The impact of climate change has affected every market sector you can imagine. Still, insurers are feeling a two-fold pinch from addressing this risk and the ever-changing industry regulations designed to combat it. To better understand how insurance companies around the United States respond to volatile weather events caused by climate issues, this article looks at how to address these risks as a whole.
As the U.S. continues to experience escalating occurrences of record heat waves, destructive flooding, and millions of acres in forest fires, the insurance market has come under deeper scrutiny by the public and federal regulators. Some national regulation experts believe that the damages our nation could experience from these catastrophic events may exceed the losses suffered in the 2008 financial crisis.
The National Association of Insurance Commissioners (NAIC) Center for Insurance Policy and Research (CIPR) analyzed its Insurance Regulator State of Climate Risks Survey. Since 2010, the NAIC has relied on this survey to help explore current climate risk disclosure data questions developed to provide insight for insurance regulators on the impact of climate change on the industry.
Some of the more notable findings that came of its most recent assessment includes:
With these insights and mounting losses from devastating weather events like the current Dixie fire in California's Butte and Plumas Counties, it's clear that insurers need to take actionable steps in how they approach policy creation as well as protecting their bottom lines.
The latest rise in losses for insurer business and investment portfolios highlights how much more prepared carriers need to be when faced with climatic threats. According to the NAIC's study, it was found that:
These insights make it clear that eventually, better disclosure practices and associated assumptions will be required from the U.S. regulatory agencies. This information also highlights the opportunity for insurers to create better policies regarding disclosing and showcasing risk assessment and mitigation efforts. Doing so would not only provide much-needed reassurance to state and federal industry regulators when it comes to:
Many insurance companies already have measures in place to share with oversight agencies how they are shoring up their policies and financial stability. But, it may not be enough. Some regulatory departments have suggested requiring stress testing using a broad range of climate-related scenarios. This would also include providing how companies are using climate data as part of their risk model when determining pricing or making decisions in regard to underwriting.
All these suggestions could be asked on top of the steps already being taken to prevent losses related to volatile weather events.
While this article may sound like a bunch of doom and gloom for insurers already overburdened with countless regulatory demands, there are several actionable steps you can take right now to do your part to protect your insurance company.
The NAIC's survey findings included interviews with a long list of industry experts with experience in rating and managing environmental risks to insurers. There were several areas where insurance carriers could immediately take steps to mitigate climate-based risk and ensure they become more resilient when faced with significant losses:
Finding a way to maintain your financial stability and revenue streams with extreme weather events occurring more frequently is difficult. You need to find a balance that also ensures your consumers have access to your products and can afford to buy them.
Consider the following to help your insurance business adapt in a world experiencing unprecedented climate risks:
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