Notice2021-18713
Federal Insurance Office Request for Information on the Insurance Sector and Climate-Related Financial Risks
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Published
August 31, 2021
Issuing agencies
Treasury Department
Abstract
The Federal Insurance Office (FIO) of the U.S. Department of the Treasury (Treasury) is issuing this Request for Information (RFI), following the May 20, 2021 Executive Order on Climate-Related Financial Risk, to solicit public input on FIO's future work relating to the insurance sector and climate-related financial risks. FIO's efforts will focus on three initial climate-related priorities, which are described below. Additionally, this RFI seeks input on how FIO's data collection and dissemination authorities can best be used by FIO in support of these priorities, as well as to monitor and assess the insurance sector and climate-related financial risks.
Full Text
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[Federal Register Volume 86, Number 166 (Tuesday, August 31, 2021)]
[Notices]
[Pages 48814-48819]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-18713]
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DEPARTMENT OF THE TREASURY
Federal Insurance Office Request for Information on the Insurance
Sector and Climate-Related Financial Risks
AGENCY: Federal Insurance Office, Departmental Offices, Department of
the Treasury.
ACTION: Request for Information.
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SUMMARY: The Federal Insurance Office (FIO) of the U.S. Department of
the Treasury (Treasury) is issuing this Request for Information (RFI),
following the May 20, 2021 Executive Order on Climate-Related Financial
Risk, to solicit public input on FIO's future work relating to the
insurance sector and climate-related financial risks. FIO's efforts
will focus on three initial climate-related priorities, which are
described below. Additionally, this RFI seeks input on how FIO's data
collection and dissemination authorities can best be used by FIO in
support of these priorities, as well as to monitor and assess the
insurance sector and climate-related financial risks.
DATES: Submit written comments on or before November 15, 2021.
ADDRESSES: Submit comments electronically through the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">http://www.regulations.gov</a>, in accordance with
the instructions on that site, or by mail to the Federal Insurance
Office, Attn: Elizabeth Brown, Senior Insurance Regulatory Policy
Analyst, <a href="/cdn-cgi/l/email-protection#b2f7dedbc8d3d0d7c6da9cf0c0ddc5dcf2c6c0d7d3c1c7c0cb9cd5ddc4"><span class="__cf_email__" data-cfemail="88cde4e1f2e9eaedfce0a6cafae7ffe6c8fcfaede9fbfdfaf1a6efe7fe">[email protected]</span></a>, (202) 597-2869, Room 1410 MT,
Department of the Treasury, 1500 Pennsylvania Avenue NW, Washington, DC
20220. Because postal mail may be subject to processing delays, it is
recommended that comments be submitted electronically. If submitting
comments by mail, please submit an original version with two copies.
Comments should be captioned ``FIO Insurance Sector and Climate-Related
Financial Risks.'' In general, Treasury will post all comments to
<a href="http://www.regulations.gov">www.regulations.gov</a> without change, including any business or personal
information provided such as names, addresses, email addresses, or
telephone numbers. All comments, including attachments and other
supporting materials, are part of the public record and subject to
public disclosure. You should submit only information that you wish to
make available publicly.
FOR FURTHER INFORMATION CONTACT: Steven Seitz, Director, Federal
Insurance Office, <a href="/cdn-cgi/l/email-protection#0e5d7a6b786b60205d6b677a744e7a7c6b6f7d7b7c7720696178"><span class="__cf_email__" data-cfemail="abf8dfceddcec585f8cec2dfd1ebdfd9cecad8ded9d285ccc4dd">[email protected]</span></a>, (202) 531-0915; Stephanie
Schmelz, Deputy Director, <a href="/cdn-cgi/l/email-protection#e3b09786938b828d8a86cdb0808b8e868f99a3979186829096919acd848c95"><span class="__cf_email__" data-cfemail="c497b0a1b4aca5aaada1ea97a7aca9a1a8be84b0b6a1a5b7b1b6bdeaa3abb2">[email protected]</span></a>, (202) 341-
5258; Elizabeth Brown, Senior Insurance Regulatory Policy Analyst,
<a href="/cdn-cgi/l/email-protection#f5b0999c8f949790819ddbb7879a829bb5818790948680878cdb929a83"><span class="__cf_email__" data-cfemail="c580a9acbfa4a7a0b1adeb87b7aab2ab85b1b7a0a4b6b0b7bceba2aab3">[email protected]</span></a>, (202) 597-2869 or Bret Howlett, Senior
Insurance Regulatory Policy Analyst, <a href="/cdn-cgi/l/email-protection#1d5f6f78693355726a717869695d696f787c6e686f64337a726b"><span class="__cf_email__" data-cfemail="03417166772d4b6c746f66777743777166627076717a2d646c75">[email protected]</span></a>, (202)
570-3916. Persons who have difficulty hearing or speaking may access
these numbers via TTY by calling the toll-free Federal Relay Service at
(800) 877-8339.
