A group of US legislators has requested detailed information from the National Association of Insurance Commissioners (NAIC) regarding the steps being taken to address climate-related gaps in state insurance regulations and the impact of extreme weather on the industry.
The request was made in a letter signed by Sen. Sheldon Whitehouse of Rhode Island, Rep. Maxine Waters of California, an Rep. Sean Casten of Illinois.
Whitehouse serves on the Senate Finance Committee, while Waters is the ranking member of the House Financial Services Committee, where Casten is also a member. The legislators have asked the NAIC to respond by Aug. 26.
A report from AM Best said that the letter references a June 2023 communication from the Federal Insurance Office (FIO) to the NAIC, which included recommendations for integrating climate-related financial risks into state regulations. The FIO emphasized that climate change poses an emerging threat to the financial stability of the United States.
The recommendations from the FIO include identifying regulatory best practices and encouraging states to adopt them, revising risk-based capital formulas to account for flood, convective storms, and other climate-related risks, monitoring the availability of reinsurance for such risks, and examining the broader impact of climate-related risks on the insurance industry, as well as on real estate and banking sectors.
The Financial Stability Oversight Council (FSOC) also supported the implementation of these recommendations in its 2023 annual report. The FSOC warned that the increasing frequency and severity of extreme weather events could threaten the solvency of insurers and make coverage less affordable for consumers.
This, the council noted, could have negative repercussions on the mortgage and housing markets, potentially leading to broader economic spillover effects.
The legislators further noted that Federal Reserve Chair Jerome Powell mentioned earlier this year that rising insurance costs are contributing to inflation, indicating that the economic impact of these issues is already being felt.
The NAIC acknowledged receipt of the letter and stated that it is under review. In an emailed statement, the NAIC highlighted that it was one of the first financial regulatory organizations to adopt climate-related disclosures and to develop a comprehensive plan for resilience.
The organization added that its members have designed tools and guidance to ensure that regulatory systems can effectively assess the impact of climate-related risks and extreme weather on insurance markets.
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