Climate Change and Insurance: A Regulatory Perspective

1. Climate Change and Insurance: A Regulatory Perspective

2. Overview • Why it Matters to Regulators • WA State activities • How the WA OIC got started • Climate Change and Insurance Summit • Involvement in Broader Climate Change Initiatives • Climate Risk Survey • 2009 Legislative Activities • NAIC Climate Change and Global Warming EX Task Force • Potential Impact of Climate Change on Insurance Regulation • Mandatory Climate Risk Disclosure Survey • Future activities • Insurance Regulators - We Need to Change too • Q&A

3. Why it Matters to Regulators • Insurer’s are our primary economic recovery source for natural disasters. • Insurers are uniquely situated. • Operational risk • Claim risk • Investment risk • Insurers have a long history of loss prevention. • Reinsurance industry and global insurance industry were sounding the alarm.

4. How the Effort Started • Commissioner Kreidler was active in getting the NAIC to discuss climate change back in 2005. • NAIC scheduled VP Al Gore to speak to them in New Orleans at national meeting in August 2005. • Hurricanes Katrina/Rita/Wilma raised the urgency. • OIC decided to hold a climate change summit in June 2006 in Seattle. • Commissioner Kreidler was named co-chair of NAIC Climate Change and Global Warming EX Task Force.

5. Climate Change and Insurance Summit • Held on June 15, 2006 in Seattle to gauge awareness of the issue. • Over 125 industry, community, government, academic, environmental, and consumer leaders attended. • Presentations: • Dr. Phil Mote (CIG) - effects on our region. • Andrew Logan (CERES) - potential impacts on insurance industry. • Kathleen Drew - WA State government response to global warming. • Nancy Skinner (The Climate Group) - opportunities for insurance industry. • Traveler’s Insurance - hybrid discount program. • Safeco Insurance - thoughts on climate change and insurance impact.

6. Summit Lessons • Insurers were generally skeptical and had not engaged the issue. • Insurers had an enormous opportunity to influence consumer behavior. • Climate change would bring new product opportunities. • Climate change in Pacific Northwest would pose challenges based on: • Changing precipitation patterns (flooding & agriculture) • Drought and wildfire risk • Windstorms • Increase in business interruption losses • We needed to raise awareness of the issue.

7. OIC Engaged Broader Climate Change Initiatives • Commissioner joined Governor’s Climate Advisory Team(CAT I). • Commissioner testified about climate change and insurance before Congressional Select Committee on Energy Independence and Global Warming. • Started working with state agency adaption group. • Worked on the DNR Forest Fire Protection and Prevention Working Group. • Commissioner continued serving on CAT II. • Actively involved in the CAT Transportation Implementation Working Group.

8. Washington State Insurer Climate Risk Survey • Series of 10 questions sent to top 40 writers of homeowners insurance and commercial multiple peril insurance (non-liability). • Survey was “blind.” Companies were asked to return survey without identifying the company other than on the return envelope. • Goal was to get a “baseline” of insurer climate change awareness and engagement in a “non-threatening” manner. • For the most part, answers were fairly in-depth from some companies showing the differences in awareness. • First insurance regulator survey on climate change.

9. WA State Insurer Climate Risk Survey - Results (2007-08) • 21 home insurers responded (60% market share). • 19 commercial insurers responded (54% market share). • Rates and underwriting have not yet been affected by climate change, but may be in the future. • Perils of concern: • Drought conditions in central and eastern WA and wildfires. • Increase in flooding events (NFIP). • Coverage disputes in wind and water events if more frequent. • More frequent windstorms. • Large majority of respondents were considering or already offering “green products.” • Many insurers had already started reducing their own GHG footprint.

10. 2006-07 WA Natural disasters - Lessons Learned • The Hanukah Windstorm in 2006. • 1.8 million homes without power - some for nearly a month. • 18 people killed. • $100-300 million in property damage. • 2007 flooding in western Washington. • Less than 8% of people had flood insurance. • Widespread loss of services and compromised infrastructure. • Hundreds of millions of dollars of property damage. • If climate change was going to impact these events, we needed some regulatory tools to protect consumers.

11. 2009 Legislative Activity • SSB 5417 Flood Insurance Disclosure • Requires insurers to notify policyholder at policy inception and annually thereafter that HO insurance does not include flood coverage. • Also discloses how to obtain NFIP coverage. • EHB 1566 Emergency Powers • Grants Commissioner certain powers when Governor proclaims a disaster. • Suspends cancelation/nonrenewal, extends claim deadlines, and assures out of network coverage for healthcare. • SHB 1565 Contingency Planning • Requires insurers to have contingency plans for state and local emergencies.

12. NAIC Climate Change and Global Warming EX Task Force • Task Force was formed in 2007 to study climate change and insurance. • Commissioner Kreidler was co-chair in 2007 and is again in 2009. • Task Force has held numerous hearings with industry, research, consumer, and environmental interests who provided information and testimony. • Task Force: • Published The Potential Impact of Climate Change on Insurance Regulation “white paper” (2008). • Drafted Mandatory Climate Risk Disclosure Proposal for insurance companies (Passed by full NAIC 2009). • Provided testimony to Senate Committee on Commerce, Science, and Transportation on climate change and insurance (March 2009).

13. Potential Impact of Climate Change on Insurance Regulation NAIC White Paper examined: • Solvency issues • Property and casualty loss prevention issues • Building codes and land use • Potential impacts on consumers • Potential new green products • Life and health issues (brief) The paper recommended: • Mandatory disclosure of climate risk by insurers • NFIP reform • A market based mechanism to deal with GHG emissions

14. Mandatory Climate Risk Disclosure for Insurers Adopted by the full NAIC on March 17, 2009 • First mandatory industry financial climate risk disclosure in the world. • Filing due May 1, 2010 for companies with premium over $500 million (all others 2011). • Eight questions covering: • Risk management and investment climate change policy. • Identifying anticipated risks that climate change poses and how the company is managing those risks including identification of geographic areas. • Efforts to educate policyholders and other key constituencies about climate change influenced events. • Operational emission mitigation assessment and strategy.

15. Disclosure Reactions • “Mandatory ‘Climate Risk’ Disclosure: Turning Professional Activists into Insurance Inspectors” • Paper written by VP of public policy Robert Detlefsen, National Association of Mutual Insurance Companies • “The survey also provides an important opportunity for insurers to explain that they are concerned with issues such as climate change just like the public and they can emphasize positive steps they are taking on the issue.” • VP and general counsel David Snyder, American Insurance Association • These disclosure requirements will finally create consistent and comparable information for investors to determine the real steps insurers have taken to assess important risks.” • CEO Jack Ehnes, California State Teachers Retirement System

16. Insurance Regulators - We Need to Change too. • Stay current on climate change science. Don’t let outdated information steer us toward bad public policy. • Require insurers to collect more comprehensive data on weather-related losses and the insurance implications. Good data helps create good public policy. • Pursue climate risk disclosure. • Promote the development of climate friendly products. • Take the lead on a coordinated effort to improve disaster resilience through improved building codes. • Safeguard insurer surplus based on the understanding of climate change, and encourage prudent investment in technologies and industries that will be part of the solution.

17. QUESTIONS?