On March 17, the National Association of Insurance Commissioners (NAIC) approved a compromise version of the climate change survey sent out for comments in 2008. The survey, now consisting of eight questions regarding insurers' efforts to mitigate the risk of climate change in their business, was whittled down in the wake of comments from the industry.
Some insurance trade groups are still unhappy with the survey. Robert Detlefsen, VP for public policy of the National Association of Mutual Insurance Companies, refers to it as "less bad than originally proposed," but says it does not fall within the purview of regulators to inquire into the activities of insurance companies regarding climate risk. Nonetheless, the questionnaire mandates a response by all insurer groups with premiums over $500M in 2009, and by all insurer groups with premiums over $300M in 2010 and thereafter. Smaller companies may be asked to complete the survey voluntarily.
Companies must report not only on how they are changing their risk management and catastrophe risk modeling to account for climate change factors, but also on how they are educating policyholders and policymakers on the risks of climate change and how their investment strategies are changing based on their awareness of such risks.
Joel Ario, chairman of the NAIC Climate Change and Global Warming Task Force, says of the survey, "Every environmentalist wanted it to be more comprehensive and require more definitive answers, and the industry wanted it to be shorter with less definitive answers." The compromise not only gives the public a "better idea of how insurers assess the risk," it compels insurers to find ways to mitigate that risk, he argues.
Despite protests from some trade industry groups, Ario says that insurance companies are "notoriously risk averse," and believes that they "will do everything they can to manage [risk] as best they can." He adds, "As awareness builds of the kinds of risk and the science gets stronger, and their modeling shows how risk translates into their book of business, they will get more interested in mitigating that risk."
In fact, Ario sees insurers as gradually taking lead roles in trying to mitigate the risks resulting from climate change, just as auto insurance companies once promoted seat belt laws. On the investment side, too, he points out, insurers will be more conscious of "where they put their dollars," avoiding high-risk places or industries, instead seeking out places and businesses that promote more environmentally friendly policies and are less subject to climate change risk.
Some companies, he believes, will see new business opportunities, both in marketing and in pricing of policies--opportunities to distinguish themselves from their competition. Some will offer discounts for green buildings, for instance, and in auto insurance, for hybrid cars--and change their pricing based on miles driven--to "deter unnecessary driving." This, he says, will "drive strategy in a lot of businesses."
While much of the support for the questionnaire came from environmental advocates, such as CERES, Ario adds that reinsurers have always been proponents of more aggressive action. Compromise, too, was vital. The final survey was the result of "a lot of . . . back and forth," he explains, encompassing both public processes and offline discussions before the final product was brought back into the public process and adopted. The American Insurance Association (AIA), representing property/casualty insurers, joined with environmentalists and regulators "and hammered out the version of the survey that was then adopted," according to Ario.
Even though this is the last climate disclosure action NAIC will undertake for a while, he describes it as an "ongoing process."
Marlene Y. Satter, a freelance business writer who can be reached at email@example.com.