SUPPLEMENTARY INFORMATION:
Background
The Insurance Sector and Climate-Related Financial Risks
The Intergovernmental Panel on Climate Change (IPCC) reported this
year that ``[h]uman-induced climate change is already affecting many
weather and climate extremes in every region across the globe. Evidence
of
[[Page 48815]]
observed changes in extremes such as heatwaves, heavy precipitation,
droughts, and tropical cyclones, and, in particular, their attribution
to human influence, has strengthened since [2013].'' \1\ The United
States has experienced a dramatic increase in the frequency and
severity of climate-related disasters with a corresponding increase in
economic losses in the past 40 years.\2\ Economic growth combined with
changing socioeconomic trends, such as urbanization and the migration
patterns to areas at higher risk of climate-related disasters, are
increasing the financial risks associated with the effects of climate
change. The increased frequency and severity of climate-related
disasters, as well as the magnitude of associated insured losses,
highlight the significance of these climate-related financial risks and
the role of insurers in responding to them.\3\ Additionally, some
insurance consumers are increasingly unable to find affordable and
available property insurance coverage in certain insurance markets.\4\
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\1\ IPCC, Climate Change 2021: The Physical Science Basis--
Summary for Policymakers, 7 August 2021, SPM-10, <a href="https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM.pdf">https://www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM.pdf</a>.
\2\ See, e.g., Adam B. Smith, ``2010-2019: A Landmark Decade of
U.S. Billion-Dollar Weather and Climate Disasters,'' NOAA
<a href="http://Climate.gov">Climate.gov</a> Blog, January 8, 2020, <a href="https://www.climate.gov/news-features/blogs/beyond-data/2010-2019-landmark-decade-us-billion-dollar-weather-and-climate">https://www.climate.gov/news-features/blogs/beyond-data/2010-2019-landmark-decade-us-billion-dollar-weather-and-climate</a>. FIO is using the term ``climate-related
disasters'' to refer to the type of weather-related events (such as
wildfires, floods, hurricanes, etc.) that may be produced or
exacerbated by climate change, as distinct from non-weather related,
natural events (such as earthquakes and tsunamis).
\3\ Aon, Weather, Climate & Catastrophe Insight Annual Report
2020 (2021), 9, <a href="https://www.aon.com/global-weather-catastrophe-natural-disasters-costs-climate-change-2020-annual-report/index.html?utm_source=region&utm_medium=africa&utm_campaign=natcat21">https://www.aon.com/global-weather-catastrophe-natural-disasters-costs-climate-change-2020-annual-report/index.html?utm_source=region&utm_medium=africa&utm_campaign=natcat21</a>
(Aon 2020 Cat Insight Annual Report).
\4\ See, e.g., Christopher Flavelle, ``Wildfires Hasten Another
Climate Crisis: Homeowners Who Can't Get Insurance,'' New York
Times, September 2, 2020, <a href="https://www.nytimes.com/2020/09/02/climate/wildfires-insurance.html">https://www.nytimes.com/2020/09/02/climate/wildfires-insurance.html</a>; Emma Kerr, ``Here's How You're
Already Paying for Climate Change,'' U.S. News & World Report, June
10, 2021, <a href="https://money.usnews.com/money/personal-finance/spending/articles/heres-how-youre-paying-for-climate-change">https://money.usnews.com/money/personal-finance/spending/articles/heres-how-youre-paying-for-climate-change</a>.
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The impact of climate change also affects insurers through their
broader role in financial markets. For example, the U.S. life insurance
sector is one of the largest investors in the U.S capital markets, with
over $4.7 trillion in investments held in general accounts at year-end
2020.\5\ As owners of significant amounts of assets, insurers could be
vulnerable to potential decreases in asset values arising from the
transition towards a low-carbon economy.\6\
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\5\ Best's Special Report: First Look: 12 Month 2020 Life/
Annuity Financial Results (March 23, 2021), <a href="https://www.businesswire.com/news/home/20210323005711/en/Best%E2%80%99s-Special-Report-U.S.-LifeAnnuity-Industry%E2%80%99s-Net-Income-Cut-Nearly-in-Half-in-2020">https://www.businesswire.com/news/home/20210323005711/en/Best%E2%80%99s-Special-Report-U.S.-LifeAnnuity-Industry%E2%80%99s-Net-Income-Cut-Nearly-in-Half-in-2020</a>.
