REGULATION
Federal Lawmakers Ask NAIC About Regulatory, Coverage Gaps From Climate Risks
WASHINGTON //BestWire// - A trio of U.S. legislators are requesting more information from the National Association of Insurance Commissioners on the steps it is taking to address climate-related gaps in state regulations covering insurers as well as the impact extreme weather is having on the industry.
The letter, which asks for a response by Aug. 26, was signed by U.S. Sen. Sheldon Whitehouse of Rhode Island, U.S. Rep. Maxine Waters of California and U.S. Rep. Sean Casten of Illinois. Whitehouse serves on the Senate Finance Committee. Waters is the ranking member of the House Financial Services Committee, of which Casten is also a member.
In June 2023, the Federal Insurance Office sent NAIC recommendations on ways to integrate climate-related financial risks into regulations as “climate change is an emerging threat to the financial stability of the U.S.,” according to the letter.
FIO’s recommendation includes identifying regulatory best-practices and encouraging other states to adopt them; considering changes to risk-based capital formulas for flood, convective storms and other climate risks; monitoring availability of reinsurance for climate-related risks; and taking a deep look into how climate-related risks impact not only the insurance industry, but also real estate and banking (BestWire, June 30, 2023).
In further support of implementing the recommendations, the Financial Stability Oversight Council said in its 2023 annual report that growing frequency and intensity of extreme weather could impact the solvency of carriers and the ability of consumers to afford coverage, according to the letter. This could have negative consequences for mortgage and housing markets and could “generate larger economic spillover effects,” FSOC wrote.
A larger economic impact is already being felt, according to the congresspeople, who point out Federal Reserve Chair Jerome Powell indicated earlier this year that growing insurance costs are contributing to inflation.
The NAIC said it is reviewing the letter, and noted it is one of the first financial regulator organizations to adopt climate-related disclosures and develop a comprehensive plan for resilience.
NAIC members designed tools and guidance to ensure regulatory systems have comprehensive insights into the impact climate-related risks and extreme weather can have on insurance markets, the group said in an emailed statement.
Waters' office declined to comment, referring questions to the House Financial Services Committee. Attempts to gain comment from that committee, Whitehouse and Casten were unsuccessful.
(By Steve Hallo, senior associate editor, BestWire: Steve.Hallo@ambest.com)