States Mandate Insurers to Disclose Climate Change Risks

Insurance commissioners in California, New York and Washington State are the first to mandate that insurance companies report on the risks from climate change to their business and customers.

How do insurers plan to deal with the rapidly rising risks from increasingly severe storms and wildfires, rising sea levels and other consequences of climate change?

Although insurers are clearly alarmed about the impacts of climate change on their business, few have concrete plans for addressing it. Only 11 of the 88 companies surveyed last year have formal policies to manage climate change.       

Until now, only a third of the largest insurers have been required to complete a survey; for the others, it’s been voluntary. Since only 25% of large firms comply, it’s now mandatory for the 300 largest companies.

California wants this traditionally backward-looking industry (that uses historical data to estimate risk) to look forward instead to get a handle on the business liabilities climate change presents.

"We are asking insurers to share their views of the risk of climate change so that we can be sure the industry and regulators are appropriately prepared," Robert Easton, a lead NY insurance regulator told the New York Times.       

2011 was a year of unprecedented natural disasters, resulting in $27 billion in losses for the insurance industry by June, reports A. M. Best Company, which rates the financial strength of insurers.  

The disclosure survey has been created by Ceres, which uses the power of investors to goal action on climate change.

Andrew Logan, director of Ceres’s insurance program, says the survey is pretty basic. It gives regulators a sense of whether and how much companies are thinking through the cost implications for their business.       

"The big takeaway from the survey last year is that there is a high level of concern among insurers about the impacts of climate change that is not matched by concrete plans to deal with those impacts. There is a real gap between the risk that’s been identified and plans to address it," Logan told the New York Times.

Investors also want information on the risks to be able to make better decisions regarding their investments in insurers.

"If we feel insurance or energy companies are not incorporating climate risk into their analyses and their boards of directors are not recognizing it, that failure to do so endangers the value of that investment." The result would not be disinvestment but engagement with those companies, because they are not caretaking their business very well," Jack Ehnes, California State Teachers Retirement System CEO told the New York Times.