to respond."

Mr. Kodama said PCI acknowledges improvements in the survey but still opposes the initiative–which, he said, went from something PCI found absolutely objectionable, to something the association is concerned about. But some concerns are still not being addressed, he noted.

Both Mr. Kodama and Mr. Detlefsen said the science behind climate change is constantly evolving. Thus, how climate change will ultimately affect insurance is still open for debate, according to Mr. Kodama–who expressed concern that if insurer answers are made public, it could lead to second-guessing and calls for business practices based on a certain scientific understanding of how the climate is expected to look.

Mr. Detlefsen and Mr. Kodama also worry that some information made public could be used at a later date as the basis for lawsuits against insurers–particularly if survey answers are used to draw conclusions or imply that an insurance company is contributing to climate change or not doing enough to fight it.

Mr. Detlefsen said there is concern among NAMIC members that insurers might feel pressure to engage in certain kinds of lobbying activities that may not reflect what the company regards as its own best interest, or support certain advocacy group research organizations to satisfy regulators and interest groups monitoring survey answers.

Ultimately, Mr. Kodama said PCI's concern is what the end goal for gathering responses might be.

Speaking to why the NAIC might find it necessary to go forward with public disclosure, Mr. Snyder said regulators may feel disclosing answers will keep insurers focused on the issue year in and year out.

He said while he may not agree with that assessment, he believes the amended proposal has improved in many areas and represents significant progress toward responding to issues the industry raised. He added that no one party got everything they wanted in the compromise.

However, the vote in San Diego "will not be the end of the story," according to Mr. Detlefsen, because compromises resulted in some "fairly vague [survey] questions," meaning the NAIC may have to provide formal guidance to give insurers a better idea of what information is needed to satisfy expectations.