The Insurance Information Institute (Triple-I) stated in response to a federal government Request for Information that U.S. insurers are providing financial protection from property damage caused by climate-related risks while also closely assessing them (RFI).
In a letter sent this week to the U.S. Treasury Department's Federal Insurance Office (FIO), the Triple-I noted that four of the five most expensive natural disasters in U.S. history, as measured by insured losses, occurred within the last decade. Furthermore, according to the Triple-I, eight of the ten most expensive wildfires in U.S. history, as measured by insured losses, have occurred since 2017.
“Insurers are no stranger to climate and extreme-weather risk,” stated Sean Kevelighan, CEO, Triple-I, and Dale Porfilio, Chief Insurance Officer, Triple-I, in the organization’s RFI response to Steven Seitz, Director, FIO. “We may not always have talked about the issue in those terms, but our industry has had a financial stake in it for decades.”
The FIO requested information on climate-related issues, potential gaps in the supervision and regulation of US insurers, and the availability and affordability of insurance, among other things, in its RFI.
“To assess climate-related issues, FIO should participate in all federal discussions of climate risk, including the Special Presidential Envoy for Climate’s activities. It also should take advantage of the excellent research being conducted in the insurance and other business sectors, as well as academia, to remain current on issues and activities,” the Triple-I’s response stated.
“The U.S. insurance sector is arguably the most heavily regulated industry in the world, and it has a long history of providing stability during periods of difficulty and crisis,” the Triple-I continued. “This, combined with the industry’s prudent reserving practices, has contributed to its ability to keep promises to policyholders during some of the most challenging economic periods.”
According to the Triple-RFI I's statement, the National Association of Insurance Commissioners' (NAIC) Own Risk and Solvency Assessment (ORSA) protocol provides a strong regulatory framework for supervision of climate-risk and financial solvency.
"The ability to price coverage consistently with expected costs is critical to the industry's financial strength." In markets where pricing is constrained – whether by state fiat or risk conditions that limit insurers' underwriting appetite – residual market solutions are meeting hurricane and earthquake needs. Residual market programs make basic coverage more accessible in areas prone to specific risks. Because of pricing restrictions, California, Florida, Louisiana, and North Carolina have large residual markets. "Such areas may be vulnerable to disruption following a major event, shifting the cost to taxpayers," the Triple-I observed.
"Expected losses and costs are critical in terms of insurance availability and affordability – particularly in high-risk areas and among traditionally underserved communities, minorities, and low- and moderate-income individuals, who tend to suffer the most when natural disasters strike," the Triple-I stated.
The Triple-I has created products such as its Resilience Accelerator and Resilience Ratings map to demonstrate how insurers are leading on this issue. Both provide advice to the public on how to mitigate climate-related risks.