Washington, D.C. — The effects of climate change are already being broadly felt by U.S. insurance markets, consumers, and the financial system. A new Center for American Progress column outlines four principles for the insurance industry to address climate change and how state and federal policymakers must take action now to avoid future economic crises. As state insurance regulators, as well as federal bodies such as the Federal Insurance Office (FIO) and the Financial Stability Oversight Council (FSOC), consider improvements in their supervision of the industry, they should be guided by these four principles:
- Insurers must be more transparent and accountable in their approach to managing climate risks. State regulators and the FIO should systematically collect information from insurers and reinsurers; execute statistical research to measure and forecast the extent and distribution of economic losses related to climate change; and aid financial regulators concerned with the stability of financial markets.
- Insurance regulators must encourage firms to manage climate risks. Regulators across the country should issue guidance to help insurers integrate climate risk management measures. For firms that have made net-zero commitments, regulators should ensure that firms have credible transition plans in place and that internal strategies are aligned with these plans.
- Insurance regulators must monitor the industry for instances of bluelining. State regulators should issue guidance and train examiners to help firms balance their climate risk management without the bluelining, which denies families access to affordable insurance and other financial services as well as the ability to recover from extreme weather events and climate disasters. Consistent with its mandate, the FIO should continue to monitor the extent to which traditionally underserved communities lack access to affordable insurance products.
- Policymakers must mitigate systemic risk before it threatens financial and economic stability. As climate change continues to ravage insurance markets, the FSOC must play an active role in preemptively addressing these systemic risks. Regulators of exposed financial institutions, such as those that oversee banks and credit unions, should analyze how the insurance availability and affordability crisis may raise microprudential concerns for institutions under their remit and should then help those institutions prepare accordingly.
“Addressing the root causes and far-reaching effects of climate change will require a whole-of-government approach,” said Lilith Fellowes-Granda, associate director for financial regulation at CAP and author of the column. “Beyond these principles, policymakers at all levels should consider large-scale solutions that incentivize loss prevention and climate risk mitigation, and that are shaped by equity considerations, to help communities become more resilient and to enable insurers to serve U.S. households and businesses more effectively.”
Read the column: “4 Principles for Addressing Climate Risks in the Insurance Industry” by Lilith Fellowes-Granda
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