\6\ New York Department of Financial Services, An Analysis of
New York Domestic Insurers' Exposure to Transition Risks and
Opportunities from Climate Change (June 10, 2021), <a href="https://www.dfs.ny.gov/system/files/documents/2021/06/dfs_2dii_report_ny_insurers_transition_risks_20210610.pdf">https://www.dfs.ny.gov/system/files/documents/2021/06/dfs_2dii_report_ny_insurers_transition_risks_20210610.pdf</a>
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More broadly, climate-related financial risks may present
challenges to the stability of the financial system (of which the
insurance sector is an important part) including as shocks that
increase financial system vulnerabilities. In a 2020 report, the
Financial Stability Board (FSB) described climate-related risks as
falling into three categories:
<bullet> Physical risks are ``the possibility that the economic
costs of the increasing severity and frequency of climate-change
related extreme weather events, as well as more gradual changes in
climate, might erode the value of financial assets, and/or increase
liabilities.'' \7\
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\7\ FSB, The Implications of Climate Change for Financial
Stability (November 23, 2020), 4, 16, <a href="https://www.fsb.org/wp-content/uploads/P231120.pdf">https://www.fsb.org/wp-content/uploads/P231120.pdf</a> (FSB Climate Change Implications
Report).
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<bullet> Transition risks can arise from the technological, market,
and policy changes needed to adjust to a low carbon economy and their
effects on the value of financial assets and liabilities. Depending on
the nature, speed, and focus of these changes, transition risks may
pose varying levels of financial and reputational risk to
organizations.\8\
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\8\ See FSB Climate Change Implications Report; Task Force on
Climate-Related Financial Disclosures, Recommendations of the Task
Force on Climate-related Financial Disclosures (June 15, 2017), 13,
<a href="https://www.fsb-tcfd.org/publications/final-recommendations-report/">https://www.fsb-tcfd.org/publications/final-recommendations-report/</a>.
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<bullet> Liability risks may ``arise when parties are held liable
for losses related to environmental damage that may have been caused by
their actions or omissions.'' \9\
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\9\ FSB Climate Change Implications Report.
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The same FSB report described how these risks might affect
financial stability and highlighted the potential for new risks
introduced from the response of the global financial system to climate-
related shocks.\10\
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\10\ FSB Climate Change Implications Report, 1.
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An assessment of how climate-related financial risks may affect the
insurance sector should consider physical risks, transition risks, and
liability risks. More specifically, the assessment should include how
the life and property & casualty (P&C) insurers' business models
(including their underwriting activities, market activities, and
investment activities) are affected by each category of risk.\11\
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\11\ See, e.g., FSB Climate Change Implications Report, 23
(noting that, if the materialization of climate related risks were
to lead to large increases in insured losses from physical risks,
this might reduce the degree to which households and companies could
insure against these risks).
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The lack of available data complicates the ability to conduct such
assessments. Government and private sector stakeholders have noted the
significant issues caused by the lack of available data to assess
climate-related financial risk within the insurance sector.\12\ These
stakeholders could all potentially benefit from high-quality,
consistent, comparable, and reliable data for their risk management,
disclosures, and forward plans to assess and address climate-related
financial risks. State regulatory tools, such as the Own Risk and
Solvency Assessment (ORSA), may capture data on some climate-related
financial risks if they are recognized by a reporting insurer as having
a material impact on its solvency over the next one to two years, but
these tools may be inadequate to assess climate-related risks,
particularly over a longer time horizon. Additionally, only six states
have regularly collected from insurers certain limited, high-level
qualitative data directly focused on climate-related financial
risks.\13\ No federal authority is collecting climate-related financial
data specific to the insurance sector.
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\12\ FSB Climate Change Implications Report, 28; FSB and
International Monetary Fund, The Financial Crisis and Data Gaps: G20
Data Gaps Initiative (DGI-2) The Fifth Progress Report--Countdown to
2021 in Light of COVID-19 (October 2020), 7, <a href="https://www.fsb.org/wp-content/uploads/P071020.pdf">https://www.fsb.org/wp-content/uploads/P071020.pdf</a>; International Association of Insurance
Supervisors and Sustainable Insurance Forum, Application Paper on
the Supervision of Climate-related Risks in the Insurance Sector
(May 2021), 9, 12-13, 28, <a href="https://www.iaisweb.org/page/supervisory-material/application-papers/file/97146/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector#">https://www.iaisweb.org/page/supervisory-material/application-papers/file/97146/application-paper-on-the-supervision-of-climate-related-risks-in-the-insurance-sector#</a>; ``How
Insurance Companies Can Prepare for Risk from Climate Change,''
Deloitte, <a href="https://www2.deloitte.com/us/en/pages/financial-services/articles/insurance-companies-climate-change-risk.html">https://www2.deloitte.com/us/en/pages/financial-services/articles/insurance-companies-climate-change-risk.html</a>.
