Superintendent of Financial Services Linda A. Lacewell today announced that the New York State Department of Financial Services (DFS) has issued a report analyzing New York domestic insurers’ management of the financial risks from climate change based on their 2020 responses to the National Association of Insurance Commissioners (NAIC) Climate Risk Disclosure Survey and their Task Force on Climate-Related Financial Disclosures (TCFD) reports. The report was prepared in response to feedback from insurers that they would benefit from having more information about how their peers manage climate risks. In addition to providing insurers and the public with a snapshot of what New York domestic insurers disclosed about their management of climate risks as of 2020, the report highlights examples of good practices implemented by insurers.
The report follows the issuance of DFS’s proposed Guidance for New York Domestic Insurers on Managing the Financial Risks from Climate Change in March 2021 and a report titled, An Analysis of New York Domestic Insurers’ Exposure to Transition Risks and Opportunities from Climate Change in June 2021. DFS was the first U.S. state or federal regulator to establish a holistic set of expectations for the insurance industry on managing the financial risks from climate change.
“Climate change poses major challenges to insurers on both sides of the balance sheet while also creating business opportunities for those who adapt,” said Superintendent Lacewell. “This report provides insurers with valuable insights into what their peers are doing to manage climate-related financial risks, take advantage of climate-related opportunities, and support communities’ climate resilience. While some large and international insurance groups are leading the way, it is clear that many other U.S.-based insurers have much work to do. We appreciate our partnership with all stakeholders as we continue to address climate-related financial risks in the insurance industry.”
The report analyzes 121 NAIC Climate Risk Disclosure Survey responses and eight 2020 TCFD reports submitted in 2020 by a total of 93 companies and groups, representing insurers with annual countrywide premiums ranging from $100 million to nearly $100 billion. Survey questions cover how insurers incorporate climate risks into their governance, risk-management, and investment plans, as well as steps taken by insurers to engage key constituencies and policyholders on the topic of climate change. Insurers’ responses were assigned a rating in one of four categories, “Yet to Start,” “Early Stage,” “Making Progress,” or “Good Progress,” based on a framework developed by DFS.
Insurers’ responses showed that New York insurers had a wide range of sophistication in their understanding, assessment, and management of climate risks:
- Most insurers were in the “Making Progress” category, with large or international insurance groups being generally more advanced than smaller or U.S.-based insurers and the more advanced insurers already taking actions that are aligned with DFS’s proposed Guidance.
- P&C and life insurers overall showed more awareness of climate risks and had taken more actions to address them than health insurers. P&C insurers were more advanced on modeling and scenario analysis than life and health insurers. Health insurers appeared to be the least focused on climate risks based on the percentage of groups/unaffiliated companies in the “Early Stage” and “Yet to Start” categories.
- Insurers as a whole were best at managing their internal greenhouse gas emissions compared to the other areas of climate risk management.
DFS intends to continue reviewing insurers’ NAIC Climate Risk Disclosure Survey responses and other disclosure materials to understand their overall status in identifying, assessing, and managing climate risks; identify good practices that can be shared with the industry; and support risk-based supervision by identifying insurers that appear to lag compared to their peer group. Insurers’ ratings will be used only for DFS’s supervisory purposes and will not be publicly disclosed.
DFS will host a webinar on August 4, 2021, to provide an overview of the report. Interested parties can register here with passcode ClimChg080421.
In addition to the proposed guidance and the two reports issued by DFS to date, DFS has taken several actions to bolster DFS’s commitment to addressing financial risks from climate change. DFS became the first U.S. financial regulator to join the Network for Greening the Financial System (NGFS), a leading international coalition of nearly fifty bank supervisors dedicated to mobilizing the financial industry to address climate change. In addition, DFS joined the Sustainable Insurance Forum (SIF), an international network of insurance supervisors seeking to find collaborative ways to help the global insurance industry meet the challenges posed by climate change. DFS also became a supporting institution of the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance (PSI) to publicly demonstrate its support for sustainable insurance aims.
Read a full copy of the report on the DFS website.
