I. Recap of 2024 Climate Initiatives
Last year featured a number of investigations and initiatives by state and federal officials regarding the impact of climate risk on the affordability and availability of insurance. Notable initiatives included:
- The continuation of a Senate Budget Committee investigation requesting information from 41 of the largest property and casualty insurers in the US regarding their assessment of climate-related weather events and its impact on the availability and affordability of insurance (and to two Senate Budget Committee hearings on the matter in June and December).
- The National Association of Insurance Commissioners’ (NAIC) February 2024 adoption of “Climate Risks/National Catastrophes and Resilience” as a 2024 Strategic Priority, which served as the foundation for (i) the NAIC’s adoption of a Climate Resilience Strategy for Insurance (Climate Strategy) in March, and (ii) the NAIC’s adoption of a requirement for insurers to conduct climate scenario analyses in August.
- An August 2024 letter from two Members of Congress and one US Senator to the NAIC requesting information on “what the NAIC has done, or plans to do” to implement 18 Recommendations made by the Federal Insurance Office (FIO) regarding state insurance regulators’ assessment of climate-related financial risks.
- The NAIC’s adoption and distribution of a Property & Casualty Insurance Market Intelligence (PCMI) Data Call in June 2024, and its subsequent distribution of an anonymized subset of the collected data to FIO (see Section I.A., below, for more information).
- The December 2024 publication of a Senate Budget Committee Staff Report (Staff Report) suggesting that “climate change is driving increased non-renewal rates” and premium increases (see Section I.B., below, for more information).
A. The NAIC Climate Data Call and (Pending) FIO Climate Report
The concept of a climate-related data call first emanated from FIO in 2022 pursuant to a 2021 Executive Order directing FIO to “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” and recent volatility in certain property insurance markets. FIO published a Notice of Information Collection (FIO Notice) in Fall 2023 indicating that it intended to move forward with a data call for certain large property and casualty insurers on the basis that the information sought “was not available or could not be obtained in a timely manner from any state insurance regulators, relevant federal agencies, or publicly available sources.” The FIO Notice was published shortly after a Summer 2023 announcement by the NAIC that it intended to conduct its own climate-related data call.
In Winter 2023 and Spring 2024, FIO and the NAIC negotiated, and ultimately agreed to, a process whereby each of the states would issue a data call (the PCMI data call) to over 500 insurers covering more than 80% of the US property insurance market, and share the resulting data with FIO. In total, the PCMI data call requested 70 data points for 5 years of ZIP code level data pertaining to a number of data elements including premium, cancellation, non-renewal, claims and losses, deductibles and discounts. Although the initial Treasury/NAIC agreement purportedly included a requirement for all of the states to participate in the data call, it was subsequently reported that a number of catastrophe-prone states – including Florida, Georgia, Louisiana, and Tennessee – did not participate in the data call or only provided limited information. The NAIC received responses from insurers in June 2024 and an anonymized subset of the data was provided to FIO in September.
Current Status. FIO is expected to use the data to assess “the potential for any major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts” and to understand “how climate-related financial risks impact families and individuals across state markets and the United States, and how these effects could impact the broader financial system.” The FIO report is expected to be published under the Biden Administration, i.e., on or prior to January 20, 2025. We continue to monitor these developments.
B. Senate Budget Committee Climate Report
Published on December 18, 2024, the Senate Budget Committee Staff Report represents the culmination of an investigation into and related hearings on the effect of climate change on the US homeowners’ insurance market. The investigation included a Senate Budget Committee request for information from 41 property and casualty insurers, including questions related to whether the companies consider climate-related weather events in underwriting, rating, modeling and nonrenewals, and a corresponding request for a list of all counties in which the company “did not renew 25 or more homeowners policies or did not renew such policies for more than 10 percent of all such policies underwritten” for years 2018 – 2023.
