Tuesday, 21 May 2024

U.S. insurance departments report progress toward consistent global standards for measuring growing climate risks

Insurance Commissioners Mike Kreidler of Washington state and Ricardo Lara of California announced that eight insurance companies filed Task Force on Climate-related Financial Disclosures, or TCFD, reports in response to the Climate Risk Disclosure Survey in 2020.

Washington and California, in partnership with the Departments of Insurance from Connecticut, Minnesota, New Mexico, and New York, conduct the annual survey and release the results on the California Department of Insurance website.

The Climate Risk Disclosure Survey is sent to insurance companies that generate $100 million or more in annual premium income and are licensed in the participating states, which in total encompasses over 70 percent of the U.S. insurance market.

The TCFD guidelines were approved by the G-20 Finance Ministers and endorsed by both environmental groups and more than 1,500 businesses from around the world.

The guidelines will help insurance companies better understand the concentrations of carbon-related assets in their investments and recognize climate risks and opportunities in their investing strategy.

The news of increased alignment with the TCFD guidelines comes as insurance companies worldwide work toward consistent climate disclosure, a recommendation of multiple international insurance supervisors and a requirement in France.

“This is a significant step in the right direction for climate disclosures in the insurance industry,” said Commissioner Kreidler. “Using TCFD’s guidelines allows insurance regulators to assess insurers’ risk in a meaningful way, it streamlines reporting for the insurance industry and aligns with practices in other industries nationally and internationally.”

“The record-breaking wildfires, heat waves and extreme weather we experienced in 2020 are a taste of the future,” said Commissioner Lara. “With more insurance companies adopting a global standard for reporting climate risks, the industry is going to be in a better position to meet growing threats in a way that protects consumers and prevents future losses.”

“Commissioner Kreidler, Commissioner Lara and their colleagues deserve credit for their leadership in addressing climate risks facing people across the country,” said Steven M. Rothstein, Managing Director, Ceres Accelerator for Sustainable Capital Markets. “Using TCFD climate disclosure is a vital first step for insurance companies to address climate change.”

“Globally climate change financial risk is now a mainstream focus of forward-looking firms and economies," said Geoff Summerhayes, executive board member of the Australian Prudential Regulation Authority. "The adoption of TCFD has been a critical enabler of this shift.”

Survey responses for the current and prior years are available to the public and can be found on the California Department of Insurance website.

Findings from the 2020 survey include:

– Approximately 80 percent of insurers plan to assess, reduce or mitigate emissions in their operations or organizations.
– 56 percent of insurance companies do not have a climate change policy with respect to risk management and investment management.
– 80 percent of insurance companies have a process for identifying climate-change-related risks and assessing the consequences for their business, including financial implications.
– 75 percent of insurance companies have identified current or anticipated risks that climate change poses to their companies.
– Although roughly 80 percent of insurance companies have considered climate change in their investment portfolios, 58 percent have not altered their investment strategy in response to those considerations.
– More than 75 percent of insurance companies have acted to manage risks climate change poses to their business.

The Climate Risk Disclosure Survey pre-dates the TCFD guidelines, and has been issued annually since 2010, including eight questions for insurance companies to answer about how they incorporate climate risks into their mitigation, risk-management and investment plans.

The eight Climate Risk Disclosure Survey questions overlap with the TCFD guidelines and recommendations. The TCFD guidelines were established as a voluntary climate-related financial risk disclosure standard for all industries in 2017.

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