WASHINGTON — Federal and state regulators are developing new requirements for insurance carriers to disclose their climate-related financial risks and their exposure to catastrophe losses — requirements that will affect how carriers price risk, manage their portfolios, and communicate with policyholders and investors.
The Securities and Exchange Commission's climate disclosure rule, which requires publicly traded companies to disclose material climate-related risks and their financial impacts, applies to publicly traded insurance carriers. The rule requires carriers to disclose their exposure to physical climate risks — including hurricane, flood, wildfire, and extreme heat — and the financial impact of those risks on their business.
The National Association of Insurance Commissioners has developed a climate risk disclosure survey that state insurance regulators use to assess carriers' exposure to climate-related risks. The survey asks carriers about their investment portfolios, underwriting practices, and risk management strategies in relation to climate change.
Several states — including California, New York, and Connecticut — have enacted or proposed legislation requiring insurance carriers to conduct and disclose climate scenario analyses that assess the potential financial impact of different climate change scenarios on their business. These analyses are intended to help regulators assess the financial stability of carriers in a changing climate.
For restoration contractors, the climate disclosure requirements are a signal that the insurance industry is taking climate risk seriously and is likely to continue adjusting its pricing and coverage practices to reflect the changing risk environment. Contractors who understand the insurance industry's climate risk perspective will be better positioned to anticipate and adapt to changes in the insurance market.