According to the Staff Report, the Senate Budget Committee “ultimately obtained national, county-level non-renewal data from 23 of the 41 companies from which it requested this data…cover[ing] the years 2018 through 2023, and the companies responding collectively account[ing] for approximately 65 percent of the homeowners’ insurance market nationwide.” Among other things, the Staff Report notes that the data:
Confirm[s] that it is climate change that is driving increasing non-renewal rates, as the counties that are most exposed to climate-related risks such as wildfires or hurricanes are the counties seeing the highest non-renewal rates. Second, the data reveal that Florida, Louisiana, California, and Texas are not the only places experiencing spiking non-renewal rates and increasing premiums. Florida has the highest average statewide non-renewal rate; Texas is not even in the top ten. Southern New England, the Carolinas, New Mexico and counties in the Northern Rockies, Oklahoma, and Hawaii all suffer from high non-renewal rates, demonstrating that the full panoply of climate-related effects (hurricanes, wildfires, severe convective storms, hail, extreme precipitation, and sea level rise) are all destabilizing insurance markets. Third, the non-renewal data we obtained confirm a correlation between rising non-renewal rates and rising premiums. This underscores that climate change has become a major cost-of-living issue for families across the country.
During a December 18 hearing, Senate Budget Committee Chairman, Sen. Sheldon Whitehouse (D-RI) noted that he was in receipt of an NAIC letter expressing concerns with the Staff Report’s findings and underlying data. Sen. Whitehouse reiterated the Staff Report’s findings and expressed confidence in the Milliman-conducted analysis.
II. How Might the Results of the 2024 Election Impact Climate-Related Initiatives?
a. The NAIC and State Insurance Regulators
It is too soon to tell whether changes at the federal level will impact the NAIC’s own climate-related priorities, or the individual states’ participation in the same. For example, the NAIC’s 2024 Climate Strategy envisions five long-term action items and a number of associated deliverables, including (a) the creation of a flood insurance blueprint; (b) filling long-term data gaps; (c) committing to a multi-year data collection; and (d) embedding climate stress testing and climate scenario analysis into routine financial analysis, data collection, and financial surveillance. With respect to the PCMI data call’s future prospects, the Climate Strategy envisions a “multi-year data collection to continue to keep insurance regulators informed on the trends in the markets they oversee for availability and affordability of insurance, including whether coverages are becoming more limited through changes to deductibles or coverage limits.” However, it is possible that the NAIC’s new leadership could change course with respect to the prospect of a recurring data call or the Climate Strategy more broadly. A potential de-prioritization of climate-related initiatives at the federal level may also make individual states less inclined to participate in one or more of the NAIC’s climate-related initiatives.
Although the NAIC has not taken an official position on FIO as of this date, a group of state insurance commissioners wasted no time in petitioning the incoming Trump Administration to abolish the office. On December 20, 2024 nine state insurance commissioners – each serving under a Republican governor or elected Republicans themselves – submitted a letter to the yet-to-be-formed Department of Government Efficiency calling for the elimination of FIO, citing FIO’s desire to collect climate-related information as a basis. Among other things, the letter states that FIO “has fluctuated between ineffectiveness and outright dishonesty in dealing with the states … [that FIO] has shifted from being unnecessary to actively harmful to consumer protection … [and that FIO] is entirely devoid of usefulness and duplicitous in its actions.” Incoming NAIC President and North Dakota Insurance Commissioner, Jon Godfread echoed similar sentiment in a November 2024 publication, stating that “since its inception, FIO has demonstrated that it has no discernible purpose overseeing insurance and only blurs the lines of regulatory oversight for the insurance industry.” As the commissioners’ letter notes, the Trump Administration cannot singlehandedly abolish FIO, as the office is mandated by federal law. Accordingly, federal legislation would be required to eliminate FIO.
b. The Trump Administration and FIO
To date, the incoming Trump Administration has not expressed a public position on what role the federal government should have with respect to insurance policymaking and regulation, if any. However there is broad consensus that the Treasury and FIO will deprioritize most or all of their climate-related initiatives under the incoming administration. For reference, the first Trump Administration paused or curtailed many of the Obama Administration’s insurance-related initiatives and reversed course on a number of policy matters. However, senior Trump Administration officials in the White House and Treasury largely supported a role for FIO, particularly in regard to its capacity to carry out the first Trump Administration’s national and international insurance policy objectives.
c. Congress
Although the extent of changes to Congressional climate-related initiatives is not yet known, it is virtually certain that federal lawmakers’ priorities will change. As one example, during the December 18 Senate Budget Committee hearing, incoming Senate President Pro Tempore, Charles (Chuck) Grassley (R-IA), suggested that it was time for the Senate Budget Committee to “move on” from its investigations into the correlation between climate events and the affordability and availability of insurance, and signaling that a Republican-led Senate is not likely to conduct similar investigations or hearings.
With respect to the prospect of drafting legislation to abolish FIO or curtail some of its authorities, we are not aware of any significant effort to do so at this time.
This post was originally published on here
