A request for comment from the Federal Insurance Office has seemingly rekindled the industry's concerns over federal incursion into the state-based system of insurance regulation.
President Joe Biden in an executive order tasked FIO with assessing "climate-related issues or gaps in the supervision and regulation of insurers" and examining the prospects of "major disruptions" of private insurance coverage in parts of the U.S. that are particularly vulnerable to the impacts of climate change.
In its request for comment, FIO said a lack of available data "complicates" the ability to conduct necessary assessments and argued that all stakeholders could benefit from better and consistent data for climate-related risk management purposes.
A 'threat' to state-based regulation
Letters responding to the request generally advocate for two different approaches, with some commenters pressing for a more activist approach to climate-related oversight by FIO, while others, mainly those associated with the insurance industry, ask that FIO defer to the National Association of Insurance Commissioners and serve merely as a coordinator for a state-based response.
The National Association of Professional Insurance Agents in its comment letter said the state insurance regulatory system has worked well for insurance consumers and the industry for more than a century. It called the existence of FIO a "threat" to the state-based system.
"FIO does not have the statutory authority to make inquiries into climate-related gaps in insurance industry, and should not attempt to do so," the trade agency said.
Liberty Mutual Holding Co. Inc., a frequent target of climate activists, in its comment letter said it "may be appropriate" for FIO to produce a written report identifying the risks posed by climate change in the insurance sector and to offer potential policy recommendations for the Biden administration, Congress, state regulators and the NAIC to consider.
Liberty Mutual said climate risks are not new to insurers or regulators and noted that the NAIC's special committee on climate risk has workstreams related to disclosure and solvency.
"Before evaluating insurance supervision and regulation in this space, it would be prudent to wait to see how that work develops," the insurer said.
State AGs urge more federal action
Some of those in charge of regulating the industry advocated for a more hands-on approach by FIO.
A letter from the attorneys general of New York, Massachusetts, Connecticut, Maryland and Oregon said the severity of climate financial risks facing the insurance sector "demands targeted policy approaches" and said FIO should "fully exercise" its authority to assess and help mitigate such risks.
"We urge the Office to exercise the full extent of its data collection and dissemination authority to expand the availability to states and the general public of information about climate-related financial risks to the insurance sector," the letter stated. "Such information would be extremely valuable to state planning and policymaking."
Recent revelations regarding the risks climate change pose to insurance companies have created a heightened sense of urgency for greater transparency on this issue. Research published earlier this year by S&P Global Market Intelligence on climate risks and insurance was among the works cited in several of the comment letters.
FIO in its request for comment said only six states have regularly collected any kind of data pertaining to climate-related financial risks and noted that there is no federal authority collecting climate-related financial data specific to the insurance sector.
Other avenues to explore
The Consumer Federation of America, or CFA, proposed a role for the federal government that extends beyond transparency and oversight, suggesting the establishment of a public catastrophe reinsurance fund to which insurers could cede some of their catastrophe risk at a lower price than is available in the private reinsurance market.
"Because a public catastrophe fund would not have a profit factor and would have different tax treatment than a private firm, this may be a way to address the growing concern that insurers will not have the capacity to insure regions that are particularly exposed to climate risks," the CFA said.
Fermat Capital, a large insurance-linked securities investment manager, pitched an idea to increase transparency that involved allowing the Florida Office of Insurance Regulation to confidentially access residential property insurance data by locality, information that many Florida insurers previously submitted to the Sunshine State's regulator but now claim as a trade secret. Fermat proposed FIO collect granular data about carriers' property insurance exposure at the county level to start evaluating physical risks posed by climate change.
The trade secret designation in Florida has been used by an increasing number of insurers over the past several years, after State Farm Mutual Automobile Insurance Co. challenged the state's regulatory office on its requirements that companies submit data for public view. United Property & Casualty Insurance Co., FedNat Insurance Co. and Universal Property & Casualty Insurance Co. are among the list of insurers that also claim such information as a trade secret.