Insurance groups turn cold shoulder to call for climate-risk data

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Remains of destroyed houses are seen almost one month after Hurricane Ian landfall, in Fort Myers Beach, Florida, U.S., October 26, 2022. REUTERS/Marco Bello
  • Treasury unit wants five-year report from homeowners’ insurers, by ZIP code as financial regulators begin to address the effects of global warming

(Reuters) - The federal government’s proposed plan to force homeowners’ insurers nationwide to provide detailed data on their climate-related claims experience has drawn a warm welcome from consumer advocates, but a frosty response from insurance associations and state regulators.

The public-comment period closes Tuesday on the proposal, a “data call” by the U.S. Treasury’s Financial Insurance Office, one of the first concrete actions by U.S. financial regulators in a new push to address global warming.

FIO is seeking five years’ worth of ZIP-code level data from 213 private insurers, collectively representing at least 80 percent of the homeowners’ insurance market in each state.

U.S. Treasury Secretary Janet Yellen announced the proposal in October, weeks after Hurricane Ian devastated the Florida coast, with projected insured losses of more than $60 billion, according to trade group Insurance Information Institute. Yellen said the “granular” data would help FIO assess the effect of climate-related catastrophes on insurance availability and affordability for millions of Americans.

Yevgeny Shrago, policy director of Public Citizen’s Climate Program, and Carmen Balber, executive director of Consumer Watchdog, welcomed the federal effort. They said state regulators have failed to protect consumers in low-income communities, communities of color, and other populations at risk from the extreme weather events.

“There's no question that everyone is concerned about climate change and its impact on coverage,” said Laura Foggan, who chairs Crowell & Moring’s Insurance/Reinsurance Group. “The question is whether this particular data call proposal is well designed to address those issues.”

For the insurance industry, she said the main sticking points are “the onerousness of the data call; the overlap between the state and federal inquiries and the concerns about factors the data call doesn’t mention, such as fraudulent claim issues; and the desire to focus less on data gathering and more on having a dialogue about innovative solutions to close protection gaps.”

The data call would require between 100 and 350 hours of work per insurer, FIO said. Insurers already report statewide data to their state insurance regulators, but do not break it out by ZIP code. FIO also wants information the state regulators don’t require, including the replacement value of the insured property and the insurance policies’ deductibles and coverage limits.

"FALLACIOUS RESULTS"

The National Association of Insurance Commissioners (NAIC), the support organization for the chief insurance regulators of all 50 states, the District of Columbia, and five U.S. territories, publicly lambasted the proposal. It said FIO made no “good faith” effort to work with state regulators, and instead “exhibited their intention to forgo a collaborative effort.” As a result, the proposal inadvertently sweeps in non-climate variables, like social inflation and “the legal environment”; ignores nuances in state insurance codes, and “likely … will produce fallacious results in trying to identify climate risk,” the comment said.

NAIC and the Insurance Information Institute each urged FIO to abandon its current proposal and start over with a more collaborative approach, relying on publicly available information rather than new reports.

“What’s more, helping bring risk management more top of mind through improving systems and processes that already fall under existing federal oversight, such as property financing and community development, would be a better use of (FIO’s) resources,” the Institute’s CEO Sean Kevelighan said in an email.

Not all insurance groups want a complete do-over, however. The Centers for Better Insurance, which researches regulatory proposals, generally favors FIO’s approach but suggested several changes, including the addition of “special-peril” insurers and all residual “insurers of last resort,” regardless of their size or market share.

The American Property Casualty Insurance Association is also “committed to working collaboratively with FIO” even though it has “several significant concerns with the proposed data call as drafted,” Nat Wienecke, APCIA senior vice president of federal government relations, wrote in an email Friday.

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