\13\ National Association of Insurance Commissioners (NAIC)
Center for Insurance Policy and Research, Assessment of and Insights
from NAIC Climate Risk Disclosure Data (November 2020), 5-6, <a href="https://content.naic.org/sites/default/files/cipr-report-assessment-insights-climate-risk-data.pdf">https://content.naic.org/sites/default/files/cipr-report-assessment-insights-climate-risk-data.pdf</a>. The six states--California,
Connecticut, Minnesota, New Mexico, New York, and Washington--use
the Insurer Climate Risk Disclosure Survey developed by the NAIC.
The states require survey completion only by insurers that are
regulated by them and who annually report $100 million or more in
premiums and annuity considerations.
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Executive Orders
The President's May 20, 2021, Executive Order on Climate-Related
[[Page 48816]]
Financial Risk emphasizes the important role that the insurance sector
can play in combatting climate change. It instructs the Secretary to
task FIO ``to assess climate-related issues or gaps in the supervision
and regulation of insurers, including as part of the [Financial
Stability Oversight Council] FSOC's analysis of financial stability,
and to further assess, in consultation with States, the potential for
major disruptions of private insurance coverage in regions of the
country particularly vulnerable to climate change impacts.'' \14\
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\14\ Exec. Order No. 14,030 Sec. 3(b)(i), 86 FR 27967 (May 20,
2021), <a href="https://www.federalregister.gov/documents/2021/05/25/2021-11168/climate-related-financial-risk">https://www.federalregister.gov/documents/2021/05/25/2021-11168/climate-related-financial-risk</a>.
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The May 20 Executive Order complements the President's January 27,
2021 Executive Order on Tackling the Climate Crisis at Home and Abroad,
which set forth the Administration's policy to ``organize and deploy
the full capacity of its agencies to combat the climate crisis to
implement a Government-wide approach.'' The President's January 27
Executive Order puts the climate crisis at the center of U.S. foreign
policy and national security and seeks to ``put the United States on a
path to achieve net-zero emissions, economy-wide, by no later than
2050.'' \15\
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\15\ Exec. Order No. 14,008 Sec. 201, 86 FR 7619 (January 27,
2021), <a href="https://www.federalregister.gov/documents/2021/02/01/2021-02177/tackling-the-climate-crisis-at-home-and-abroad">https://www.federalregister.gov/documents/2021/02/01/2021-02177/tackling-the-climate-crisis-at-home-and-abroad</a>.
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FIO's Authorities
Title V of the Dodd-Frank Wall Street Reform and Consumer
Protection Act established FIO within Treasury. FIO's statutory
authorities include, among other things, monitoring all aspects of the
insurance sector, including identifying issues or gaps in the
regulation of insurers that could contribute to a systemic crisis in
the insurance sector or the U.S. financial system. FIO's authorities
also include monitoring the availability and affordability of insurance
products for traditionally underserved communities and consumers,
minorities, and low- and moderate-income persons.\16\ These segments of
the population may be negatively and disproportionately impacted by
climate change.\17\
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\16\ 31 U.S.C. 313(c)(1)(A)-(B).
\17\ See, e.g., Alexa Jay et al., ``Overview,'' in Impacts,
Risks and Adaptation in the United States: Fourth National Climate
Assessment (2018), 36, <a href="https://nca2018.globalchange.gov/downloads/NCA4_Ch01_Overview.pdf">https://nca2018.globalchange.gov/downloads/NCA4_Ch01_Overview.pdf</a>.
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In addition, FIO is authorized to collect data and information on
and from the insurance sector, including through the use of
subpoenas.\18\ FIO is also authorized to analyze and disseminate data
and information and issue reports on all lines of insurance, except
health insurance.\19\
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\18\ 31 U.S.C. 313(e)(6).
\19\ 31 U.S.C. 313(e)(1).
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Because climate change is a global phenomenon, FIO's international
insurance statutory authorities can help achieve U.S. goals in this
area. FIO is authorized to coordinate federal efforts and develop
federal policy on prudential aspects of international insurance
matters, including representing the United States, as appropriate, in
the International Association of Insurance Supervisors (IAIS).\20\
Finally, the FIO Director also serves as a non-voting member of the
FSOC.\21\ The May 20 Executive Order directs that FIO contribute to
FSOC's analysis of financial stability related to climate change.\22\
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\20\ 31 U.S.C. 313(c)(1)(E).
