Insurance Commissioners Ricardo Lara of California and Mike Kreidler of Washington this month formally asked all insurers that are currently required to report to them annually on climate change to start reporting their climate risks in alignment with the Task Force on Climate-related Financial Disclosures (TCFD). TCFD is rapidly becoming the global standard for such reporting for all industries worldwide.
Commissioners Lara and Kreidler are among the state insurance regulators who have required insurers to disclose their climate risk through an industry-specific survey developed by the National Association of Insurance Commissioners since 2010. The NAIC Climate Risk Disclosure Survey is sent annually to insurance companies that generate $100 million or more in annual premium income and are licensed in the participating states of California, Washington, Connecticut, Minnesota, New Mexico, and New York. Participating insurers encompass over 70 percent of the U.S. insurance market.
The TCFD guidelines were approved by the G-20 Finance Ministers and endorsed by both environmental groups and more than 1,800 businesses from around the world. Of particular relevance to insurers, both the International Association of Insurance Supervisors and the Sustainable Insurance Forum endorsed the TCFD recommendations in 2017. The guidelines help insurance companies better understand the concentrations of carbon-related assets in their investments and recognize climate risks and opportunities in their investing strategy.
“California’s record-setting wildfires and extreme heat waves call for climate action by insurance companies to protect consumers,” said Commissioner Lara. “Every consumer is going to feel the effects of climate change, just like every insurance company whether they sell homeowners’ insurance or life insurance. Adopting a global standard for disclosing climate risks will put our insurance companies on the same footing with other major businesses in being financially ready for increasing climate risks.”
A webinar is being planned for this month as an educational opportunity for insurers utilizing the TCFD reporting guidelines.
“Climate change is a significant risk to insurers, and therefore policyholders, due to intensifying natural disasters and higher claims,” said Kreidler. “It’s critical to have access to climate-related financial information so insurer stakeholders – regulators, policyholders, investors and company employees – can understand how well insurers are taking climate risk and the severe weather events that they represent into account.”
The Climate Risk Disclosure Survey pre-dates the TCFD guidelines and has been issued annually since 2010, including eight questions for insurance companies to answer about how they incorporate climate risks into their mitigation, risk-management and investment plans. The eight Climate Risk Disclosure Survey questions align closely with the TCFD guidelines and recommendations. The TCFD guidelines were established as a voluntary climate-related financial risk disclosure standard for all industries in 2017.
Last year eight insurers utilized the TCFD guidelines, and more have agreed this year to adopt them. Climate Risk Disclosure Survey responses for 2020 and earlier are available on the California Department of Insurance website.