Treasury examines climate effect on insurance availability

The Treasury Department is growing concerned that climate change is making property insurance scarce in disaster-prone areas and is looking to launch the first nationwide assessment of insurers’ financial exposure to climate risk.

The Federal Insurance Office sent a preliminary email Thursday to insurance regulators in all 50 states asking what data they have that would show insurance coverage, liabilities and losses for each ZIP code in their state over the past five years.

The data would help the federal office assess whether insurers are refusing to cover homes and businesses in areas that are vulnerable to storms and wildfires and other effects of climate change. The office was created after the 2007-2008 financial crisis to monitor insurance availability and risks to insurance markets.

President Joe Biden’s May 2021 executive order on climate-related financial risk directs the insurance bureau to assess the “potential for major disruptions” to the availability of insurance in markets that are vulnerable to climate change. In August, the office sought public comment on how climate change could undermine the stability of the insurance sector (Climate wire17 November 2021).

The insurance office said in its email to state officials that it plans to analyze the risk insurers face from potentially paying a growing number of claims in disaster-prone areas. Data from each country would identify the “impact [of climate change] on protection gaps and insurance availability, particularly in at-risk markets,” according to the email, which was obtained by E&E News.

The insurance bureau’s effort comes as anecdotal evidence suggests insurers are pulling back from climate-vulnerable markets. In Florida, hundreds of thousands of homeowners and renters have lost coverage in the past three years as insurers face huge losses in part due to hurricane-related claims. Residents are forced to buy expensive policies through the state insurer of last resort (Climate wireJune 22).

California insurers lost $20 billion from the 2017 and 2018 wildfires, prompting them to raise premiums or drop policies in high-risk areas. State Insurance Commissioner Ricardo Lara has imposed a series of moratoriums that prevent insurers from canceling policies in fire-prone areas.

“The Federal Insurance Office is more important now than ever in the context of climate change,” said Amy Bach, executive director of United Policyholders, a California-based consumer advocate. “It is important for the federal government to monitor the health of the property and casualty market because we saw in 2008 how closely linked insurance, mortgages and the economy are.”

The insurance office email does not require states to provide data. It only asks if data are available for coverage and exposure in each ZIP code. State insurance regulators typically have coverage and exposure information for their entire state and sometimes for counties, which may have dozens or hundreds of ZIP codes.

The question is intended to determine whether states can provide “certain data if requested at some point in the future,” the insurance office wrote in its email. “We are just trying to determine if you will be able to provide the data if requested.”

Steven Rothstein, managing director of the Ceres Accelerator for Sustainable Capital Markets, applauded the insurance office’s efforts.

“Climate poses a significant threat to the availability and affordability of insurance,” Rothstein said in an email. “Analyzing the impacts of climate change such as sea-level rise, wildfires, land flooding and property losses, including business disruption, is important to mitigate this threat.”

Bach said the Federal Insurance Office could learn from states that detailed information on coverage and exposure “may not be as readily available as it should be.”

The insurance office declined to comment for this story.

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