➤ Washington's state insurance commissioner is worried that devastating wildfires in California and elsewhere in the Western U.S. could impact his state.
➤ The regulator expects the National Association of Insurance Commissioners will eventually move toward adopting a model law or philosophy that addresses climate change-related risks.
Washington Insurance Commissioner Mike Kreidler faces a host of issues related to risks associated with a changing climate, much in the vein of what California is dealing with.
S&P Global Market Intelligence caught up with Kreidler, who chairs the National Association of Insurance Commissioners' Climate Risk and Resilience Work Group, at the NAIC's fall meeting to discuss his perspective on climate risk priorities and the one-year moratorium California recently issued on home insurance nonrenewals in certain parts of the state. The following is an edited transcript of that conversation.
Washington Insurance Commissioner Mike Kreidler
S&P Global Market Intelligence: What is the biggest issue in Washington that you're focused on when it comes to climate?
Mike Kreidler: I'd say our apprehension about forest fires is probably the No. 1 issue. It's certainly not the only issue by any means, but it's the one that is most relevant. Several summers ago we wound up with some pretty serious problems with air quality. There were fires in British Columbia, eastern Washington, southern Oregon and Northern California.
I think that's probably what we're fearful of, not just from the air quality standpoint, but also about potential losses we could see to housing and to people's lives. Our fear is that the continued changes in the climate are going to lead to greater exposure in western Washington where you have higher concentrations of people living. If you've been to metropolitan Seattle and you take a look out to the suburbs, affordable housing is being pushed out farther and farther and it's right up against the wildlife forest zone. As a result of that, we're fearful that you could start to see some of the things that are developing in California happen in the state of Washington.
Are there any initiatives you are pursuing to combat that from an insurance perspective?
One that I initiated was to propose to the state Legislature that we create a resilience task force. It has begun meeting and will present recommendations to the Legislature at the end of next year.
What are some of the insurance issues it will deal with?
The ones that are always going to be near and dear to me are going to be the ones that focus on the issues related to zoning and for housing and development in general, as well as building codes that are used for structures that are built in more vulnerable areas.
I know that California just put a moratorium on homeowners' nonrenewals in certain areas. Is that an issue that you're dealing with as well? Would you consider doing something like that?
In Washington, we've had a relatively modest amount, and it's largely insurance companies that felt they were overly concentrated in certain geographic areas where the risk is significantly high and now want to pull back.
Only one insurance company, Merced Property & Casualty Co., has failed so far and that had nothing to do with how the company was run. It was well-run. It was well-capitalized. It had an overconcentration of insurance policies in fire-prone areas and could not handle the losses. That's why it became insolvent.
This is one where I'm always sensitive to companies needing to make sure that they don't get overly concentrated. It's not good for the companies. It's not good for the consumers. You want to make sure that they have the power to stay where they're writing. So what we did in the state of Washington, which we had never done before, is go out and do a survey of the insurance policies, their practices in certain geographic areas. That gives us a benchmark so maybe not this year, but 10 years from now, we can look back and say, "This is the way it used to be, this is what happened up until today and that's why we need to be much more aggressive." So we're monitoring it.
The last thing I want to do is get into a position like California where you have to mandate that companies to stay in markets because that tends to be counterproductive in the sense that we want to make sure that companies remain solvent and stay in business and offer competition in the marketplace. When you start telling them they have to insure in areas where it's going to be difficult for them to do so without significant risk, their only choice is to raise their rates rather substantially.
To some degree, I have to admit I'm nervous about California and its practices right now with nonrenewals. Also, their FAIR Plan has been a fairly barebones plan, but there has been some discussion about increasing the quality of those products. It's a recipe for a system that, because the market has been so decimated by companies leaving the market, you're left having to create your own.
Do you think the National Association of Insurance Commissioners might move toward adopting some sort of model law or philosophy on climate?
I think it will. It's going to be slow because you operate with regulators who are very much consensus-driven. I really sense this is being done where you're going to see companies like American International Group Inc. and Chubb Ltd. and others that are stepping out and doing things that kind of set the pattern for others. I think at some point we reach the trip point, and all of a sudden then it's one of those where we can't let someone come in and be a "fly by night" operation. We've got to make sure everybody plays by the same set of rules.