Now that climate change seems to be on everyone's lips, the talk in the insurance industry is getting hot about disclosure.
The fallout from trying to second-guess climate change and its effects not just on emissions but on everything from disease to catastrophic storms, is having its effect on the insurance industry, too. On February 28, the Climate Change and Global Warming Task Force of the National Association of Insurance Commissioners (NAIC) released a draft of its "Climate Risk Disclosure Proposal," laying out proposed new reporting standards for the industry.
The standards seek to better assess risks stemming from climate change. Ernst & Young released a study in early March identifying climate change as the greatest strategic risk to the industry. The NAIC proposal seeks to bring a "mainstream approach" to "reporting formats and measures in the climate risk arena," while allowing what it calls "minimal deviations where necessary to reflect the particular nature of the insurance industry." Drawn from the Global Framework for Climate Risk Disclosure, these proposed standards provide reporting in four separate categories: emissions disclosure, strategic analysis of climate risk and emissions management, regulatory risks, and physical risks. Only the first of these is proposed to be voluntary, since the standards concede that "greenhouse gas emissions by insurers are low" and therefore do not constitute an "area of regulatory concern." The others, however, would be required.
Reaction has been fast and furious. The American Insurance Association (AIA), the National Association of Mutual Insurance Companies (NAMIC), Property Casualty Insurers Association of America (PCI), and Reinsurance Association of America (RAA) have all responded opposing the proposal. The standards are praised in a letter signed jointly by Ceres, the Center for Economic Justice, and the Natural Resources Defense Council (dismissed as "special interest groups" in the AIA document and "advocacy groups" in the NAMIC document, which additionally asserts that "the Task Force has done little more than rubber-stamp the policy agenda of these advocacy groups").
However, Commissioner Sean Dilweg, current chairman of the task force, says that despite the rhetoric, he sees the potential for real common ground, and for a common standard on disclosure, something he says is in the works in a number of other jurisdictions. The NAIC, he says, is "looking at disclosures, rather than having 14 different states having 14 different standards" for the industry.
Despite opposing viewpoints, Dilweg says it's important to start the conversation because "I don't want to see the various states going in their own directions; that's something that neither industry nor advocates want in the end."
David Snyder, vice president of AIA and assistant general counsel, is firm on the organization's opposition to mandatory disclosure, claiming it will potentially expose insurance companies, their partners, and their insureds to liability. However, he acknowledges that action must be taken. "We hope that what will emerge will be something that focuses on actions and not on disclosure," he says, adding that when there is disclosure, it should be in a careful and deliberative fashion that resembles management discussion and analysis.
While there has been problems with voluntary reporting and voluntary standards in other industries, at least the discussion on appropriate standards is beginning.
Marlene Y. Satter, a freelance business writer who can be reached at firstname.lastname@example.org.