\21\ 12 U.S.C. 5321(b)(2)(B).
\22\ Exec. Order No. 14,030 Sec. 3(b)(i).
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FIO's Current Engagement on Climate-Related Issues
FIO's role and statutory authorities enable it to take a leadership
position in analyzing how the insurance sector may be impacted by, and
help mitigate, climate-related risks. FIO is engaging with the NAIC and
state insurance regulators through their work on climate-related
topics.\23\ FIO also represents the United States at the IAIS, is a
member of the UN's Sustainable Insurance Forum, and is a member of the
Organisation of Economic Cooperation and Development's Insurance and
Private Pensions Committee--all of which are increasingly focused on
climate-related issues. In addition, FIO is discussing climate-related
issues with insurance authorities in both the United States and the
European Union through the EU-U.S. Insurance Project. FIO also
represents Treasury in the federal Mitigation Framework Leadership
Group, which is a national structure to coordinate disaster mitigation
efforts across the federal government and with state, local, tribal,
and territorial representatives. FIO is engaging with the Securities
and Exchange Commission and other members of the FSOC on climate-
related financial risks. More generally, FIO provides insurance
expertise and technical assistance within Treasury and to other federal
agencies, including to the Federal Emergency Management Agency in
connection with the National Flood Insurance Program (NFIP). FIO's
engagement on climate-related issues also includes the issuance of
public reports addressing natural disasters, climate change, and
insurance, including through its annual report to Congress and the
President.\24\
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\23\ See, e.g., David Altmaier, Presidential Address (speech,
NAIC Spring 2021 Opening Session, April 12, 2021), <a href="https://content.naic.org/article/notice_spring_2021_opening_session_prepared_remarks.htm">https://content.naic.org/article/notice_spring_2021_opening_session_prepared_remarks.htm</a>.
\24\ See, e.g., FIO, Report Providing an Assessment of the
Current State of the Market for Natural Catastrophe Insurance in the
United States (2015), <a href="https://home.treasury.gov/system/files/311/Natural%20Catastrophe%20Report.pdf">https://home.treasury.gov/system/files/311/Natural%20Catastrophe%20Report.pdf</a>. See also ``Reports and
Notices,'' FIO, <a href="https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/reports-notices">https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/reports-notices</a> (providing links to all FIO Annual Reports
and other reports).
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FIO's Initial Climate-Related Priorities
FIO intends for its climate-related work to respond not only to the
Executive Orders, but also to provide an insurance-specific focus
within Treasury's broader climate work, including working with
Treasury's Climate Hub.\25\ In particular, FIO intends to initially
focus on the following three climate-related priorities:
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\25\ See U.S. Department of the Treasury, ``Treasury Announces
Coordinated Climate Policy Strategy with New Treasury Climate Hub
and Climate Counselor,'' news release, April 19, 2021, <a href="https://home.treasury.gov/news/press-releases/jy0134">https://home.treasury.gov/news/press-releases/jy0134</a>.
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1. Insurance Supervision and Regulation: Assess climate-related
issues or gaps in the supervision and regulation of insurers, including
their potential impacts on U.S. financial stability.
Maintaining the financial stability of the insurance sector will
involve identifying and filling gaps (if any) in insurance supervision
with a focus on assessing climate-related financial risks. This will
include monitoring the integration of climate-related financial risks
into insurance supervisory practices and regulatory frameworks, as well
as assessing whether sufficient data, methodologies, and tools exist to
manage the solvency of insurers and to protect them against the long-
term risk of climate change. To that end, FIO plans to assess
supervisory practices and resources, including but not limited to
examination policies and procedures, solvency assessment and
techniques, data availability and integrity, public disclosures,
modeling, and forward-looking assessments (e.g., scenario analysis,
stress testing). FIO will consult with individual state insurance
regulators and the NAIC during its assessment of such supervisory
practices and resources.
2. Insurance Markets and Mitigation/Resilience: Assess the
potential for
[[Page 48817]]
major disruptions of private insurance coverage in U.S. markets that
are particularly vulnerable to climate change impacts; facilitate
mitigation and resilience for disasters.
Growing evidence indicates that climate change may be associated
with a decline in the availability and affordability of insurance
provided by the private sector (i.e., private insurance coverage) in
certain markets.\26\ The creation and expansion of insurers of last
resort by individual U.S. states and the federal government highlights
this problem.\27\ FIO intends to examine the insurability of disasters
that are produced or exacerbated by climate change, including
wildfires, hurricanes, floods, wind damage, and extreme temperatures.
