Growing polarization around the insurance sector’s climate risk must be put aside to concentrate on shielding policyholders from skyrocketing claims exacerbated by climate change, the head of a top industry association said this week.
The political landscape has made climate risk a hot-button issue, said Sean Kevelighan, CEO of the Insurance Information Institute. The nonprofit organization, known as Triple-I, focuses on public outreach and education and has more more than 60 insurance company members.
“I think, from our perspective at Triple-I, the focus should be less on the politics in terms of the who and the why, and even how to necessarily stop it, but focusing more on helping communities better adapt and manage their risks,” Kevelighan said Tuesday during a webinar on climate risk and insurance. “It’s getting harder and harder to price the risk, and even more for people to pay for it.”
His remarks come as many state regulators adopt enhanced climate-risk reporting standards for the companies they regulate, underscoring concerns from lawmakers, climate advocates and investors over environmental, social and governance issues.
Insurance companies and regulators need to develop policies and services with the support of the government and public-private partnerships to mitigate climate risk, Kevelighan said.
Insured catastrophe losses have increased by nearly 700 percent since the 1980s when adjusted for inflation, hitting about $88.4 billion per year on average. The industry is seeing business-as-usual methods become obsolete in the wake of increased frequency of wildfires, floods and other natural disasters.
Testing and supporting solutions, such as group insurance products that provide catastrophe insurance at a community level, has shown some promise. Embracing that innovation is vital to ensure that people who live in, or plan to move to, areas vulnerable to extreme weather events, such as California, Florida and Texas, can live their lives with resilience, Kevelighan added.
“The traditional risk transfer model in some areas will absolutely be, and even today, in jeopardy,” said Kevelighan, who previously held executive roles at Zurich Insurance Group and Citigroup Inc.
The speech follows action by the National Association of Insurance Commissioners, a bipartisan group of state regulators, which on April 8 adopted disclosure standards on climate risk. The standard-setting organization is governed by the chief insurance regulators from the 50 states, the District of Columbia and five U.S. territories.
The new standards, led by California Insurance Commissioner Ricardo Lara and Florida Insurance Commissioner David Altmaier, bring the NAIC in line with the Task Force on Climate-Related Financial Disclosures, or TCFD, the international benchmark for climate risk disclosure.
The change marks the first update to the NAIC’s Climate Risk Disclosure survey since it was introduced in 2010. According to the NAIC, the new standard will enhance transparency about how insurance companies manage climate-related risks and opportunities and incorporate international best standards.
Companies required to respond to the annual NAIC Climate Risk Disclosure Survey will need to comply with TCFD reporting by November. Fifteen states committed to utilizing the NAIC survey in 2022, representing nearly 80 percent of the U.S. insurance market. While 28 insurance companies already provided TCFD-compliant reports in 2021, the list will grow to nearly 400 under the new standard.
“From a financial regulator perspective, we’re striving for policy actions that move the insurance sector toward a more sustainable future,” Michael Peterson, deputy commissioner for climate and sustainability at the California Department of Insurance, said during the webinar. “That’s what we want: more sustainable insurance markets that promote resilience.”
Justin Papp contributed to this report.
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