PCI on NAIC Climate Risk Disclosure Survey: Opportunistic litigators would be the primary beneficiaries

In a January 8, 2010 letter addressing Climate Risk Disclosure Survey Draft documents distributed for public comment by the National Association of Insurance Commissioners (“NAIC”) during December 2009, the Property Casualty Insurers Association of America (“PCI”) asked state insurance regulators to consider the following:

Publicized surveys would have an anticompetitive impact on insurance markets – Mandating that all insurers publish “substantive” company-specific responses makes public potentially proprietary and competitively sensitive information – such as internal investment, pricing and underwriting strategies, and competitive corporate policies. Companies should retain the right to voluntarily publish company-specific information, as provided under the international Carbon Disclosure Project.

Regulators already have the avenue to obtain the information sought – Through existing risk-focused financial reviews and the ability to engage an insurance company in interim discussions, regulators have the ability to obtain all of the information sought by the proposed interrogatories, without requiring public disclosure. This type of dialogue should be encouraged, rather than complicated by a public filing mandate.

An effective venue for public disclosure already exists – Management’s Discussion and Analysis, currently filed as a supplement to the Annual Statement, provides for the disclosure of material historical and prospective information concerning the financial condition and results of operations of the reporting entity. This supplement also includes a description of any known trends or uncertainties, including those relating to climate change. Note, however, that the speculative nature of the requested climate change disclosures, plus the divergent opinions within the climate science community, will undoubtedly result in varying responses by insurance companies to the proposed climate-related interrogatories. Hence, questions over the accuracy, efficacy, and reliability of the climate change information would remain.

Climate Risk Disclosure Survey can be highly misleading – A separate disclosure on the potential risks from climate change and global warming mistakenly emphasizes climate change risk over all other risks affecting the insurance enterprise and its policyholders. Climate risk is an evolving issue that insurers will continue to monitor, analyze and assess; yet, this proposal inappropriately suggests to the consumer and investor that it is one of the principal risks to an insurer’s future solvency. Such a conclusion would be misleading and would compromise the quality of the other disclosures that are intended to truly reflect the material risks facing the insurance enterprise.

Opportunistic litigators would be the primary beneficiaries – Advocates for public disclosure requirements have not identified any discernable material benefit to consumers, regulators, or insurance markets. But the proposal would provide new fee-generating opportunities for an aggressive trial bar. By requiring insurers to provide unverifiable, speculative loss information concerning a risk factor that can never be accurately or directly attributed to any specific insurer, the proposal would expose insurers to significant reputational and economic harm from new litigation theories. Such litigation would be counter-productive for all parties with interests in climate change, except for the plaintiffs bar.

To view the entirety of PCI’s comments, click here.

 

Questions and Answers about the Insurer Climate Risk Disclosure Survey

On February 24, 2009 the NAIC Climate Change and Global Warming Task Force adopted the Insurer Climate Risk Disclosure Survey. To assist in understanding the survey, below are answers to commonly asked questions.

 

Q. What is the Insurer Climate Risk Disclosure Survey?

A. The Insurer Climate Risk Disclosure Survey contains a set of 8 questions that inquire about insurers’ risk assessment and management efforts in addressing climate change. The proposed disclosure builds upon existing climate risk disclosure mechanisms, but has an increased focus on issues related to insurer solvency and insurance availability and affordability. It will also provide additional information for consumers to incorporate into their purchasing decisions.

 

Q. What is the purpose of the Insurer Climate Risk Disclosure Survey?

A. The goal of the Insurer Climate Risk Disclosure Survey is to provide regulators, shareholders and the public with substantive information about the risks posed by climate change to insurers and the actions insurers are taking in response to their understanding of climate change risks.

Disclosure of climate change risks is important because of the potential impact of climate change on insurer solvency and insurance availability and affordability across all major categories of insurance: property casualty, life and health.

 

Q. Is every insurer required to file the Insurer Climate Risk Disclosure Survey? What is the reporting timeframe?

A. The objective is for mandatory disclosure by applicable insurers to begin for the financial reporting year 2009 for insurance groups that meet or exceed direct written premium of $500 million. For the financial reporting year 2010, disclosure would be mandatory for insurance groups that meet or exceed direct written premium of $300 million. For those insurance groups that report premium under the mandatory thresholds, disclosure would be voluntary.

Insurers are required to submit the Insurer Climate Risk Disclosure Survey to the domestic regulator of the insurer group’s lead state by May 1 each year. The insurer group’s lead state is the regulator overseeing the insurer within the group that reports the largest direct written premium volume.

 

Q. Can State Insurance Departments choose not to participate in the Insurer Climate Risk Disclosure Survey?  

A. Yes. However, it should be noted, that the Insurer Climate Risk Disclosure Survey is reported on a group basis. Therefore, the insurance group would be required to comply should any state that the group writes in require the filing of the Insurer Climate Risk Disclosure Survey.

 

Q. Is the Insurance Climate Risk Disclosure Survey Public or Confidential? How will the filing be received?

A. The Insurance Climate Risk Disclosure Survey responses are public information. The NAIC is still in the process of developing a user-friendly central access point for the survey document and insurer responses. More information will follow.

For more information please visit the Climate Change and Global Warming Task Force webpage at http://www.naic.org/committees_ex_climate.htm.

 

Should you have any questions or comments, please contact Colodny Fass.

 

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