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\26\ See, e.g., FIO, Annual Report on the Insurance Industry
(September 2020), 59-60, <a href="https://home.treasury.gov/system/files/311/2020-FIO-Annual-Report.pdf">https://home.treasury.gov/system/files/311/2020-FIO-Annual-Report.pdf</a>. See also Exec. Order No. 14,030 Sec.
3(b)(i) (directing FIO to assess ``the potential for major
disruptions of private insurance coverage in regions of the country
particularly vulnerable to climate change impacts'' as distinct from
insurance provided by or backed by a government entity, such as the
federal NFIP. (emphasis added)).
\27\ See, e.g., ``California FAIR Plan Property Insurance,''
<a href="https://www.cfpnet.com">https://www.cfpnet.com</a>; ``About Us: Who We Are,'' Citizens Property
Insurance Corporation, <a href="https://www.citizensfla.com/who-we-are">https://www.citizensfla.com/who-we-are</a>;
Congressional Research Service, Introduction to the National Flood
Insurance Program (NFIP), Report No. R44593 (Jan. 5, 2021), 1,
<a href="https://fas.org/sgp/crs/homesec/R44593.pdf">https://fas.org/sgp/crs/homesec/R44593.pdf</a>.
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Additionally, traditionally underserved communities and consumers,
minorities, and low- and moderate-income persons may have
disproportionate challenges in obtaining affordable property insurance
to cover the risks posed by climate-related disasters; further declines
in available and affordable insurance could exacerbate the inequities
that these persons face.\28\ This situation underscores the need to
identify solutions to address the growing protection gap exacerbated by
climate change.\29\ Therefore, FIO also intends to assess the
availability and affordability of insurance coverage in high-risk
areas, particularly for traditionally underserved communities and
consumers, minorities, and low- and moderate-income persons.
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\28\ See, e.g., Rachel Morello-Frosch, et al., The Climate Gap:
Inequalities in How Climate Change Hurts Americans & How to Close
the Gap (2018), 17, <a href="https://dornsife.usc.edu/assets/sites/242/docs/ClimateGapReport_full_report_web.pdf">https://dornsife.usc.edu/assets/sites/242/docs/ClimateGapReport_full_report_web.pdf</a>.
\29\ See, e.g., Aon 2020 Cat Insight Annual Report; Federal
Advisory Committee Protection Gap Subcommittee, Addressing the
Protection Gap Through Public/Private Partnerships & Other
Mechanisms, (December 5, 2019), <a href="https://home.treasury.gov/system/files/311/December2019FACI_ProtectionGapPresentation.pdf">https://home.treasury.gov/system/files/311/December2019FACI_ProtectionGapPresentation.pdf</a>; ACPR, A
First Assessment of Financial Risks Stemming from Climate Change:
The Main Results of the 2020 Climate Pilot Exercise, No. 122-2021
(2021), 60, <a href="https://acpr.banque-france.fr/sites/default/files/medias/documents/20210602_as_exercice_pilote_english.pdf">https://acpr.banque-france.fr/sites/default/files/medias/documents/20210602_as_exercice_pilote_english.pdf</a>.
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Beyond analyzing potential insurance market disruptions, FIO
intends to look at solutions, including identifying best practices for
mitigation that can then increase post-disaster resilience, including
solutions that can help ensure sufficient availability and
affordability of insurance for consumers in light of increasing
climate-related disaster risk. In addition, FIO will examine the role
of insurers in supporting climate resilience in critical
infrastructure, as well as in supporting green investment initiatives.
3. Insurance Sector Engagement: Increase FIO's engagement on
climate-related issues; leverage the insurance sector's ability to help
achieve climate-related goals.
FIO plans to increase its engagement on climate-related issues and
take a leadership role in analyzing how the insurance sector may help
mitigate climate-related risks. Throughout this work, FIO will engage
with stakeholders, including through this RFI. Additionally, the
insurance sector has the ability to shape industries, products, and
practices through its functions in the financial markets and broad
understanding of risk. Thus, it can influence climate-related activity
of other sectors of the U.S. economy. FIO therefore will engage with
the insurance sector to assess how the sector may help achieve national
climate-related goals, including mitigation, adaptation, and transition
to a lower carbon economy. This could include insurance sector
consideration of underwriting activities, investment holdings, and
business operations to support a low emissions economy.\30\ It also
could encompass insurance sector transition of its operational and
attributable greenhouse gas (GHG) emissions.\31\ In addition, FIO plans
to consider ways to address the lack of common methodology and
standardization in measuring financed emissions, particularly those of
non-public companies in which the insurance sector underwrites and
invests. Currently, only one state has passed legislation that is
intended to leverage the insurance sector's ability to affect GHG
emissions.\32\
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\30\ See, e.g., U.N. Environment Programme Finance Initiative,
``The Net Zero Insurance Alliance, Statement of Commitment by
Signatory Companies'' (July 2021), 1 n. 1, <a href="https://www.unepfi.org/psi/wp-content/uploads/2021/07/NZIA-Commitment.pdf">https://www.unepfi.org/psi/wp-content/uploads/2021/07/NZIA-Commitment.pdf</a>.
