Climate Change Risk Transparency Now Key Item for Insurers
Climate change can pose a significant financial risk to insurers, especially in the wake of devastating recent summer storms and with the trend of investors divesting of oil, gas, and coal from their portfolios.
Insurer interest in climate change is also growing as a result of investors demanding disclosure of the risks posed to their investments.
Transparency is key for insurers said California Department of Insurance Commissioner Dave Jones, who gave a recent talk on the topic at the California Energy Commission.
“The work that we are doing at the Department of Insurance in California has been path breaking,” Jones said. “There is no question we have been a national and international leader with regards to getting insurance companies to think about climate risk particularly on their asset investment side.”
Jones believes financial institutions, including insurance companies, should address climate change risks on investments in coal, oil and gas, and utilities.
Jones talked about the multi-state and privately run initiatives that want to make risks more transparent in the insurance industry.
One initiative is the National Association of Insurance Commissioners Climate Risk Disclosure Survey. The multi-state survey, which includes California, asks insurers eight questions to assess their viewpoints on climate change risk issues.
Jones made the survey mandatory for the nearly 1,000 insurers in California that write direct premiums in excess of $300 million. This accounts for roughly 70 percent of the United States insurer market.
Jones also talked about the merits of other initiatives, like the Task Force of Climate-Related Financial Disclosures. That initiative, chaired by former New York City Mayor Michael Bloomberg, seeks to provide consistent climate-related financial disclosures from insurers.
The insurance industry is taking climate change seriously, especially in the wake of developments in 2011. That year, insurers in the U.S. saw claims from nearly 2,000 tornadoes. Crop insurers paid out a record $9.1 billion in claims that year.
This year will likely add more urgency for climate change risk transparency, given the intense storms and fires in 2017. At the start of the hurricane season, which started June 1, forecasters at the National Oceanic and Atmospheric Administration predicted there would be between two and four major hurricanes.
To date, the season has already seen three devastating hurricanes costing billions in damages, with the hurricane season wrapping up at the end of November.
The deadly wildfires that ravaged Northern California in October caused more than $3 billion in insured losses, with that number likely to grow as more claims are reported by insurers, according to the California Department of Insurance.
