The National Association of Insurance Commissioners (NAIC) said that for over a decade, state regulators have concentrated on climate risks and their effects on property insurance markets.
This came in response to a letter from U.S. lawmakers, including Sen. Sheldon Whitehouse, Rep. Maxine Waters, and Rep. Sean Casten, seeking more information on how regulators are managing climate-related gaps in state regulations and extreme weather impacts on the insurance industry.
“The strength of the U.S. state-based insurance regulation system to protect consumers and ensure solvent markets lies in both the flexibility of individual states to employ diverse strategies that respond directly to unique risks and market developments and the commitment of regulators to take collaborative action, gather and share data, promote best practices, and respond to national issues through the NAIC,” the letter reiterates.
According to the NAIC, the insurance sector experiences more direct and indirect effects from climate-related risks than any other financial service.
The commissioners emphasized the challenge of maintaining insurer solvency to handle claims across various lines of business while balancing supply and pricing as climate-related risks and claims expenses rise.
The letter highlights state insurance regulators’ climate-related efforts, including market intelligence data collection, insurer disclosures, enhanced supervisory tools, creating a National Climate Resilience Strategy for Insurance to drive faster and more effective risk reduction, and establishing a Catastrophe Modeling Center of Excellence to strengthen training and risk assessment, among other steps. They also worked on insurer disclosure requirements.
NAIC leaders closed by urging members of Congress to support state insurance regulators’ work “by supporting any of the myriad mitigation and risk reduction bills pending before them.”
They also advocated for enacting the Disaster Mitigation and Tax Parity Act of 2023 (S. 1953 and H.R. 4070) so consumers can use state-provided mitigation grants to fortify their homes without being taxed by the federal government, a privilege similar federal grants are already afforded.
The NAIC urged lawmakers to support various mitigation and risk reduction bills, such as the Flood Insurance Relief Act, the National Earthquake Hazard Reduction Program reauthorization, the Wildfire Response Improvement Act, and the Catastrophic Wildfire Prevention Act.
However, the NAIC noted that climate risks are just one factor behind rising home insurance costs. Other contributors include higher claims costs, driven by increased home values, labor and material expenses, and the effects of litigation.
by Yana Keller