\31\ GHG includes Scope 1, 2, and 3 emissions. Scope 1 emissions
are direct GHG emissions that occur from sources controlled or owned
by an entity (such as an insurer). Scope 2 emissions are indirect
GHG emissions associated with purchase of electricity, steam, heat,
or cooling by an entity. Scope 3 emissions are all other indirect
GHG emissions not covered by Scope 2 and where an entity may impact
in the value chain, such as business travel and investments. For
insurers, Scope 3 emissions would include the Scope 1, 2, and 3
emissions by policyholders when significant (and when data is
available to determine them). See, e.g., ``Scope 1 and Scope 2
Inventory Guidance,'' U.S. Environmental Protection Agency (EPA),
<a href="https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance">https://www.epa.gov/climateleadership/scope-1-and-scope-2-inventory-guidance</a>; ``Scope 3 Inventory Guidance,'' EPA, <a href="https://www.epa.gov/climateleadership/scope-3-inventory-guidance">https://www.epa.gov/climateleadership/scope-3-inventory-guidance</a>.
\32\ Claire Wilkinson, ``Connecticut Bill Calls for Regulation
of Insurers' Climate Risks,'' Business Insurance, June 17, 2021,
<a href="https://www.businessinsurance.com/article/20210617/NEWS06/912342605/Connecticut-bill-calls-for-regulation-of-insurers%E2%80%99-climate-risks">https://www.businessinsurance.com/article/20210617/NEWS06/912342605/Connecticut-bill-calls-for-regulation-of-insurers%E2%80%99-climate-risks</a>.
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I. Request for Comments
Below, FIO invites public comments on a series of questions. The
responses to this RFI will help inform FIO's assessment of the
implications of climate-related financial risks for the insurance
sector. It also will help FIO better understand (1) which data elements
are necessary to accurately assess climate risk; (2) which data
elements remain unavailable; and (3) how FIO could collect this data
and make it available to stakeholders as needed. Access to high-
quality, reliable, and consistent data will be necessary for
accomplishing all three of FIO's initial climate-related priorities.
FIO also will identify and issue recommendations on individual actions
that can be taken by various insurance sector stakeholders (such as
state insurance regulators, insurers, and policyholders) to address
climate-related financial risks and facilitate the U.S. insurance
sector's transition to a more sustainable future. FIO recognizes that
an effective policy response to climate-related financial risk requires
an iterative approach and intends to adjust its work and priorities as
needed.
Executive Order on Climate-Related Financial Risk
1. Please provide your views on how FIO should assess and implement
the action items set forth for FIO in the Executive Order on Climate-
Related Financial Risk.\33\
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\33\ Exec. Order No. 14,030 Sec. 3(b)(i).
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FIO's Initial Climate-Related Priorities
2. Please provide your views on FIO's three climate-related
priorities and related activities, particularly with regard to whether
there are alternative or additional priorities or activities that FIO
should evaluate regarding the impact of climate change on the insurance
sector and the sector's effect on mitigation and adaptation efforts.
[[Page 48818]]
Climate-Related Data and FIO's Data Collection and Data Dissemination
Authorities
3. What specific types of data are needed to measure and
effectively assess the insurance sector's exposures to climate-related
financial risks? If data is not currently available, what are the key
challenges in the collection of such climate-related data? In your
response, please provide your views on the quality, consistency,
comparability, granularity, and reliability of the available or needed
data and associated data sources.
4. What are the key factors for the insurance sector in developing
standardized, comparable, and consistent climate-related financial risk
disclosures? In your response, please discuss whether a global approach
for disclosure standards needs to be adopted domestically for insurers.
Please also address the advantages and disadvantages of current
proposals to standardize such disclosures, such as those set forth by
the Task Force on Climate-Related Financial Disclosures or the NAIC's
Insurer Climate Risk Disclosure Data Survey.
5. Please provide your views on how FIO's data collection and
dissemination authorities should be used by FIO to research, monitor,
assess, and publicize climate-related financial risk and other areas of
the insurance markets that are affected by climate change.
