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Climate Risk and Resiliency in the Insurance Sector

Climate risk and resiliency is a priority for insurance regulators across the globe. State, federal and international stakeholders are working together to coordinate climate-related risk and resiliency assessments, disclosures and evaluation initiatives to ensure stable and resilient insurance markets for insurance consumers.

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NAIC Climate and Resiliency Task Force

In 2020, the National Association of Insurance Commissioners (NAIC) formed the Climate and Resiliency (EX) Task Force to serve as the coordinating body for discussion and engagement on climate-related risk and resiliency issues, including dialogue among state insurance regulators, industry and other stakeholders.  

The Task Force will hear reports on major issues facing state regulators:  pre-disaster mitigation, solvency, climate risk disclosure, innovation, and technology. Within various workstreams the Task Force will consider risk reduction measures and the role insurance regulators can play in advancing these efforts to ultimately better protect and prepare policyholders and insurance markets to withstand the physical and economic consequences of climate risk.

  1. Consider appropriate climate risk disclosures within the insurance sector, including:
    • Evaluation of the Climate Risk Disclosure Survey.
    • Evaluation of alignment with other sectors and international standards.
  2. Evaluate financial regulatory approaches to climate risk and resiliency in coordination with other relevant committees, task forces and working groups, such as the Financial Condition (E) Committee and the Financial Stability (EX) Task Force, including:
    • Evaluation of the use of modeling by carriers and their reinsurers concerning climate risk.
    • Evaluation of how rating agencies incorporate climate risk into their analysis and governance.
    • Evaluation of the potential solvency impact of insurers’ exposures, including both underwriting and investments, to climate-related risks.
    • Evaluation and development of climate risk-related disclosure, stress-testing, and scenario modeling.
  3. Consider innovative insurer solutions to climate risk and resiliency, including:
    • Evaluation of how to apply technology and innovation to the mitigation of storm, wildfire, other climate risks and earthquake.
    • Evaluation of insurance product innovation directed at reducing, managing and mitigating climate risk, and closing protection gaps.
  4. Identify sustainability, resilience and mitigation issues and solutions related to the insurance industry.
  5. Consider pre-disaster mitigation and resiliency and the role of state insurance regulators in resiliency.


Additional Resources

Climate Risk Disclosure

Clear and consistent climate risk disclosure is an important process to prepare the public, governments and insurers for the risks posed to the insurance sector by climate change impacts.  In 2021, the Division of Insurance partnered with other states to require insurers with a certain dollar amount of premiums to respond to a survey regarding their preparedness to address climate risks.

The goal of the survey is to provide regulators with information about the assessment of risks posed by climate change to insurers and the actions insurers are taking in response to their understanding of climate risks.  Specifically, the survey allows the Division to better understand how insurers are considering and addressing climate change and climate risk in their business operations, underwriting and reserves. The survey is comprised of eight questions regarding insurance companies’ responses to climate change, covering topics such as investment, mitigation, financial solvency (risk management), emissions/carbon footprint, engaging consumers.

All insurers and health maintenance organizations who are licensed in the Commonwealth of Massachusetts and who collected direct written premium amounts of more than $100 million dollars nationwide during 2020 must respond to the survey for Massachusetts, except for insurers and health maintenance organizations required to respond to the survey by the other participating states. Insurers and health maintenance organizations within the same group whose policies and practices are the same and whose answers would not be materially different from each other may submit uniform group responses.

Task Force on Climate-related Financial Disclosures (TCFD)

The NAIC annual climate survey and TCFD recommendations are similar, since they report on climate-related risks and opportunities, innovative products, such as premium reductions for risk mitigation efforts, green building insurance, renewable energy, natural infrastructure, or others. The TCFD recommendations were approved by the G-20 Finance Ministers and created by an industry-led task force. The TCFD Guidelines are endorsed by many institutions and supported by the International Association of Insurance Supervisors.

Insurers have the option to submit a TCFD report in lieu of submitting a Climate Risk Disclosure Survey. This is highly encouraged, given the increased commitment to the TCFD guidelines among businesses internationally. The TCFD standard is the international benchmark for climate risk disclosure and will help insurance regulators and the public to better understand the climate-related risks to the U.S. insurance market, which is the largest in the world

In April 2022, the NAIC adopted a new standard for insurance companies to report their climate-related risks, in alignment with the international Task Force on Climate-Related Financial Disclosures (TCFD).

Additional Resources

Sustainable Insurance Forum

In April 2022, the Massachusetts Division of Insurance announced its membership to the United Nation’s Sustainable Insurance Forum (SIF), an international group of regulators committed to finding climate change sustainability solutions.

Massachusetts joins California, Connecticut, Maryland, New York, Vermont, and Washington as SIF members along with the National Association of Insurance Commissioners (NAIC), the US Treasury’s Federal Insurance Office (FIO), and many countries around the world to work on sustainability solutions on an international level.

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