Insurance industry pushes back on US climate risk data demand

Insurers are resisting efforts by the US government to probe whether hurricanes and wildfires are making insurance unaffordable for American homeowners, as financial regulators sharpen their scrutiny of climate-related risks.

The US Treasury has proposed requiring insurers to hand over underwriting data, broken down by zip code and covering the last five years, in an attempt to assess the potential for “major disruptions” in insurance coverage in some parts of the country.

But business groups have argued the plans would push up costs for insurers, and accused the Treasury of failing to co-ordinate with state-level regulators, in comments submitted before a deadline this week.

The US Chamber of Commerce said the data request presented an “unreasonable burden to insurers”, while the Insurance Information Institute, an industry association representing more than 60 insurance companies, said the request for data would “drive increases in policyholder premium rates”.

Treasury secretary Janet Yellen launched the data push earlier this year. She said damages from Hurricane Ian, which triggered huge insurance claims after pummeling Florida and South Carolina in September, confirmed a “need for an increased understanding of insurance market vulnerabilities”. Loss estimates from the storm have reached as high as $75bn.

The Treasury’s proposals have highlighted the fragmented nature of US insurance regulation. The industry is overseen at a state level and lacks a federal regulator to monitor the overall picture across the country.

Although the Federal Insurance Office, housed within the Treasury, was given the authority to collect data on the US insurance market by the post-financial crisis Dodd-Frank Act in 2010, it lacks supervisory authority in the industry.

The Insurance Coalition, another trade group, argued the Treasury proposal would increase costs for insurers by asking them to provide “additional data . . . beyond those included in statutory filing requirements”.

State regulators also pushed back against the Treasury’s efforts. In written comments, the National Association of Insurance Commissioners said the federal government should “leverage publicly available data and work with state regulators to better inform a data collection effort to fit its ill-defined purpose”.

“We believe FIO should honour the time-tested and well-settled fact that regulation of the insurance industry is best performed at the state level,” the group said.

Jason Schupp of Centers for Better Insurance, a research group, said “toe stepping” had “been going on since the Federal Insurance Office was created”. “There’s always this kind of perceived threat that the federal government could get too deep into this area,” he said.

A Deloitte report found the number of natural disasters causing $1bn or more in damages has been steadily rising for more than 15 years. In a survey of 27 state regulators, a majority expected climate risks to keep growing because of global warming.

“We need to understand what kind of risks these climate disasters can bring upon these insurers,” said Alfonso Pating, climate finance manager at the National Resources Defense Council, a Washington-based environmental group.

“Ultimately, what may happen is if insurers don’t integrate climate risk-related information into their assessments, [then] they’re mispricing their premiums,” he said. “If they do price in these climate risks, they may choose to either increase the prices and premiums, or to pull out of these areas altogether.”

The Environmental Defense Fund, another environmental advocacy group, said the extra data was needed to “assess the systemic risks that climate change could pose to both the insurance industry and the US financial system more broadly”. It argued the Treasury had been authorised by Congress to do this.

The Treasury’s proposal is part of a broader effort by regulators to better understand the effects of climate change on the wider financial system.

Last year, the Financial Stability Oversight Council — made up of a group of regulators tasked with monitoring risks to financial stability — said climate change was an “emerging and increasing threat”.