6. What are the likely advantages and disadvantages of a verified,
open-source, centralized database for climate-related information on
the insurance sector? Please include in your response the types of
information, if any, that may be most useful to disseminate through
such a database and the key elements in the development and design of
such a database.
Insurance Supervision and Regulation
7. How should FIO identify and assess climate-related issues or
gaps in the supervision and regulation of insurers, including their
potential impact on financial stability? In your response, please
address insurance supervision and regulations concerning: (a)
Prudential concerns, (b) market conduct regarding insurance products
and services, and (c) consumer protection. In addition, please discuss
how FIO should assess the effectiveness of U.S. state insurance
regulatory and supervisory policies in addressing and managing the
climate-related financial risks with regard to the threat they may pose
to U.S financial stability, including identifying (1) the major
channels through which climate-related physical, transition, and/or
liability risks may impact the stability of the U.S. insurance market,
and (2) the degree to which insurers' business models could be affected
by each category of risk and the relevant time horizons for such
effects.
8. Please identify the key structural issues that could inhibit the
ability of insurance supervisors to assess and manage climate-related
financial risk in the insurance sector (e.g., accounting frameworks,
other standards). What barriers could inhibit the integration of
climate-related financial risks into insurance regulation?
9. What approaches used by other jurisdictions or multi-national
organizations should FIO evaluate that would help inform it about
existing supervisory and regulatory issues and gaps concerning climate-
related financial risks? Please describe these approaches, including
their advantages and disadvantages, as well as available data sources
on these approaches.
Insurance Markets and Mitigation/Resilience
10. What factors should FIO consider when identifying and assessing
the potential for major disruptions of insurance coverage in U.S.
markets that are particularly vulnerable to climate change impacts?
11. What markets are currently facing major disruptions due to
climate change impacts? What markets are likely to be at risk for major
disruptions due to climate change impacts in the future? When
discussing markets at risk for future disruption, please estimate the
likely time horizons (e.g., 5, 10, 20, or more years) when these
disruptions may occur.
12. Climate change is currently exacerbating economic losses caused
by weather-related disasters and is projected to cause further damage
in the future. Please provide information on the actions that insurers
have taken in response to the threat of increased economic losses from
climate-related disasters, including how insurers are incorporating
mitigation and resilience considerations into their business
operations, as well as what other strategies or solutions that insurers
or U.S. regulators may want to explore that would help insurers
mitigate the impact of climate change and build resilience.
13. To what extent, if any, are models (whether internal
proprietary models, open-source models, or third-party vendor models)
used in the underwriting process to consider the impact of climate
change? How do these models affect pricing of insurance products and
business decisions (e.g., level of catastrophe exposure, utilization of
reinsurance)? What are the best practices for model validation?
14. How should FIO assess the availability and affordability of
insurance coverage in U.S. markets that are particularly vulnerable to
climate change impacts? In your response, please discuss how to balance
maintaining insurer solvency with the need to address the availability
and affordability of insurance products responsive to perils associated
with climate-related risks, particularly for traditionally underserved
communities and consumers, minorities, and low- and moderate-income
persons.
15. In what areas have public-private partnerships or
collaborations among state or local governments been effective in
developing responses to climate change that may be taken by the
insurance sector or insurance regulators? How can FIO evaluate the
potential long-term or permanent effects on the insurance sector of
such public-private partnerships or state and local collaborations to
address climate-related risks? How should FIO consider state insurance
regulatory efforts on consumer education related to climate risks?
Insurance Sector Engagement
16. Please provide your views on additional ways that FIO should
engage with the insurance sector on climate-related issues.
17. How should FIO assess the efforts of insurers, through their
underwriting activities, investment holdings, and business operations
to meet the United States' climate goals, including reaching net-zero
emissions by 2050? For example, what steps should the insurance sector
be taking to help improve transparency, comparability, and assessment
of Scope 1, Scope 2, and, to the extent possible, Scope 3 GHG
activities?
18. What role or actions might states take to encourage the
insurance sector's transition to a low emissions environment and an
adaptive and resilient economy? In your response, please discuss
whether efforts by states to encourage the development of new insurance
products, to promote sustainable investment and underwriting
activities, and to address protection gaps created by climate-related
financial risks might facilitate this transition.
General
19. Please provide any additional comments or information on other
issues or topics that may be relevant to
[[Page 48819]]
FIO's work on insurance and climate-related risks.
Steven E. Seitz,
Director, Federal Insurance Office.
[FR Doc. 2021-18713 Filed 8-30-21; 8:45 am]
BILLING CODE 4810-AK-P
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